Death tax
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The Death Tax is an unofficial name for the U.S. Federal Estate Tax, which is imposed on the transfer of assets of an individual at the time of death.
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[edit] Phase out and reinstitution
Because of the Economic Growth Tax Relief and Reconciliation Act of 2001, the Death Tax is scheduled to be reduced from 55% in 2001 to 45% in 2009. In 2010, the tax will be repealed for one year, before coming back at the rate of 55% in 2011.[1]
[edit] General critique of the death tax
The Death Tax is a tax on the transfer of assets, which means the tax may sometimes fall on hard-earned savings and invested earnings – not on consumption. For instance, a grandmother who leaves $2 million for her grandchildren will be subject to the tax. Another grandmother who spends all of her money before death will not be subject to the tax.
Capital is money that is used to create new businesses and economic growth – which means new jobs. When an investor loans $1 million dollars in capital to an entrepreneur, he is providing that individual with the cash to start his business. Without capital, no new businesses could be started, and hence no new jobs would be created.
The Death Tax reduces capital both directly by taxing the transfer of that capital, and indirectly by encouraging non-productive tax-avoidance measures. Many people will avoid the death tax by sheltering their money in “trust funds” and charitable foundations. By donating their money to one of these shelters, the money is “hidden” from the death tax, but also is prevented from being invested in new jobs.
The Joint Economic Committee found that all told, the Death Tax reduces capital by $847 billion.[2]
[edit] Critique: Double taxation
One argument against the death tax is that all capital subject to the Death Tax has already been taxed at least once, and sometimes even twice, either 1) through regular pay, and therefore the income tax, 2) through investment, and therefore the capital gains or dividends tax and/or 3) through American job growth, therefore the corporate tax.[3]
The U.S. Death Tax is the second highest in the world.[citation needed] If the Death Tax is not permanently reduced or repealed, it will be the highest in the world in 2011.[citation needed] Many nations have chosen to eliminate their Death Tax. Singapore eliminated its Death Tax in February, 2008,[4] and Hungary is expected to repeal its Death Tax soon.[5] Both of America’s neighbors – Mexico and Canada – have no Death Tax. Industrialized nations such as China, Israel, Sweden, Russia or Australia have no death tax.[6]
[edit] Critique: Family businesses and farmers
While the Death Tax harms all forms of economic growth, it falls particularly hard on the owners of “illiquid assets,” (i.e., things which cannot easily be transferred into cash), such as farms and businesses. If the owner of a business which is valued at $5 million dies, the heirs are often forced to sell the business or its assets it in order to raise the necessary cash for the tax. This is because such families often have a majority of the family net worth invested in the business.[7]
A 1996 survey of family businesses found that the estate tax makes survival of the business more difficult for nearly two-thirds of respondents.[8]
The new owners may not be interested in maintaining the business, but simply be purchasing the business to strip its resources for other purposes. When this happens, the jobs that depended on the business are lost.
[edit] See also
[edit] External links
- Cost and Consequences of the Federal Estate Tax, A Joint Economic Committee Study, http://www.house.gov/jec/publications/109/05-01-06estatetax.pdf.
- Internal Revenue Service, http://www.irs.gov/pub/irs-soi/05estate.pdf.
- Michael Graetz and Ian Shapiro (2005), Death by a Thousand Cuts: The Fight over Taxing Inherited Wealth, Princeton
- Sterling Harwood, "Is Inheritance Immoral?" in Louis P. Pojman, Political Philosophy (McGraw Hill, 2002). www.sterlingharwood.com.
- David Runciman, London Review of Books, 2 June 2005, "Tax Breaks for Rich Murderers"
- Myth: Death tax repeal only benefits the wealthy Heritage Foundation
[edit] Footnotes
- ^ Brian G. Raub, Recent Changes in the Estate Tax Exemption Level and Filing Population, Internal Revenue Service, http://www.irs.gov/pub/irs-soi/05estate.pdf.
- ^ Cost and Consequences of the Federal Estate Tax,” Joint Economic Committee, May 2006, http://www.house.gov/jec/publications/109/05-01-06estatetax.pdf.
- ^ Steve Entin, “Kill the Death Tax,” Institute for Research on the Economics of Taxation, p. 3 - 4 http://www.nodeathtax.org/ECONOMICREPORTS/reports_070905.pdf.
- ^ Axing Death Tax a boon to Middle Class, SGHousing.com, February 21, 2008, http://www.sghousing.com/2008/02/21/axing-death-tax-a-boon-to-the-middle-class/
- ^ “Parties Ready to Repeal Death Tax,” May 7, 2008, http://www.realdeal.hu/20080507/parties-ready-to-kill-death-tax
- ^ Chris Edwards, “Repealing the Federal Estate Tax,” CATO Tax and Budget Bulletin: No. 36, June 2006, http://www.cato.org/pubs/tbb/tbb-0606-36.pdf.
- ^ John L. Ward, Drew Mendoza, Joseph Hl. Astrachan, and Craig E. Aronoff, “Family Business: The Effect of Estate Taxes” (Chicago: IL: Center for Family Business and Family Enterprise Center, 1995), 29.
- ^ Joseph H. Astrachan and Roger Tutterow, “The Effect of Estate Taxes on Family business: Survey Results,” Family business Review 9, no. 3 (Fall 1996): 303-314.
