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FORSYTH COUNTY NEWS— W*dn**d*y, Jun* 14,2000
The Forsyth County News
Opinion
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Time for Clinton to end
opposition to repeal of
repressive estate taxes
By Bill Ahern
The Tax Foundation
The House has voted once
again to phase out the federal
estate and gift tax. The 1999 tax
cut vetoed by President Clinton
included the phase-out of the so
called death tax, but this year the
estate tax phase-out was separated
from other measures and passed by
more than a 2-1 margin.
Several factors explain the pop
ularity of repeal. The estate tax
prevents small businesses and
farmers from passing their busi
nesses on to the next generation. It
penalizes saving and capital for
mation. And it greatly discourages
the creation of new wealth by
America's most innovative, pro
ductive entrepreneurs.
The estate tax once enjoyed
broad support on the grounds that
it prevented an excessive concen
tration of wealth. The fear was that
huge amounts of wealth would
remain in the hands of the same
few families, generation after gen
eration. Fortunately, the economy
each year is generating vast
amounts of new wealth and large
numbers of newly rich people,
solving the concentration-of
wealth problem far more efficient
ly than the estate tax ever could.
With all this against it, the estate
tax has one last remaining ally, and
that is the belief, supported by offi
cial estimates, that its repeal would
cost the U.S. Treasury substantial
revenue. Complaints from the White
House focus on this issue. In fact,
eliminating the estate tax certainly
would not cost the Treasury nearly
the amounts that official estimates
show. There are five reasons why,
and the first two come under the
general heading of robbing the
income tax to avoid the estate tax.
1. The gift tax robs the income
tax. Under current law a taxpayer
may distribute up to SIO,OOO tax
free each year to any person he or
she chooses.
Typically, the donor's personal
income tax rate is much higher than
the rate paid by the children or
grandchildren who are the recipi
ents. Thus, the income subsequently
earned on these gifts is subject to a
much lower tax rate.
2. The estate tax erodes the
income tax base. The estate tax may
dramatically increase bequests to
charities as taxpayers try to avoid
paying up to 55 percent of their
accumulated savings to the federal
government.
These assets end up producing
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capital income for tax-exempt
charities instead of remaining in
the estate where taxpaying recipi
ents would have earned the money.
Os course, charitable organizations
serve valuable social purposes, and
not all such bequests are motivated
by the estate tax.
Nevertheless, the income tax
consequences of tax-driven
bequests are significant and should
not be ignored.
3. The disincentive effects of
the estate tax on entrepreneurial
activity.
Some years ago the Tax
Foundation studied the estate tax's
effect on entrepreneurial activity,
and we found that the estate tax's
55 percent rate had roughly the
same effect on an entrepreneur's
incentive to earn as doubling the
top effective marginal income tax
rate. Thus, an entrepreneur facing a
31 percent statutory income tax
rate behaves as if he is facing an
effective 62 percent income tax
rate. As that rate rises and addition
al work yields less after-tax return,
entrepreneurs become more likely
to retire prematurely. Then they
pay no income or payroll taxes on
wages and create no new wealth.
4. Estate planning is phenome
nally expensive. Official revenue
estimates take no account of the
enormous amounts of money
(deductible from the income tax)
that taxpayers spend on estate plan
ning. Since individuals worried
about estate planning are likely to
be in the upper-income tax brack
ets, the value of their estate tax
planning deductions is great.
Absent the estate tax, these individ
uals would likely shift the amounts
spent on estate planning to non
deductible expenses, or they would
save them. Either way, current or
future income tax receipts would
be higher.
5. Compliance costs for taxpay
ers and the IRS. Finally, if the esti
mators produced a truly comprehen
sive estimate for estate tax repeal,
they would also account for the sav
ings to the IRS which spends mil
lions of dollars each year attempting
to collect estate tax revenue. The
resources devoted to estate tax com
pliance would likely be redirected
into other areas of tax collection,
areas that the estimators have histor
ically scored as increasing collec
tions significantly.
The Tax Foundation is a nonpar
tisan, nonprofit organization that
has monitored fiscal policy at the
federal, state and local levels since
1937.
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Official spreads lies about school reform
Even if the presidential race
hasn’t heated up, and no big
statewide contests are scheduled,
this is a meaningful election sum
mer. And it’s interesting, too. When
was the last time a state elected offi
cial spent the vacation months going
from one town to another, railing
against a governor whose name
does not appear on the ballot?
Answer: Never until now.
State School Superintendent
Linda Schrenko is on a grand tour,
telling Georgians from St. Marys to
Blue Ridge that Gov. Roy Barnes’
education-reform plan is, as she put
it in Columbus, “just plain stupid.”
She also is working to help
Republican legislators who voted
against reform stay in office.
In Cobb County, she has hit the
campaign trail with Rep. Mitchell
Kaye, who faces formidable prima
ry opposition from two women
challengers, one a former teacher.
But Schrenko likes Kaye, the neme
sis of Speaker Tom Murphy and a
nuisance to fellow Cobb Countian
Barnes.
Meanwhile, the governor’s
Education Reform Commission
meets this week to begin crafting
the second round of reform propos
als for the 2001 Legislature to chew
on. The state Board of Education
also is trying to implement the gov
ernor’s first reform act. The board is
getting little cooperation from the
CARTOONISTS' VIEWS ON THE NEWS
ML/ Bill
Shipp
state super.
She’s too busy on the stump,
telling Georgians what a bad .thing
Barnes and his cohorts have done to
their schools.
“I will speak to any group that
asks me to come. We’ve got no
choice but to try to change those
elected officials who aren’t repre
senting their constituents,” says
Schrenko.
It would be easy to label
Schrenko a crank not worth listen
ing to.
But she has allies among educa
tors across Georgia. Their numbers
are growing as school boards vote to
lay off personnel and change spend
ing priorities.
Here are examples from recent
news reports:
Glynn County’s school board
has voted to eliminate 57 teacher
aide positions;
McDuffie County is moving
toward a tax increase to avert lay
offs;
The Chatham County Board
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has discussed raising taxes and cut
ting 89 positions in art, music and
physical education;
Thomas County and the
Thomasville systems are eliminat
ing 60 teacher aides;
Clayton County is whacking
75 teacher-aide positions;
The Muscogee County bud
get proposal would eliminate 15
teaching positions in physical edu
cation and music;
A proposal in Cobb County
would lay off 237 teacher aides.
Hardly a jurisdiction in the state
is not considering significant school
budget changes. Someone on nearly
every local school board is blaming
Gov. Barnes and his reformers.
The truth is, the chickens are
coming home to roost. Some school
boards have become bloated with
too many administrators and teacher
helpers and not enough classroom
teachers for core subjects. The
reform law directs these boards to
get their houses in order.
Schrenko also has ripped the
Barnes administration for what she
says is tardiness in formulating reg
ulations for reform.
“The holdup is coming from
OPB (the Office of Planning and
Budget) and the governor’s office,”
the super grumps. “When we get
ready to create a rule, the task force
tells us to hold up. We’re holding up
$7 billion in school budgets.”
Joselyn Butler, a spokeswoman
for Barnes, says publicly that
Schrenko is “spreading misinforma
tion and obstructing progress.”
Privately, Barnes’ people say the
superintendent is lying as she tries
to blame Barnes for local blunders
and financial mismanagement.
The exchange of fireworks is
entertaining.
Still, all name-calling aside, the
facts seem to be these: Georgia
ranks ninth among the states in
spending on education. National sta
tistics on school achievement indi
cate that we rank No. 49,0 r 50 in
SAT scores and dead last in several
other categories of scholastic
achievement.
Georgia has some great schools
and good school systems. But, over
all, the state is failing to provide its
young citizens an adequate educa
tion, which impedes economic
development and forestalls an
improved quality of life.
No matter how much the state’s
chief education administrator rages,
the governor’s attack on the school
house status quo is long overdue.
Bill Shipp is editor of Bill
Shipp’s Georgia, a weekly newslet
ter about government and business.
He can be reached at P.O. Box
440755, Kennesaw, GA 30144 or
by calling (770) 422-2543, email:
bshipp@bellsouth.net, Web address:
http://www. billshipp. com