Last week, the federal Victim Compensation Fund announced its first 25 awards to families of those who were killed on Sept. 11. The amounts offered were not uniform, but after taking into account the mandatory deductions for life insurance policies and pensions, the average award came to $1.36 million. That much income would ordinarily be taxable at the highest rate -- currently, 38.6 percent. Thanks to legislation passed in January, however, the victims' families will receive their awards tax-free. The same law also exempted Sept. 11 victims retroactively from income tax liability for 2000 and 2001. Any taxes they already paid will be refunded.
Last week's awards were actually on the low side; according to Kenneth Feinberg, the special master overseeing the fund, the average net payout will ultimately be around $1.5 million. That is roughly 36 times the median US household income, and is considerably more money than the vast majority of American families will ever see. No amount of money, of course, could ever replace a murdered loved one. But as an expression of sympathy and support for those who suffered a devastating loss in the terrorist attacks, the federal victims fund was munificent in the extreme.
It was also a mistake.
The American people didn't need the government's help to demonstrate their compassion for the families of the Sept. 11 victims. Well before the law creating the federal compensation fund was passed, tens of millions of Americans had donated hundreds of millions of dollars for the benefit of those affected by the attacks. By now, the total raised by private charities is estimated at a mind-boggling $2.7 billion, more than half of which has already been distributed.
This torrent of private relief has not merely ensured that survivors can meet their mortgage payments and put food on the table. It has turned many of them into millionaires. USA Today reports that relatives of the New York police officers who died on Sept. 11 are receiving an average of $929,000 in charitable funds. The families of firefighters and ambulance crews are getting $1,037,000. All of these gifts are tax-free. (Surviving spouses of most rescue workers also receive a lifetime pension equal to the victim's salary, plus a federal death benefit of $259,000 for public safety officers killed in the line of duty.)
To be sure, not every victim's family has been enriched as lavishly as those of the emergency workers killed at Ground Zero. The charitable gifts received by other families have averaged only $146,000. But "only" $146,000 is hardly trivial, especially when it comes with no strings attached, when it is not taxed, and when it is in addition to any insurance, pension, or Social Security benefits the family is entitled to. And when more than $1 billion remains to be distributed.
Add to all this the billions of dollars' worth of goods and services that have been donated to the victims' families -- from free financial planning for life by top Wall Street firms to the hundreds of free slots at children's summer camps nationwide to the free gifts Tiffany's will distribute next week at a baby shower for the 103 widows who have given birth since last September.
Never has the extraordinary generosity of ordinary Americans been more evident than in the months since Sept. 11. It wasn't necessary for the government to get in on the act, let alone to shower the victims' families with seven-figure jackpots. Those who lost a child, parent, or spouse in the attacks last fall suffered a terrible tragedy, and the hearts of decent people everywhere went out to them. But tragedy strikes American families every day, and their grief is not eased with million-dollar fortunes from the Treasury. Why should the families of Sept. 11 have been treated differently?
The Victims Compensation Fund was created in part to protect the airlines from being bankrupted by wrongful-death litigation; survivors who accept money from the fund are barred from filing suit. But the airlines were not to blame for the horrors of Sept. 11. Their losses that day, both human and financial, were staggering. If Congress wanted to shield them from catastrophic lawsuits, the way to do it was to cap their liability at $0.00, not to bribe the victims' families with million-dollar awards.
With such huge sums of money at stake, the congressional fund has predictably led to feuds and ill will, as relatives of the dead fight over the federal largesse. It has inflamed greed, too. Many families now insist that the planned awards are not lucrative enough; others gripe that after insurance and pension proceeds are deducted, they will get nothing. ("Nothing," in this case, means a quarter of a million dollars, which Feinberg says is the minimum payment guaranteed to virtually every victim's family.)
Meanwhile, a corrosive precedent has been set for the future. The next time innocent victims die in a terrorist attack, their relatives will expect a handsome government payment. The next time any catastrophe strikes -- terrorist or otherwise -- there will be a clamor for federal compensation. But the worst consequence of all is that after the next disaster, fewer people will give willingly to private charity. Why donate to help stricken fellow Americans, they will reason, if Uncle Sam is going to make them rich anyway?
A Pandora's box has been opened. It will not easily be closed.