The Gift Tax: It’s Going, Going, Gone

Talk about spoiling the moment! This ranks up there with other magical IRS moments, such as their attempt a few years ago to collect back taxes on an 11-year-old’s sales of Girl Scout cookies. The IRS would no doubt have tried to impose a gift tax on the market value of the loaves and fishes that Jesus multiplied.

Fortunately, shortly before game time IRS commissioner Charles Rossotti came to his senses and announced that the historic home run ball could be returned to McGwire tax free — gratis. “The fan deserves a round of applause, not a tax bill,” Rossotti declared. What magnanimity! Tim Forneris, the member of the St. Louis Cardinals grounds crew who caught the ball Tuesday night — and returned it to McGwire immediately — can rest assured that he will not be facing a whopping tax assessment simply because he was in the wrong place at the wrong time.

Only the U.S. Internal Revenue Code could turn one of the most anticipated moments in sports history into a taxable event. President Clinton’s spokesman Mike McCurry ridiculed the original IRS assessment as “about the dumbest thing I’ve ever heard in my life.” The problem is that the IRS is routinely doing dumb and unjust things like this. It’s just that most of the time the agency’s capricious decisions don’t coincide with the biggest sports media event of the year.

The entire bizarre episode of taxing home run balls has had one important impact. It has turned the entire nation’s attention to the absurdity of America’s gift and estate tax laws. It ought to be an iron law of public policy that taxes should not discourage virtue. Generosity is a virtue. Why should one who contributes wealth or assets to another person have to pay a tax penalty for his act of charity? All of us — yes, even those in the Clinton White House — recognize this as ridiculous when it comes to a baseball. But why is it that giving away a work of art, jewelry, property or a home invokes a tax penalty?

The thinking behind the gift tax seems to be unmistakable: no good deed should go unpunished. The tax code says to Americans: horde your wealth. Go ahead and squander it on wine, women and song. But don’t you dare give it away, or the taxman will be soon knocking on your door.

The gift tax is particularly onerous when one considers that the giver paid tax on the income from which the gift was made. By definition, there is no monetary gain to the giver from transferring wealth or assets to a family member, a friend or someone in need. The gift tax is merely a punitive — and unjust — form of double taxation.

The gift tax is also fiscally inconsequential. Only about 1 percent of total federal revenues, or less than 1 percent of total collections, comes from the gift and estate taxes. We could abolish those taxes and still balance the budget every year, given the size of projected surpluses. The primary beneficiaries of those taxes have been lawyers and accountants in the parasitic estate tax planning industry.

If Congress won’t eliminate the gift tax, it ought to at least tax the recipient of the gift, not the giver. The gift and estate taxes, which can reach confiscatory rates of 55 percent, should be abolished and recipients could be required to declare inheritances and gifts as ordinary income for tax purposes. That would lower the tax rate on gifts and bequests from a high of 55 to 39.6 percent.

Senate Finance Committee chairman Bill Roth (R‑Del.) complains that “the fact that there was ever even the possibility of Mark McGwire’s 62nd home run being taxed is a prime example of what’s wrong with our tax system.” He’s right, of course. And what is wrong with our tax system begins with the injustice of the gift and estate taxes. The solution for Mr. Roth and his congressional colleagues is to treat the gift tax as McGwire did Chicago Cubs’s pitcher Steve Trachsel’s first-pitch slider on Tuesday night.

It might be. It could be. It’s outa here.