Baucus Fires Up The FUD Machine

Legend has it that in the days when IBM dominated computing, it taught sales reps to dissuade customers from buying competitors’ products by creating Fear, Uncertainty and Doubt, also known as FUD.

“Nobody ever got fired for buying IBM,” a rep might say with a smile, right after telling you that he was looking forward to golf with your boss on Saturday.

A lot of the FUD may have been baseless. For that matter, the legend might be baseless, though IBM stayed on top of the computing heap for a very long time. And International Business Machines (IBM) was ultimately displaced by Microsoft (MSFT), which itself mastered the art of FUD.

When Microsoft Excel languished and Lotus 1-2-3 was the dominant spreadsheet software, the joke in computing circles was that “the operating system ain’t done until Lotus won’t run.” Technology managers figured they could rely on Microsoft’s spreadsheet to function correctly with, say, Microsoft Windows, while Lotus might have to scramble to fix incompatibilities. Did it work? Let me rephrase the question: When was the last time you used Lotus 1-2-3?

FUD is not designed to get people to do something. It is designed to prevent people from doing something. Since the cost of doing something includes the risk that it won’t work, FUD succeeds by increasing the perceived risk of whatever the FUDmonger wants to prevent.

For FUDmonger Of The Year, I nominate Sen. Max Baucus, the Montana Democrat who chairs the Senate Finance Committee. Baucus earned this dubious honor with a remarkable example of legislative spite that had no purpose apart from its FUD value. But FUD was what the senator undoubtedly wanted.

Baucus’ gambit was to introduce legislation to make year-end gifts much more expensive for wealthy families this year. Though the legislation had little chance of passing, Baucus included a provision to make the new rules effective on Dec. 2, the day he introduced his bill, rather than upon adoption.

This is like driving down a highway with a posted speed limit of 70 miles per hour, but knowing that your speed is being recorded and that the state is considering retroactively lowering the limit to 55, with a steep fine for violators. Does this sound fair to you?

The Baucus maneuver means a family that is considering making a taxable gift this year in order to save estate taxes later cannot rely on the law that is in effect right now. Instead, the family must guess at whether Baucus’ provision might pass later, with retroactive effect. Most likely, the family will not make the gift because of the FUD factor – thus forgoing the opportunity to save taxes under the law that is in effect today.

Although he supported repeal of the estate tax in the past, Baucus has changed his position. The only affluent families he now wants to shield are the high-net-worth farmers and ranchers who are sprinkled across Montana’s high plains.

A year ago, Baucus unsuccessfully tried to block this year’s hiatus from the estate tax (and the additional tax on generation-skipping transfers), as well as the reduction in 2010 of the gift tax rate from 45 percent to 35 percent. Having failed, he promised to have the tax reinstated retroactively. That didn’t happen, either.

Like many congressional Democrats, Baucus favors a return to the estate tax rules that prevailed in 2009, with a 45 percent tax rate and an exemption of $3.5 million per person. Democrats have been vociferously unhappy with the compromise President Obama struck with Republican leaders to hold the tax next year to 35 percent on estates greater than $5 million.

Baucus’ bill lost a procedural vote last week, but the uncertainty remains. There is always a chance, though I believe it is remote, that his language could be incorporated into the final tax legislation that implements the Obama-GOP compromise – assuming any such legislation actually gets approved in the current lame duck session.

In the meantime, families that were planning to make transactions before the end of the year are denied the basic courtesy (if not civil right) of knowing the law under which they are expected to do business.

Now, about those farmers and ranchers. Another provision of the Baucus bill, which he proudly highlighted in his press release, would allow farmers and ranchers to defer paying estate taxes indefinitely, as long as their farms stay in the family. Owners of other types of family-held enterprises would be expected to pay up sooner. “Chutzpah” is not a word that is widely used in Montana, but the senator (who visited my freshman journalism class and later married, and divorced, my teacher) is well-traveled. I’m sure he knows what it means.

He also is, obviously, well acquainted with FUD. If he can’t get the results he wants by passing legislation, the senior senator from the Treasure State isn’t above spreading a little fear, uncertainty and doubt.

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