James Gandolfini died of a heart attack last month while traveling in Rome. The Sopranos star was estimated to be worth nearly $70 million, leaving this money to his two children, wife, and two sisters.
If the actor’s sudden and untimely death weren’t enough for his grieving family to deal with, now come reports that the IRS will soon swoop in like vultures to take an estimated $30 million of Gandolfini’s estate because of the federal estate tax, better known as the death tax. Although the patriarch of the family already paid tax on a large portion of his estate, the family may have to begin liquidating assets to pay the burdensome death tax.
This troubling situation is another reminder of the injustice of the death tax. The IRS taking almost half of Gandolfini’s life’s earnings won’t trouble some, but Gandolfini’s case is actually a rare exception. The death tax, rather than being the scourge of the rich and famous, is actually most harmful to small, family-owned businesses.
When business owners pass away, the IRS assesses the death tax on their small businesses. The effects can be especially damaging. Many of these local, family-owned companies look valuable on paper because they own many assets, but those assets are necessary to run the family business. The families often in fact lack the cash to pay the IRS what they owe in death tax. When the IRS confiscates almost 50 percent of their assets, these businesses have no choice but to sell assets, sell themselves to larger corporations, or even close up shop. This costs the economy jobs and hurts local communities, of which these businesses have become integral parts.
Tax reform is picking up steam in Congress. For instance, the Senate Finance Committee, led by chairman Max Baucus (D–MT) and ranking member Orrin Hatch (R–UT), is moving forward on comprehensive tax reform by pursuing a “blank slate” policy. “The complexity, inefficiency and unfairness of the tax code are acting as a brake on our economy,” they said in a letter to fellow Senators.
As they continue their efforts, Baucus and Hatch should be sure to recognize that repealing the death tax is an excellent step toward protecting small businesses and jump-starting job creation.
Luke Beckmann and Danny Huizinga are currently members of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please click here.