IRS v. Widows
Sept. 11 reminds us why the death tax is immoral.

Friday, October 12, 2001 12:01 a.m. EDT

If the father of your two daughters were buried in the World Trade Center, you might think no one could hurt you more than Osama bin Laden already has. But that was before Lucy Thompson met the grief counselors at the Internal Revenue Service.

Mrs. Thompson last heard from her husband Ian, a money trader on the 84th floor of Tower Two, minutes after the first plane hit Tower One. But her added misfortune is to be British. For though the entire family held green cards that put them on the path to U.S. citizenship, the estate tax has a nasty little noose just for people like her: They don't get a marital exemption when a spouse dies.

The IRS figures that sooner or later it'll get its large share of an estate passed to an American spouse. But the bereavement bureaucrats are afraid that a foreign spouse will take the family assets and move back overseas. So the IRS forces mourning widows and widowers to pay up immediately, at the estate tax's terrible confiscatory rates. Worse, the IRS levies that tax on everything above their first $60,000 of assets, against the first $675,000 for Americans.

So at a time when Lucy Thompson has to provide for her children by herself, the IRS gets first dibs on everything they have. That includes her husband's life insurance and her modest home in Summit, N.J., where Ian was a volunteer with the local First Aid squad. Outside that home these days Mrs. Thompson hangs both the U.S. flag and the Union Jack--symbolic of the stalwart British support for the American anti-terror effort.

Sitting on her sofa in the home she now fears she might lose, Mrs. Thompson is nonetheless all British stiff upper lip. "We're a family who long ago made the decision to buy into the American dream," she says. "America has been wonderful to us. All we want now is the ability to stand on our own two feet so the American people won't have to carry us."


Alas, Mrs. Thompson has company in dealing with the "compassionate'' state that is making such a comeback in the wake of September 11. Deena Gilbey, a Britisher who lives in Chatham, N.J., says that when she called the Immigration and Naturalization Service, she was told she lost her visa status when she lost her husband--even though her children are Americans. New Jersey Senator Robert Torricelli intervened on her behalf after a media uproar, and the INS decided it could let her stay in the U.S.

But back to the estate tax. Experts tell us there are bureaucratic hoops to jump through to avoid it. If, for example, Mrs. Thompson were to put her money in a qualified trust within nine months, she could escape the tax, albeit with the usual trust limitations. Families might also get hardship rulings that allow them to draw down on accounts without paying tax, at least for a time. And the House has already passed the Victims of Terrorism Relief Act, which would allow lower tax rates for all families who lost a loved one in the attacks.

These are welcome if bureaucratic mitigations. But the cases of these widows bring into sharp relief the immorality of the death tax itself. Earlier this year, the father of Microsoft's Bill Gates told the Senate Finance Committee that it is "appropriate that a special tax be imposed on those who have so fully enjoyed the benefit of the things this country provides."

This is the usual line of those who don't mind paying the tax because they're already superrich. Or because they've already set up trusts or foundations to avoid paying the tax themselves. But that's not the way the estate tax looks from Lucy Thompson's living room.

She and her late husband have already paid taxes once on their income. Now, with her main breadwinner gone, she's going to have to pay a "special tax" so that Bill Gates's Dad and the Rockefellers can feel better about all the money they've made. And while the special horror of September 11 may prompt some exceptions for Mrs. Thompson, what about the widows and children left behind by a car accident or some other tragic, early death in the family?

Earlier this year Congress voted to phase out the estate tax but not for nearly a decade, and then only for a single year. (This ridiculous law was designed to satisfy the crazy budget rules of the Senate.) Mr. Bush would win applause in the Thompson and other households if he pushed to make the estate-tax elimination permanent.

Since September 11, the Thompsons and Gilbeys tell us, they have witnessed the best of America. But in the INS and IRS they are also seeing some of the worst.