It’s derisively called the death tax, the vulture tax, the survivor’s tax, the exit tax, or the departure tax. But the federal estate tax is no laughing matter. For many farmers and business owners, it is the most destructive tax in the IRS arsenal.
The estate tax is a redistribute device that cuts deeply into the investments, savings and wealth of family members who’ve passed away.
The tax generates little more than droplets of net revenue. What is does do well is undermine the dearest ideals of this country: enterprise, thrift and continuity of family.
According to a new study by economists Gary and Aldona Robbins for the Institute for Policy Innovation (IPI), “The Case for Burying the Estate Tax”, this statute has no reason to live. Estate and gift taxes make no sense on three distinct fronts.
First, they make no economic sense. It’s fiscally destructive anti-growth consequences include both “trickle down” and “trickle up” effects.
Trickling upward are unemployment and possibly even welfare rolls as businesses are routinely closed for asset value in order to pay the debt. Parceling off farm and forestry lands leads to an increase in surreptitious environmental abuse. A potential decedent’s expenses expand upward and away from savings and capital reinvestment as avoidance dollars are spent on attorneys, financial planners, and yes, even estate tax insurance.
The harmful downward trickle includes decreases in personal savings and cash needed for capital formation, job creation and technological innovation.
Incredibly, upwards of 70% of family and closely-held businesses do not survive to the next generation, often because of the death tax, according to the Center for the Study of Taxation.
Secondly, they make no sense to the Treasury. Excluding compliance costs, their effect on federal revenues is minimal (just over 1%). Compliance costs due to administration, collection and litigation can range from 65 cents on each dollar collected to zero. But IPI’s new study is the first to use dynamic analysis to include the rippling effects of the death tax. IPI found that repealing the estate tax would begin adding revenue by 2010.
Third, economics aside, perhaps the best argument against the death tax is the moral one. It is no longer a problem for the polo set. Growth of small to midsized businesses, higher real estate values, personal retirement plans and whole life insurance policies have made the death tax a penalty felt by almost every American.
IPI found that the largest estates do not even bear the highest burden. Midsize estates do. This is clearly not what the liberal politicians and socialist economists intended when the death tax was first put forward as a wealth redistribution device.
The Estate Tax is intentional, personal harm done to Americans.
It takes the best of America and taxes it. The IRS has no ethical business walking up to what’s left of a doorstep in Oklahoma and telling the heirs of a farmer killed in last month’s tornado that although Dad only eked out income of $40,000 last year, he had the misfortune of purchasing the land twenty-odd years ago. It is now worth $800,000 and Uncle Sam wants $56,500 of it. Now. So what if Dad never even heard of the estate tax.
At a recent IPI briefing on Capitol Hill, John Meagher of the House Ways and Means Committee stated the case for repeal clearly and eloquently: “The estate tax is immoral and dishonors the hard work of people who have passed on. Something is sacred about the fruits of your parents’ labor, and you have a deep sense to protect it. This is their legacy, and it is representative of what their life is all about. This tax violates the sanctify of those efforts and the government should not take part of it.”
Death used to have a terrible finality. But a twisted tax code has made a taxpayer’s demise yet another opportunity for the IRS reaper to strike. It’s time to lay this statute to rest once and for all.
Kerri Houston is director of external affairs for the Institute for Policy Innovation, a Dallas-based non-partisan free market public policy institute.