After months of inactivity, the Senate could finally address the death tax in the coming days. It is about time it acted, because in a little over five months—January 1, 2011—the death tax will rise from 0 percent all the way to 55 percent.
Proponents of the death tax make several arguments about why Congress should allow the death tax to resume hurting families and harassing family-owned businesses and farms. The most common arguments in favor of the death tax are:
- The revenue it raises is vital for Congress;
- It hits only a few large estates, so it really isn’t a drag on the economy;
- It is necessary to provide a more equal distribution of wealth; and
- Wealthy heirs would inherit large estates without paying any tax.
The answers to all these mistaken arguments can now be found in one place: The Economic Case Against the Death Tax lays out how the death tax is a scourge for family-owned businesses, destroy jobs, lowers wages, and stifles entrepreneurship.
It also shows that the death tax does not serve any of the purposes Congress originally intended it to serve and that, even though a relatively small number of estates pay the death tax, it is still a huge weight slowing down the economy and destroying jobs.
The paper also lays out the inheritance tax system that would take the place of the death tax if Congress does the right thing and repeals the death tax once and for all. The inheritance tax system would tax assets transferred at death under the capital gains tax system when the inheritors choose to sell them.
While still a tax on capital, the inheritance tax system would be a marked improvement over the death tax. The inheritance tax system is already in place this year while the death tax is on hiatus. This also means those who argue that the families of billionaires who die this year (such as George Steinbrenner) are not paying any tax on the assets they acquire are wrong. The heirs will pay considerable taxes when they sell the assets they acquired.
The American public is starting to wake up to the reality that the death tax could soon rise from the ashes. Mitch Albom, best-selling author who is no stranger to end-of-life issues, summed up the problems with the death tax succinctly:
The estate tax is blatantly unfair and, in my mind, indefensible. … Most of your wealth, by the time you’re ready to leave it, has been spooned into by federal, state, city and local taxes. Your house, you’ve paid taxes on year after year. Your car, you paid taxes on when you purchased it. … Even Sweden, a country that has as many taxes as it does blondes, did away with its inheritance tax. Australia doesn’t have one. Neither does Switzerland. I don’t see them going out of business.
It is time for Congress to do away with the death tax forever. It recognized way back in 2001 that the death tax was wreaking havoc on the economy and decided to abolish it then. If it goes back against its better wisdom, it will bring back a nightmare for family-owned businesses such as the ones detailed in the videos found here: http://www.heritage.org/issues/taxes/death-taxes.