Timing is everything in life. And in death. America’s level of death taxes is a bouncing ball—a political football because Congress is fumbling around with legislation that makes a dramatic difference measured in jobs as well as in dollars.
As the law is now, anyone who dies during 2010 will pay no estate tax. But die in 2009 and the rate is 45% of the taxable estate. Die in 2011 or later and it’s 55%. The amount exempted from tax also fluctuates from $3.5-million this year to immaterial next year and then $1-million in 2011.
Anyone who’s confused can be forgiven. But the muddle gets worse. Although the Senate is yet to act, the House recently voted by 225-200 to keep the death tax alive permanently at its current rate but changing the exemption to $7-million. The Senate could tweak the details even further.
Although not a huge money-raiser (It’s at most just 1% of federal revenue.), the tax is a favorite of many politicians. The wealthy will always be outnumbered by the non-wealthy, so politicians love to show their love to “the little guy” by beating up on “the rich”.
Amazingly, most of America sees it differently. Realizing that income taxes (and sales taxes, and other taxes) have already taken a big bite before wealth can be accumulated, opinion surveys consistently show that everyday Americans consider the death tax to be the unfairest tax of them all.
Not only is it unfair double taxation, but the tax also kills jobs. As The Heritage Foundation reports, “Family-owned businesses are often asset-rich but cash-poor. They have equipment, real estate, and inventory that makes them appear valuable on paper. But they have comparatively little cash on hand. When a family member dies, the death tax is an enormous burden on them. Many have to sell their assets, or in some cases the entire business, to pay the tax.”
Recent estimates show that full repeal of the tax would create 1.5 million jobs. This from a tax that generates just a few billion dollars a year. Permanent repeal would be a lot cheaper and a lot more jobs than from the $787 billion federal stimulus spending! Is it worth keeping the tax, just so politicians can brag they’ve soaked the rich and left everyone else dry?
But the rich are already drenched. New York City has revealed that half the city’s income comes from 42,000 of its residents. So in a city of 8.2 million, less than half of one percent of the people carry 50 percent of the tax burden. Nationwide, the Tax Foundation reports that the top 1% of American tax filers paid more taxes in 2006 than the bottom 90%.
Extending the death tax is another unwelcome signal to America’s business community. National CEO’s report they plan to shrink payrolls in the next six months, not expand them. They know that more job-killing taxes and regulations are on the horizon.
Those who support the death tax claim it’s about fairness and is paid only by a few thousand of the richest Americans. But what’s fair about a tax that costs 1.5-million American jobs? Doing away with the death tax entirely could be the first signal employers need that it’s safe once more to build and to grow.