Must insist on the end of the Death Tax

Published 12:00 am Monday, July 25, 2005

When Benjamin Franklin said, “In this world nothing can be said to be certain, except death and taxes,” I seriously doubt that he would have envisioned that the country that he helped found would one day make death taxable too.

Mr. Franklin would surely be shocked by the fact that theUnited Stateshas the highest estate (death) tax in the industrialized world. Currently, every dollar above a $1.5 million exemption is taxed at 47 percent. However, unless Congress acts, comeJan. 1, 2011, the exemption will go down to $1 million and the tax will go up to 55 percent. This means that surviving children will have to fork over to theIRSmore than half of what, in most cases, they and their parents worked their whole lives to earn.

What’s even more embarrassing is thatRussiajust eliminated its death tax and in January,Swedengot rid of their death tax as well. It is a confused state of affairs when former Communists and avid socialists conclude that death taxes are unfair and economically unproductive and therefore abolish them, yet theUnited Statesdoes not.

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That could change if the U.S. Senate passes a bill introduced byAlabama’s Sen. Jeff Sessions. The House of Representatives has already passed a bill that would permanently eliminate the death tax, but it would not take effect untilJan. 1, 2010. The Sessions bill, however, would completely eliminate the death tax effective this year, giving immediate relief to families whose parents are unfortunate enough to die beforeJan. 1, 2010.

It is also important to abolish the death tax effective this year in order to sustain the economic growth spurred by the 2003 tax cuts. Since the tax cuts, over 3.7 million jobs have been created and the unemployment rate has dropped to five percent, lower than the average for 1970s, 1980s, and 1990s. In fact just this week the federal deficit was decreased by $100 billion because of the recent tax cuts.

Because more people are working and incomes are higher, federal individual income taxes are up 20.5 percent. And the capital investment incentives in the 2003 tax cut have paid off too, with corporate income tax collections up 47.5 percent.

According to a 1998 study by the Joint Economic Committee of the U.S. Congress, it is estimated that “…the estate tax has reduced the stock of capital in the economy by approximately $497 billion.” Consequently, according to this analysis, if Sessions’ bill were to pass, it would free up hundreds of billions of dollars of additional capital investment in our economy which would be mean even more jobs, higher incomes, and higher federal revenues.

And contrary to what the liberal opponents of permanent repeal would have people believe, the children of the mega-wealthy like Bill Gates Sr. and Warren Buffet will pay little to nothing on their estates because they can afford to protect their assets.

On the other hand, according to the Center for the Study of Taxation, 88.6 percent of all taxable estates filed in 2003 were less than $5 million and these estates were forced to pay over 40 percent of all estate taxes collected that year. Moreover, 95.6 percent of the returns were for estates valued at $10 million or less and accounted for almost 61 percent of the estate taxes paid in 2003.

When the value of the majority of estates is under $10 million, you are dealing predominantly with small businesses, and family farms and ranches. Liberals argue that small businesses and farms and ranches are really not affected, but other reports indicate otherwise. A 2001 analysis of forest owners and rural landholders found that approximately 2.6 million acres of timber must be cut each year and that 1.3 million acres of rural land must be sold just to pay the estate tax. Another study found that the typical small business owner has 60 percent of the family net worth invested in their business and that the estate tax is the primary reason small businesses fail to survive beyond one generation.

Clearly, it is not the mega-rich that are forced to pay the estate tax. And clearly, the biggest economic impact falls unfairly on family farms and small businesses whose net worth is predominately in capital assets such as land, timber, buildings, equipment, vehicles, livestock, etc. The estate tax is also applied to the value of the owner’s homes, personal items, and life insurance. And in far too many cases the children are left without enough cash to pay the tax bill and are forced to sell some or all of the farm, ranch, or business just to satisfy theIRS.

It is no wonder that the vast majority of Americans want the estate tax permanently repealed. A New York Times poll taken in March of this year found that 76 percent of people say they are opposed to any estate tax. This poll is consistent with other polls from both sides of the political spectrum. Poll after poll indicates the vast majority of Americans want the estate tax abolished. In their view, it is unfair for people to work all their lives, save, invest, and pay their taxes only to have the federal government take half of it away from their children, many of whom have worked most of their lives alongside their parents.

The U.S. Senate should pass Sessions’ bill to permanently repeal the estate tax. Not only because it will strengthen small businesses and family farms and ranches, and further expand our growing economy, but because, most importantly, it is the right thing to do.

After all, liberals in the U.S. Senate should remember that the third policy plank of Karl Marx’s “Communist Manifesto” calls for the taxation of all inheritance. Do liberals in the Senate really want to be labeled more socialist than former Communists inRussiawho have already eliminated their estate tax?

Gary Palmer is president of the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society.

July 21, 2005