Mirror of Justice

A blog dedicated to the development of Catholic legal theory.
Affiliated with the Program on Church, State & Society at Notre Dame Law School.

Monday, July 31, 2006

Government Subsidies, Public Responsibility, Small Business, and the Estate Tax

By Greg Sisk

Yesterday, Michael Perry suggested (tongue in cheek) that our estate tax exchanges were becoming “heated.” I was thinking that the fact-filled, statistically-intensive tax and fiscal slug-fest was just warming up and becoming more fun by the post. Still I do worry that we have taxed the patience of our readers (I can hear the groans from our audience), so perhaps it is time to draw the estate-tax-specific thread to a close. After my post for today responding to one discrete element of that debate, I’ll refrain from further disputation on the estate tax issue, instead trying to turn the thread later this week in the direction of broader questions about tax policy and government growth/regulation in terms of Catholic Social Thought.

At the outset, I say again that I have much appreciated the back-and-forth on this issue. Rather than resorting to class warfare cliches or glittering generalities about taxing the rich, the case for the estate tax under Catholic Social Thought needed to be made plainly and pragmatically, with at least some acknowledgement of possible externalities. On that score, I think my interlocutors on this issue have done a fine job. Not that I’m persuaded, other than being persuaded of my good fortune (uh oh, now someone will want to impose a tax on me!) to have such thoughtful partners involved in this great adventure of Catholic Legal Thought.

In her advocacy for the federal estate tax posted two days ago, my colleague Elizabeth Brown introduced the subject of government subsidies, asserting that small businesses and family farms “receive billions of dollars annually in agricultural subsidies, subsidized loans, technical assistance and regulatory relief.” Because of this past support, she then argues it is only fair to expect these business owners to “give something back to the common good” through the estate tax upon their deaths.

In a many other contexts, this would be a powerful argument. Elizabeth quotes our Lord saying: “From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked.” Government subsidies certainly deserve to be considered in the mix of comparative responsibilities and social welfare. Especially if someone grows fat when eating at the public trough, it only seems fair to expect payment in return for that healthy meal.

But the corporate welfare argument simply does not attach to small businesses in this country. (For reasons of limited time, energy, and blog space, I set aside the matter of agricultural subsidies, where the governmental outlays indeed are larger and more pervasive. The agricultural context must be evaluated in terms of the unique elements, stricter governmental regulations, greater investments of capital required, and year-by-year vagaries of the agricultural economy. See John XXIII, Encyclical Letter Mater et Magistra ¶ 133 (1961) (“[T]he common good also requires the public authorities, in assessing the amount of tax payable, take cognizance of the peculiar difficulties of farmers. They have to wait longer than most people for their returns, and these are exposed to greater hazards.”))

From tax policy to regulatory burdens to governmental support, small businesses hardly receive favored treatment as a economic sector, although the government has done a few things to equalize the situation in recent decades.

First, most small businesses receive little or no government aid of any kind (other than those public facilities enjoyed by all citizens). Most financing for small business comes from the commercial lending market (see here).

Second, the primary form of federal governmental aid to small business comes in the form of loan guarantees by the Small Business Administration (SBA) for firms that cannot easily qualify for credit under standard commercial banking guidelines. While there are some subsidized loans programs, the vast majority of such loans are made by commercial lenders. (See here) In this way, a few small businesses are granted easier access to financing, but do not obtain any subsidy.

Third, in the small business context, government outlays primarily consist of those appropriations to the SBA necessary to cover defaults on guaranteed loans made to businesses that later failed (and thus could not repay the loan). (See here and here) SBA-guaranteed loans tend to be made on a zero-subsidy basis, in which fees cover all expenses (other than of course for those who actually default). In sum, even among that slice of the small business sector that benefits from loan guarantees, those small businesses that actually succeed, and thus that are still around at the time of an estate tax event, will not have made any actual draw against the public fisc.

Fourth, within the general category of what she sees as extension of government welfare to small business, Elizabeth includes “regulatory relief.” As but one example of the many ways in which the demands of government fall more heavily on small business, the Small Business Administration reports that, on a per employee basis, it costs small firms about $2,400, or 45 percent more, to comply with regulations than it does their larger counterparts. That Congress has directed the government to lift some of that regulatory burden from small firms hardly qualifies as a bequest of government largess.

(In any event, since when did being spared from regulation count as the equivalent of a government subsidy? The suggestion that a person is the privileged beneficiary of government welfare and ought to be grateful when the government doesn’t tell him or her what to do is awfully hard to reconcile with the premises of a free society. We are citizens with rights in a free society, not subjects being conferred privileges by a monarchical regime.)

Fifth, large corporate entities also benefit from government subsidies and other assistance, mostly in ways other than loans that are repaid. But, publicly-held corporations do not need to plan for or consider estate tax consequences because they are taxed only once on their profits.

Sixth, even for those few small businesses that do receive some non-loan governmental assistance, why would we not conclude that the owner has amply repaid society through his or her devotion of time, savings, and heart to the creation of a successful business, the provision of new jobs for people to support families, and the strengthening of the economic and tax base of the local community?

Greg Sisk

Family Diversity

By Rob Vischer

Last week a group of activists and scholars (e.g. Cornel West, Gloria Steinem, Barbara Ehrenreich, Chai Feldblum, Martha Fineman, Kenji Yoshino) released a statement, "Beyond Same-Sex Marriage: A New Strategic Vision for All Our Families and Relationships."  The opening paragraph:

We, the undersigned – lesbian, gay, bisexual, and transgender (LGBT) and allied activists, scholars, educators, writers, artists, lawyers, journalists, and community organizers – seek to offer friends and colleagues everywhere a new vision for securing governmental and private institutional recognition of diverse kinds of partnerships, households, kinship relationships and families.  In so doing, we hope to move beyond the narrow confines of marriage politics as they exist in the United States today.

The statement calls the government to support households as they are constituted today, which is an admirable thing to do.  But the statement avoids the heavy lifting that would be required to make this a meaningful contribution to the conversation on family law.  In particular, it does not address whether certain categories of relationship are more or less valuable for the long-term health of society.  One or more of the following premises seems to be operative: 1) individuals' structuring of their househould relationships is unaffected by the law's content; 2) all categories of household relationships are of equal value to the long-term health of communities; or 3) regardless of the comparative social value of relationships, the government overreaches if it tries to reflect that comparative value in public policy.  Whichever premise is doing the work here, the statement would benefit considerably from bringing it to the surface where it can be unpacked and engaged. 

Rob

Pious and Pro-choice

By Rob Vischer

The Boston Globe reports on the increasing visibility of faith-based abortion rights advocacy groups.  (HT: Open Book)  An excerpt:

The religious abortion-rights movement, like the antiabortion movement, grounds its understanding of abortion in the Bible. Abortion-rights religious groups point to what they see as a telling silence in Scripture. ``Jesus never mentioned abortion," notes Paul Simmons, a Baptist minister and author of the forthcoming ``Faith and Health: Religion, Science and Public Policy." ``The apostle Paul wrote all these lengthy letters to the Greco-Roman world, where abortion was widely practiced, with lists of virtues and vices. If anyone was a common-sense moralist, Paul was." But the subject doesn't come up in his counsel, or anywhere else in the Old or New Testament.

In the antiabortion view, life begins at conception. Abortion opponents cite passages such as Jeremiah 1:5: ``Before you came forth out of the womb, I sanctified you." Yet the other side contends that the Bible distinguishes between a person and a fetus. Exodus 21:22-25, for instance, stipulates the punishment for accidental harm done to a pregnant woman. If she miscarries as a result, a fine is owed to her husband. If she herself suffers injury or death, however, ``the penalty shall be life for life, eye for eye, tooth for tooth."

The religious abortion-rights movement stresses that it presents these biblical readings not to promote abortion, but to endorse it as an option. The movement works toward what it calls true ``reproductive choice," envisioning a society in which education and contraception prevent unintended pregnancies, and widely available healthcare and child care foster conditions supportive of childbearing. The religious right, they charge, has largely neglected these goals in favor of pressing the fight against abortion.

Rob

Sunday, July 30, 2006

Mea Culpa, Mea Culpa, Mea Maxima Culpa

By Michael Perry

This back and forth about CST and the estate tax is getting heated ... and I feel somewhat responsible, since it was my post (of a NYT article) that got the discussion started.  So, by way of making amends,  let me suggest that we take a deep breath and focus for a while on a less controversial topic:  same-sex unions.  In that spirit, read on:

New York Times
July 30, 2006

Op-Ed Columnist

Same-Sex Marriage Wins by Losing
By DAN SAVAGE

Seattle

THERE were community meetings in Seattle on Wednesday. Some of the couples who had sued to overturn Washington’s ban on same-sex marriage, a case they lost before the state’s Supreme Court earlier that day, were going to appear. Gay and straight elected officials who support “marriage equality” were going to make speeches. I probably should have been there too.

But I had a previous engagement.

The Seattle Mariners were playing the Toronto Blue Jays at Safeco Field. My 8-year-old son — adopted at birth by my boyfriend and me — loves the M’s almost as much as he hates the way a breaking news story can keep me late at work. He would never have forgiven me for skipping the game.

I didn’t feel too bad about missing the meetings. Washington’s high court rejected same-sex marriage for much the same reason the New York Court of Appeals did earlier this month. The speeches in Seattle would no doubt be similar to those made in New York, and I didn’t need to hear them again.

Basically, both courts found that marriage is like a box of Trix: It’s for kids.

In New York, the court ruled in effect that irresponsible heterosexuals often have children by accident — we gay couples, in contrast, cannot get drunk and adopt in one night — so the state can reserve marriage rights for heterosexuals in order to coerce them into taking care of their offspring. Without the promise of gift registries and rehearsal dinners, it seems, many more newborns in New York would be found in trash cans.

At least the New York court acknowledged that many same-sex couples have children. Washington’s judges went out of their way to make ours disappear, finding that “limiting marriage to opposite-sex couples furthers procreation, essential to the survival of the human race, and furthers the well-being of children by encouraging families where children are reared in homes headed by the children’s biological parents.” Children, the decision continues, “tend to thrive in families consisting of a father, mother and their biological children.’’

A concurring opinion gave the knife a few leisurely twists: due to the “binary biological nature of marriage,” it read, only opposite-sex couples are capable of “responsible child rearing.”

These stunning statements fly in the face of the evidence about gay and lesbian parents presented to the court. Similar evidence persuaded the high court in Arkansas to overturn that state’s ban on gay and lesbian foster parents.

What the New York and Washington opinions share — besides a willful disregard for equal protection clauses in both state Constitutions — is a heartless lack of concern for the rights of the hundreds of thousands of children being raised by same-sex couples.

Even if gay couples who adopt are more stable, as New York found, don’t their children need the security and protections that the court believes marriage affords children? And even if heterosexual sex is essential to the survival of the human race (a point I’m willing to concede), it’s hard to see how preventing gay couples from marrying increases heterosexual activity. (“Keep breeding, heterosexuals,” the Washington State Supreme Court in effect shouted, “To bed! To bed! To bed!”) Both courts have found that my son’s parents have no right to marry, but what of my son’s right to have married parents?

A perverse cruelty characterizes both decisions. The courts ruled, essentially, that making my child’s life less secure somehow makes the life of a child with straight parents more secure. Both courts found that making heterosexual couples stable requires keeping homosexual couples vulnerable. And the courts seemed to agree that heterosexuals can hardly be bothered to have children at all — or once they’ve had them, can hardly be bothered to care for them — unless marriage rights are reserved exclusively for heterosexuals. And the religious right accuses gays and lesbians of seeking “special rights.”

Even if you believe that marriage plays a special role in the lives of heterosexuals with children (another point I’m happy to concede), can it not play a similar role in the lives of homosexual couples, whether they’re parents or not? Marriage, after all, is not reserved for couples with children. (Perhaps it will be soon, if courts keep heading in this direction.)

When my widowed grandfather remarried in his 60’s, he wasn’t seeking to further the well-being of his children, who were grown and out of the house. He was seeking the security, companionship and legal rights that marriage provides. The survival of humankind was the furthest thing from his mind.

These defeats have demoralized supporters of gay marriage, but I see a silver lining. If heterosexual instability and the link between heterosexual sex and human reproduction are the best arguments opponents of same-sex marriage can muster, I can’t help but feel that our side must be winning. Insulting heterosexuals and discriminating against children with same-sex parents may score the other side a few runs, but these strategies won’t win the game.

So I’m confident that one day my son will live in a country that allows his parents to marry. His parents are already married, as far as he’s concerned, as my boyfriend and I tied the knot in Canada more than a year and a half ago. We recognize, even if the courts do not, that it’s in his best interest for us to be married.

And while Wednesday was a dark day, the M’s beat the Blue Jays 7 to 4, so it wasn’t a total loss.

[Dan Savage is the editor of The Stranger, a Seattle newsweekly.]
_______________
mp

 

Elizabeth Brown: More on Estate Tax

By Greg Sisk

Elizabeth Brown, of the University of St. Thomas Law School, continues the thread on the estate tax with these additional thoughts:

"It is important to keep in mind just how few people in the US are subject to the estate tax. For returns filed in 2003 (when the tax exemption was $1 million), only 3% of the estates of all decedents had to file a tax return and only 1.5% of the estates of all decedents owed any estate tax.

The estate tax is one of the most progressive taxes used by government. According to a report done by the Tax Policy Center, which is a joint venture by the Urban Institute and the Brookings Institution, almost 99% of the estate tax falls on the top 5% of estates subject to the estate tax and over 33% is paid by the richest 0.1%.

Greg in his posts defending estate tax repeal has repeatedly talked about its effects on small family businesses and family farms. He has never quantified these costs either in terms of estate planning costs to minimize the estate tax burden, the amount of the assets that estates containing small businesses had to sell to pay the tax, or the number of small businesses or farms that were sold or ceased to exist because of the estate tax. Instead, he has cited conversations with small business owners to support his position that small businesses and family farmers are harmed by the estate tax. It is unclear that these conversations consitute a representative sampling of a majority of small business owners and family farmers and their concerns. In a poll conducted by Penn, Schoen & Berland Associates, Inc. in 2005, 56% of those polled who owned a business or farm opposed repeal or reform of the estate tax while only 36% favored repeal or reform.

As previously noted on MoJ, the number of businesses and farms affected by the estate tax is very small. In 2004 (when the tax exemption had increased to $1.5 million), it was estimated that 19,000 estate tax returns would owe any estate tax. Only 440 of those returns, or about 2% of all taxable estates, were primarily made up of farm and business assets. Those 440 returns included estates with large family businesses and farms. Those 440 estates accounted for only 6% of all estate tax liabilities.

In 2004, estates containing small farms and businesses (defined as those valued less than $5 million), however, made up only 0.5% of estate tax liabilities, or roughly $8.8 million. The total revenue from the estate tax in 2004 was estimated to be $17.6 billion.

I do not see how Catholic Social Thought can support repealing the estate tax and having the federal government give up as much as $17.6 billion in revenues annually so that a handful of small businesses and farms can avoid paying $8.8 million when there has been no verifiable evidence presented that a majority of these small businesses or farms have been harmed in any significant way from having to pay this tax.

Finally, taxation and charitable fundraising have a lot in common, even though taxation relies on compulsory payments and charitable fundraising relies on discretionary payments. Both are based on the idea that a little money taken from a wide range of sources can be pooled to achieve a worthwhile objective. So for example, suppose that 1000 people participate in an bike fundraiser to get $1,000,000 for Alzheimers research. Each rider raises $1,000 by getting pledges of $100 from each of their friends and family. The $100 donations have a minimal impact on each of the 10,000 donors. The $1,000,000, however, has a significant benefit for the Alzheimers researcher.

Similarly, the estate tax takes a portion out of the income and assets of about 19,000 estates annually (which represent roughly the wealthiest 1.5% of all estates). It has some impact on these estates, but in certainly the overwhelming number of cases, it does not have a significant negative impact on the estates. By negative impact, I am referring to the sale of a family farm or business, which have been the subject of so much discussion on MoJ. The $17.6 billion, however, was significant for the US federal government. It reprensented 90% of the total U.S. government's spending on official development assistance (ODA) in 2004. ODA is the primary way that the U.S. government provides disaster relief as well as long-term development assistance throughout the world. ODA is clearly supported by CST as it directly addresses CST's preferential option for the poor."

Church and Politics and the Catholic Perspective on Public Life

By Greg Sisk

Earlier today, Michael Perry posted an interesting article from the New York Times about an evangelical pastor here in the Twin Cities who has resisted tying evangelical Christianity to conservative political candidates and causes. The article suggests there is a nascent movement within the evangelical church to steer clear of politics, avoid moralizing on sexual issues, and generally eschew affiliation with the Republican Party.

While the specific calling of the Mirror of Justice is to bring the diverse Catholic perspective to bear on issues of public importance, readers should understand that we all remain on common ground that our Catholic Church has a higher mission (salvation of souls), that the City of God must never be confused with the City of Man, and that the Church always must remain independent of any political party or political agenda.

While not hesitating to speak clearly to public issues and uphold human dignity, our three most recent popes have been consistent in recognizing the central mission of the Church and in carefully maintaining a vibrant religious witness independent of secular political movements.

During his one-month papacy, Pope John Paul I insisted that “it is a mistake to state that political, economic, and social liberation coincide with salvation in Jesus Christ; that the regnum Dei is identified with the regnum hominis.” John Paul I, Catechetical Lesson on the Theological Virtue of Hope (Sept. 20, 1978).

Likewise, in his very first pastoral journey in 1979, Pope John Paul II spoke to the Latin American bishops in Mexico and emphatically rejected the reconception of Jesus as a political revolutionary, rather than being the divine Son of God with a “redemptive mission.” John Paul II, Address at the Opening of the Third General Conference of the Latin-American Bishops (January 28, 1979). Instead, he offered the higher spiritual vision “that to achieve a life worthy of a human being, one cannot limit oneself to having more; one must strive to be more.” By restoring the Church’s spiritual mission, “we are capable of serving human beings and our peoples, of penetrating their culture with the Gospel, of transforming hearts, and of humanizing systems and structures.” John Paul II explained that the truly revolutionary role of the Church is evangelism, changing the culture by changing the hearts of men and women through a transformative encounter with the Living God through His Son, Jesus. “[E]vangelizing is the essential mission, the specific vocation, the innermost identity of the Church.”

Pope Benedict XVI, in his first Encyclical also affirms that the role of the Church is to form the conscience and “reawaken the spiritual energy,” while appreciating that “[a] just society must be the achievement of politics, not of the Church.” Benedict XVI, Encyclical Letter Deus Caritas Est ¶ 28a (2006)

At the same time, Catholic Christians are encouraged to participate in the political order and thereby to transform it. The Pastoral Constitution, Gaudium et Spes states: “All Christians must be aware of their own specific vocation within the political community. It is for them to give an example by their sense of responsibility and their service of the common good.” While we in the laity must never expect the Church to dilute its spiritual mission to support any worldly goal, we are called to bring Gospel values to bear on the political and legal matters with which we are involved.

In this respect, the anti-political movement that the New York Times article describes can swing too far in the other direction. In another part of the article not included in the excerpt Michael posted earlier, the evangelical pastor offered this disturbing response to a questioner:

One woman asked: “So why NOT us? If we contain the wisdom and grace and love and creativity of Jesus, why shouldn’t we be the ones involved in politics and setting laws?”

Mr. Boyd responded: “I don’t think there’s a particular angle we have on society that others lack. All good, decent people want good and order and justice. Just don’t slap the label ‘Christian’ on it.”

While understanding that salvation through Christ is of greater eternal value and while preserving the independence of the Church from secular trends and political campaigns, we also must stand against a radical separation of Gospel values from social justice. The very premise of the Mirror of Justice is that we indeed do have “a particular angle” on matters, drawn from the venerable sources of Catholic Social Thought and founded upon the Catholic Intellectual Tradition. We must be wary of triumphalism, maintain appropriate humility, appreciate the diversity of perspectives that fall under Catholic thinking, and be ready to learn from others. But we must and should participate, for we do have something to contribute. The Catholic perspective, in all its richness and diversity, but unified in an understanding of the human person as created in the image of God, is desperately needed in this culture.

Greg Sisk

Excuse for light blogging

By Rick Garnett

I've been off-line for several days, but very much enjoyed checking in today and reading all the great posts on the estate tax, moral anthropology, religion and public reasons, and evangelicals' politics.  Great stuff!

I'm in Anchorage, Alaska (where I grew up), with my 5 year old son, attending my 20th high-school reunion.  It's been great seeing old friends, and Anchorage is a beautiful town.  I did have a "went back to Ohio, but my city was gone" moment, though, when I drove by one of the houses I used to live in, and found that one of my former neighbors had bought it and torn it down.  I'm sure there's a Catholic legal theory / new urbanism angle to my grief . . .

Religion in Politics, Part 256

By Michael Perry

An interesting story, this:

New York Times
July 30, 2006

Disowning Conservative Politics, Evangelical Pastor Rattles Flock
By LAURIE GOODSTEIN

MAPLEWOOD, Minn. — Like most pastors who lead thriving evangelical megachurches, the Rev. Gregory A. Boyd was asked frequently to give his blessing — and the church’s — to conservative political candidates and causes.

The requests came from church members and visitors alike: Would he please announce a rally against gay marriage during services? Would he introduce a politician from the pulpit? Could members set up a table in the lobby promoting their anti-abortion work? Would the church distribute “voters’ guides” that all but endorsed Republican candidates? And with the country at war, please couldn’t the church hang an American flag in the sanctuary?

After refusing each time, Mr. Boyd finally became fed up, he said. Before the last presidential election, he preached six sermons called “The Cross and the Sword” in which he said the church should steer clear of politics, give up moralizing on sexual issues, stop claiming the United States as a “Christian nation” and stop glorifying American military campaigns.

“When the church wins the culture wars, it inevitably loses,” Mr. Boyd preached. “When it conquers the world, it becomes the world. When you put your trust in the sword, you lose the cross.”

Mr. Boyd says he is no liberal. He is opposed to abortion and thinks homosexuality is not God’s ideal. The response from his congregation at Woodland Hills Church here in suburban St. Paul — packed mostly with politically and theologically conservative, middle-class evangelicals — was passionate. Some members walked out of a sermon and never returned. By the time the dust had settled, Woodland Hills, which Mr. Boyd founded in 1992, had lost about 1,000 of its 5,000 members.

But there were also congregants who thanked Mr. Boyd, telling him they were moved to tears to hear him voice concerns they had been too afraid to share.

“Most of my friends are believers,” said Shannon Staiger, a psychotherapist and church member, “and they think if you’re a believer, you’ll vote for Bush. And it’s scary to go against that.”

Sermons like Mr. Boyd’s are hardly typical in today’s evangelical churches. But the upheaval at Woodland Hills is an example of the internal debates now going on in some evangelical colleges, magazines and churches. A common concern is that the Christian message is being compromised by the tendency to tie evangelical Christianity to the Republican Party and American nationalism, especially through the war in Iraq.

At least six books on this theme have been published recently, some by Christian publishing houses. Randall Balmer, a religion professor at Barnard College and an evangelical, has written “Thy Kingdom Come: How the Religious Right Distorts the Faith and Threatens America — an Evangelical’s Lament.”

And Mr. Boyd has a new book out, “The Myth of a Christian Nation: How the Quest for Political Power Is Destroying the Church,” which is based on his sermons.

“There is a lot of discontent brewing,” said Brian D. McLaren, the founding pastor at Cedar Ridge Community Church in Gaithersburg, Md., and a leader in the evangelical movement known as the “emerging church,” which is at the forefront of challenging the more politicized evangelical establishment.

“More and more people are saying this has gone too far — the dominance of the evangelical identity by the religious right,” Mr. McLaren said. “You cannot say the word ‘Jesus’ in 2006 without having an awful lot of baggage going along with it. You can’t say the word ‘Christian,’ and you certainly can’t say the word ‘evangelical’ without it now raising connotations and a certain cringe factor in people.

[To read the whole piece, click here.]
_______________
mp

Saturday, July 29, 2006

Responding to Elizabeth Brown: Family Businesses and the Estate Tax

By Greg Sisk

I appreciate my colleague Elizabeth Brown’s thoughtful, informative, and well-researched contribution to the ongoing thread about the estate tax. I’ve enjoyed and learned much from the give-and-take on this issue, as well as the messages and interesting stories I’ve received from Mirror of Justice readers.

As I’ve stressed before in this thread, we as Catholic thinkers can only be enriched by broadening the discussion and being willing to consider other perspectives, other dimensions of social issues in a complex world, and other members of our larger community, even if we ultimately reject a particular argument based upon our appraisal of the evidence. Catholic Social Thought provides a means of evaluating the evidence but should not constrain what evidence is to be considered. This expansion of the dialogue, together with a resistance of the sometimes too-narrow class-warfare style and government-centric approach that may be uncritically adopted in such discussions, is of greater importance to me than any particular policy outcome.

Elizabeth questions what she calls my “assumption” “that all family businesses and family farms are small and thus, easily put at risk by the estate tax.” As a counter-example, she then describes one family enterprise that is anything but small. While I’ve never said that all family businesses are small, I stand firmly by my declaration that “small” indeed is the apt description for the overwhelming majority of family businesses in this country. According to the Small Business Administration (SBA), in 2003, 65 percent of all firms (small, large, family-owned, publicly-held) in this country brought in under $500,000 in receipts each year (not profits but gross revenues), and 79 percent of all firms employed fewer than ten employees. As these SBA figures encompassed all businesses, including major industries, but excluded those without employees, the percentage of family-owned businesses in this country that are small is even larger than revealed by these SBA statistics. Indeed, the Census Bureau reports that non-employer firms, which by definition are family-owned as the owner is also the only worker, account for three-quarters of all businesses. In sum, without question, the vast, vast majority of family-owned businesses in this country are neither large in size nor rich in profits.

As I’ve acknowledged in past posts, a handful of family-owned businesses have grown over time to a more considerable size, thus making the original owner modestly wealthy (although typically not among the fabulously rich). (Elizabeth indicates that this is even more true of family farms – which were not included in the SBA statistics I cited above – although the extensive real estate holdings and equipment purchases, etc., involving in farming together with the unusual seasonal and other vagaries make comparison more difficult and easy judgments suspect.) At least when it comes to these more substantial family-owned businesses, Elizabeth, joined by Tom Berg and Rob Vischer, appear sanguine about imposing the estate tax, whatever may come. I confess to being more concerned about the collateral consequences of the estate tax on the much more numerous and more typical small family enterprises than about shielding these larger family firms from the estate tax. At the same time, I have yet to hear a good argument why we as a society would want to place those larger family enterprises, which of course are among the most successful as evidenced by their very growth, at greater risk of being dissolved and sold off to large corporate entities upon the death of the original owners. My friends argue that few even of these substantial enterprises will actually be so liquidated, but they don’t deny that some have been and more will be if the estate tax is retained.

Should it be our public policy that family-owned businesses face a government-imposed ceiling on size (through the exemption rate for the estate tax), beyond which they grow at their peril? Is there a good policy reason for framing the tax system so that there is a greater risk of tax-death for family-owned businesses based entirely on size, thus focusing more punitively on the most successful in providing services and contributing to economic progress and creation of jobs? Is it fair and equitable for a family-owned business to be taxed once on the profits earned each year and then be taxed a second time on the same profits that were invested back into the business upon the death of the owner, while corporations are taxed only once on corporate profits? Is not tax equity a legitimate question for Catholic Social Thought?

Should we use tax policy to effectively create a preference in favor of large corporations as the favored entities in many sectors of the economy? Is the common good promoted when a family-owned business, of whatever size, is placed at a distinct tax disadvantage compared to publicly-held corporations? Is such a policy healthy for society, for enhanced competition in the economy, for fair pricing of goods and services? Is a policy that favors corporate giants over family-owned businesses consistent with Catholic Social Teaching as it pertains to the family and community?

Even assuming that the moral and socially-responsible approach to wealth accumulated through entrepreneurial activity and dedicated to ongoing production is to transfer that wealth out of the private economy and into the federal treasury, might it not be more equitable to construct a means of taxing wealth incrementally as it is created rather than dropping the tax boom upon a person’s death? As long as death is fixed as the taxable event, the estate tax will be foreboding, be seen as intruding upon families at a particularly difficult time, and be uniquely disruptive to any ongoing enterprise. Are not these factors, which implicate human dignity and the relationship between people and their government, also vital to Catholic Social Thought? To be sure, I imagine any alternative tax scheme would be just as complicated, as unsettling in other ways, and as likely to create collateral damage, suggesting any tax on the mere presence of wealth (regardless of how it is being applied) rather than on income earned is simply a misguided approach to revenue-generation.

More importantly, and returning to the central subject of smaller family businesses (which as outlined above are far more typical), the pre-death consequences of the estate tax remain deeply troubling to me and others who (unlike me) face the problem. This is where the unfairness of the tax becomes most poignant. Elizabeth suggests that the additional planning required by the federal estate tax should not onerous because business owners still would need to retain accountants and lawyers for estate planning purposes anyway and perhaps even to address the identical problem in the similar context of (typically much lower) state death taxes. But the fact that a person has to go to the doctor because of one ailment hardly means that he or she welcomes yet another illness that requires a second and longer visit. Moreover, as I’ve emphasized, the problem here is not only the drain on time and money in visiting lawyers and accountants, but that business owners are forced to consider and adopt artificial structures and make decisions at awkward times or for reasons other than business and personal judgment by reason of the looming presence of the estate tax.

Before speculating that the burden is light, that the effects are "marginal," and that the concerns are the misguided fears of over-excited people, we ought to listen to the voices of those who own family businesses and farms. In response to my posts, I’ve received private messages in which people describe the businesses their families or friends have built and their resentment of the perverse effects of the estate tax. I speak also based upon the experiences of those in my own family and among my personal acquaintances who have maintained farming operations and established family businesses, and who confirm that the prospect of the estate tax can weigh heavily.

But don’t take my word for it. Spend some time talking with people who own family businesses and farms. Although no group is monolithic in thought and supporters of the estate tax will be found even here, I’d be surprised if you don’t come across quite a few more who are troubled by the estate tax than those who are not. Perhaps then you’ll better understand their genuine bewilderment when they find the government, rather than thanking them for what they’ve contributed to the prosperity and health of their communities, instead appearing as a jackal greedily lying in wait for their deaths.

Finally, I can’t help but observe the schizophrenic nature of the arguments made in favor of retention of the estate tax. On the one hand, we’re assured that the estate tax will have, in Elizabeth’s words, a “minimal impact” on family businesses and no “significant impact on the U.S. economy or even the economies of rural areas.” On the other hand, Elizabeth and Rob tell us that repeal of the estate tax would have catastrophic effects on the federal budget, costing as much as a trillion dollars in tax revenues. You can’t have it both ways. If this tax is big enough to produce a flood of revenues for the government treasury, then it necessarily will tear a correspondingly large bite out of the economy. And some portion of that bite inevitably will be taken out of the hide of family-owned businesses and farms.

Greg Sisk

Bush's Former Speechwriter on Christians and Politics

By Thomas Berg

From a Christianity Today interview with Michael Gerson, Bush's recently departed speechwriter and advisor:

Will compassionate conservatism survive rising deficits, the cost of Katrina, and illegal immigration?
    There are some members of the Republican Party who do not understand the power and appeal of this set of issues and who have a much more narrow view of government's role. These issues are very much up for debate. Immigration is a good example. I understand the need for any nation to control its borders. But I do think that people of faith bring a little different perspective to this issue. There's a positive requirement to welcome the stranger and to care for people even if they're not citizens. Human dignity is universal and doesn't depend on what papers you hold. That brings a leavening perspective to a lot of these issues. And it's the perspective the President has brought to this issue. It would be a shame if conservatism were to return to a much more narrow and libertarian and nativist approach.

In my view, there's more than "some members" of the Republican Party who minimize compassionate conservatism": when the rubber meets the road, the dominant strain minimizes it in favor of libertarianism, nativism, or big-business handouts.  We don't all agree on that, but I'm sure we can all agree that we hope that the vision Gerson articulates makes headway within the GOP.

Until recently, the Republican Party and Christian conservatives have complained that government is the problem. Is that a view they will likely return to?
    I think it's a temptation, but I don't think it's going to happen. One reason is because of what's changed in evangelical political involvement.

    I think there are lots and lots of young people, in their 20s to 40s, who are very impatient with older models of social engagement like those used by the Religious Right. They understand the importance of the life issues and the family issues, but they know the concern for justice has to be broader and global. At least a good portion of the evangelical movement is looking for leaders who have a broader conception of social justice. President Bush has provided that in many ways. He ran his initial campaign on education and on faith-based answers to poverty and addiction. And then he's led the international efforts we've undertaken, both on the development and disease side, but also on the spread of human liberty.

You're starting to sound like Jim Wallis!
    No, because I also don't think the answers can be found in the Religious Left. I don't think we can minimize some of the traditional issues. I don't believe it's possible to be concerned about social justice without being concerned about the weakest members of the human family. I also think that America can play an active and positive role in the world and that we're not at fault for everything.

Well, the last sentence is a cheap shot at those who want America to "play an active and positive role in the world" but think this can only happen through generally emphasizing negotiation and multilateralism instead of military force and unilateralism.  He never confronts the moral and prudential costs of the Iraq invasion (even granting that there may still be some benefits from it).  But nevertheless, he makes many worthwhile pointsm, including about care for the unborn, in the worth-reading interview.

Tom

Previous Articles More Articles

Recent Posts

Categories

Monthly Archive