The United States enacted the federal estate tax in 1916, and conservatives have been trying to get rid of it ever since. Over the decades they’ve propagated an astonishing array of half-truths and untruths, such as labeling it “the death tax.” (Rest assured that you can die anywhere in the United States without having to pay a tax to do it.)
Carrying on that long tradition of dissimulation, Congressman Greg Walden sent a letter to constituents at the end of last year explaining why he voted against HR 4154, a bill to permanently set the tax at 2009 levels.
The lies begin in the first paragraph: “Estate tax may sound harmless, but here’s what it is: the government taxing, when you pass away, about half of what you’ve worked in a lifetime to save.”To begin with, under the current law the first $3.5 million of any estate is exempt from estate tax. If you leave an estate of $3,499,999.99 you don’t pay a dime. Less than three-tenths of one percent of all estates pay any estate tax at all.
And among the minuscule number that do, the 45% tax is levied only on the amount above $3.5 million, not the whole estate. If you leave an estate of $4 million, you owe estate tax only on the last $500,000. So on average the effective tax rate (the percentage of the estate’s value that’s paid in taxes) is less than 20%, not “about half.”
Estate tax opponents love to weep and wail about the hardship it supposedly inflicts on “family farms,” so inevitably Walden drags them in. Under HR 4154, he laments, “more and more family farms, ranches and businesses would be subject to the estate tax in years to come.”
But unless your family name is Simplot or Walton, your family farm or business has little or nothing to worry about. The Urban Institute-Brookings Tax Policy Center estimated that in 2009, only 80 – count ’em, 80 – small business and farm estates in the whole nation owed any estate tax at all.
Walden’s real agenda is complete and permanent elimination of the estate tax, which he claims “discourages work and lifelong savings in favor of large-scale consumption.” (Exactly how leaving millions more to the Paris Hiltons of the world would encourage work and thrift and discourage consumption is not made clear.) But alas, with Democrats in control of both houses of Congress that’s impossible.
So Walden is pushing a bill that would set a permanent rate of 35% and exempt the first $5 million, or $10 million for married couples. That wouldn’t be as bad as outright repeal, which would cost an estimated $1.3 trillion over the first 10 years, but it would still irresponsibly increase the deficit in order to “fix” a non-problem.
Walden is a Republican and we can’t blame him for toeing the party line. But we wish he’d come up with some fresh prevarications instead of peddling the same tired old ones. For his lack of originality, we’re delivering THE BOOT.
This article appears in Jan 14-20, 2010.
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The exemption is zero for 2010 but then retros back to $1M in 2011. For family-owned businesses this can be a burden if an estate also includes property. Think about it, there are many scenarios where a business owner can own property and business assets totalling $1M but not have a lot of cash to pay the taxes. In a down real estate market it may prove difficult to raise sufficient cash to pay the taxes due. To think that the estate tax only affects folks like Paris Hilton is irresponsible. There can be a compromise, and hopefully congress will work something out that is fair in the coming year. Small businesses are the backbone of this country, and most owners are not rich.
It appears the author wrote this in a hurry, as it is filled with intuitive generalizations and the usual liberal media slant. The death tax is in complete contradiction to the American Dream and why America has always been the strongest country in the world; that if you accept risks, work hard and prosper, you can pass your success down to your family in hope that they will use it to better themselves and the world.
“The death tax is in complete contradiction to the American Dream and why America has always been the strongest country in the world”
“[Thomas] Paine Paine viewed democracy as a sensible middle ground between aristocracy and socialism. He was not an enemy of private property (far from it), but a fierce critic of inherited privilege. In the Rights of Man he justifies the inheritance tax as being a derivative of the existing luxury tax. As he says, ‘an overgrown estate is a luxury at all times, and as such is the proper object of taxation.’
“[Alexis de] Tocqueville Toqueville [went] so far as to say, ‘no great changes in human institutions will be made without discovering estate law in the middle of the causes of that change.’ His only criticism of American estate law was that it did not go far enough in the area of taxing estates.
“Great sums bequeathed often work more for the injury than the good of the recipients.” — Andrew Carnegie
“Inherited economic power is as inconsistent with the ideals of this generation as inherited political power was inconsistent with the ideals of the generation which established our government.” — Theodore Roosevelt
“The desire to provide security for one's self and one's family is natural and wholesome, but it is adequately served by a reasonable inheritance. Great accumulations of wealth cannot be justified on the basis of personal and family security. … A tax upon inherited economic power is a tax upon static wealth, not upon that dynamic wealth which makes for the healthy diffusion of economic good.” — Franklin D. Roosevelt
“The DuPonts might believe themselves perceptive in observing the debilitating effects of food stamps for the poor, but were themselves living off a boundless supply of privately funded food stamps. … The idea that you get a lifetime of food stamps based on coming out of the right womb strikes at my idea of fairness.” — Warren Buffett
“William Gates Sr. has testified before the Senate Finance Committee that without an estate tax there will be ‘an aristocracy of wealth that has nothing to do with merit.'”
Great, you can cut & paste Quotes. It would seem though that you’re getting at that the government needs to have the tax in order to keep the people honest, and hard working. For the greater good i suppose, right? As we all know the citizens are here for the government, and not the other way around.
Regardless of how you try to marginalize it, it is still a tax. I have never seen a reasonable explanation (or decent, rational, etc…) as to why the death tax exists in the first place. government greed perhaps…maybe an entitlement mentality… Seems to be pretty normal these days
It seems that the point here has escaped and is still on the loose. The reason for the estate tax is to break up or eliminate enormous fortunes and prevent the concentration of wealth and power that puts the power and influence in the hands of the few and strips that same power from the many. That is the exact case that Bill Gates father makes (yes, Bill Gates father) in support of the inheritance (note the proper term) tax. If we are pursuing the American dream my personal belief is that it has more to do with creating something unique and meaningful (even lucrative) rather than coasting through life with power and influence generated by those who preceded. South America with its ingrained class structure and vast gulf between the rick and poor is a classic example of what happens as fortunes grow and are passed on. What amazes me is that it is the very folks whose children and grandchildren could be benefitted by the tax are often the ones who bond with the term “death tax” and support the ability of the very wealth to grow even more so and thus to control the political process that often puts the common person at great disadvantage. Kinda like the chicken giving the fox a tooth sharpener as a gift.