This week, along with Senator Bill Nelson (D-NE), I plan to introduce legislation that would eliminate one of the most heartless provisions of the U.S. tax code, which is hardly known for compassion to begin with.
The tax on inheritances, or the “death tax,” is unfair, inefficient, economically unsound and, frankly, immoral. Even though most Americans are unlikely to be subjected to it, most agree that it is fundamentally unfair to allow the federal government to seize more than half of a person’s assets when he or she dies.
Consider the example of the small businessman or woman who works hard throughout life to make it a success. Or the farmer, who literally plows everything back into his operation, and owns substantial and expensive equipment, but little cash. These are the kinds of assets that can be subject to more than a 50 percent tax when the owner dies.
That’s wrong. Part of the classic American dream is the ability to pass such assets on to one’s children, in order that they might get a bit of a head start on life, keep the family business going, or simply enjoy a higher standard of living than their parents. The assets involved were already taxed when the income that acquired them was earned.
According to a Gallup poll, 60 percent of Americans agree it is unfair for Washington to tax them again, particularly at such punitive levels.
As Edward J. McCaffrey, a law professor from the University of Southern California and self-described liberal, has testified before the Senate Finance Committee: “Polls and practices show that we like sin taxes, such as on alcohol and cigarettes…The estate tax is an anti-sin, or a virtue, tax. It is a tax on work and savings without consumption, on thrift, on long term savings.”
Even setting aside such moral considerations, consider the impact of the death tax on the economy. Small, family-owned businesses, particularly manufacturers, often earn relatively low profit margins but are considered “wealthy” by the IRS because they own expensive production machinery or other equipment. When the owner of such a company dies unexpectedly, the heirs are often forced to sell off the business to pay the death tax.
Is the revenue to Washington worth the hurt and harm? No, the death tax accounts for a little more than one percent of the government’s tax take. Not surprisingly, family-owned businesses and wealthier Americans go to great effort and expense to minimize their tax liability, essentially “planning to die.”
This distorts their business operating and investment plans, skews other financial decisions, and essentially diverts money from the federal treasury to lawyers and accountants.
Alicia Munnell, a former member of President Clinton’s Council of Economic Advisors, estimates that the costs of complying with death tax provisions are roughly equal to the revenue raised, or about $23 billion in 1998.
That’s a patently ridiculous waste of money, and such bad policy that economists Gary and Aldona Robbins estimate that repealing the death tax would actually increase gross domestic product, to such an extent that within ten years overall federal tax revenue would actually be higher than before.
We should end this tax on virtue, work, savings, job creation and the American dream, and end it for good.