Snuff out the Estate Tax

The U.S. should repeal the taxes heirs must pay when inheriting money, real estate, and other assets. Pro or con?

Pro: Ending the Tax Would Spawn Job Growth

According to a 2006 Joint Economic Committee report, tax data for the years 1995 to 2005 show that estate taxes were paid during that period by more than 37,000 "closely held businesses," 24,000 family farms, 50,000 limited partnerships, and 28,000 "other" noncorporate businesses such as sole proprietorships.

Congress is now considering making the current 45%* estate tax rate permanent or even raising it. What Congress should be doing instead is repealing the punitive tax, which hurts the very businesses that are the backbone of the economy, producing an estimated 60% of gross domestic product.

Repealing the tax would boost business investment and create new jobs—as many as 1.5 million, according to a recent study by former Congressional Budget Office Director Douglas Holtz-Eakin.

The estate tax provides an ideal vehicle for demagogues to attack the wealthy. What the estate tax itself attacks are people who work hard to build businesses that they hope to keep in the family after they die. For many, the estate tax kills that dream.

*Please note: This figure was corrected after its original press time.

Con: The Estate Tax Promotes Shared Prosperity

The federal estate tax is our country’s most progressive tax and our only tax on wealth. Since 1916, it has helped reduce the concentration of wealth that weakens our democracy.

The estate tax has been cut five times since 2001, with the result that few people, including farmers and small business owners, pay it now. Repealing it would increase the federal deficit by $1.3 trillion dollars over 10 years, according to the Center on Budget & Policy Priorities, and leave the struggling middle class even worse off.

The anti-estate tax campaign has been funded by a few super-wealthy families who own giant companies like Mars Candy, Gallo Wines, and Wal-Mart (WMT). Their lobbyists pushed for the nonsensical law that eliminates the estate tax in 2010, then brings it back in 2011. Cutting the estate tax again would give a huge tax break to the same corporate executives and Wall Street speculators who wrecked the economy.

A married couple can pass on $7 million tax-free—a pretty good head start for the offspring. With that exemption, few small businesses would ever feel the tax at all. Many small business owners and farmers, including the National Farmers Union, support the estate tax. They know a robust estate tax will fund vital public services that rebuild the middle class and create more broadly shared prosperity.

The wealthy share a responsibility to America to pay taxes, and many wealthy people like me support the estate tax because we realize there can be no private wealth without public resources. It’s time for Congress to do what’s right and establish a strong estate tax starting in 2010.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

Karen Kraut

More than 98 people out of 100 do not ever have to pay this tax since the threshold for paying it is $3.5 million (for individuals) and $7 million (for couples).

The "small business" and "family farm" issue is such a ruse. The people trying to repeal this tax are vastly wealthy families and huge businesses like Wal-Mart and Gallo Wines, who apparently don't think that passing on $7 million tax free to their heirs is enough.

As Warren Buffet has said in reference to his support of the estate tax, "Dynastic wealth is the enemy of a meritocracy," and it's on the rise.

Enacting more tax breaks for billionaires and millionaires is the wrong direction for this country. And, frankly, for Congress to take such a step at a time of low- and middle-class economic devastation would be absolutely immoral.

Carson

Facts are facts, and there is no arguing with the litany of studies which show that when the estate tax confiscates capital, it reduces job growth. I checked out Dick Patten's group and found tons more information on their website: www.estatetaxtruth.org.

Bill Creighton may be suprised to learn that the estate tax has some very wealthy friends, such as the life-insurance industry which makes an estimated 18 billion in policies sold to family businesses (ironically, to help them minimize estate tax liabilities).

The evidence does not support the claim that the estate tax serves any "progressive" end by transferring wealth from the "rich to the poor." Rather, it transfers assets from family businesses and farmers to the life-insurance industry and their well-heeled lobbyists.

Michael

Karen,
Actually, asking congress to take a step that would in any way help save or create jobs absolutely would be the moral thing to do; removing the estate tax from the backs of small businesses would do just that. I am sure you have seen the Douglas Holtz-Eakin study,
(http://estatetaxtruth.org/_documents/holtz-eakin_study.pdf), which basically refutes everything you just posted, but I have the feeling that you are paid far too well by the AIG types to care about economic reality.

Adam Nicholson

In their rush to misrepresent the true victims of the estate tax, Bill and Karen forgot to mention the "superwealthy" proponents of the estate tax: the life-insurance industry and their financial backers, like Warren Buffett. A recently released report by the American Family Business Foundation finds that the life-insurance companies make an estimated $12 billion on policies sold to family businesses (specifically for the purpose of helping the business survive the estate tax).

The real ruse in the estate tax debate is not the the impact on family businesses, which is amply documented (see: www.estatetaxtruth.org) but the pretense that the tax actually serves a "moral purpose."

The reality is that the estate tax does indeed achieve wealth transfer--not from the rich to the poor--but from family businesses to the life insurance industry and the Warren Buffets of the world. In a time of soaring unemployment, keeping this job-killer of a tax is the truly immoral policy.

Adam

So what does a commenter on the "pro" side have to do to get a comment published?

Lee

I am surprised that Dick Patten made a very basic error in his article: The current estate tax rate is 45% on amounts over $3.5 million per person.

I think we need we need a stronger estate tax--see http://www.faireconomy.org/issues/estate_tax/estate_tax_quick_factsH.R. 2032, sponsored by Rep. McDermott, would make permanent the exemption level at $2 million, and establish progressive tax rates of 45% for estates between $2 million and $5 million; 50% for estates between $5 million and $10 million; and 55% for estates above $10 million--all indexed for inflation. The bill also includes reunification, portability, and the state estate tax credit. This bill will do the most to prevent growing economic inequality, which is now at an all time high.

Regarding the Holtz-Eakin report, it has been torn apart by the moderate Tax Policy Center, see http://taxvox.taxpolicycenter.org/blog/_archives/2009/6/18/4226020.html, as well as the progressive think tanks Center on Budget and Policy Priorities (see "Reports Calling for Estate Tax Repeal Seriously Flawed; Repeal Would Increase Deficits and Likely Slow Economic Growth as a Result," http://www.cbpp.org/cms/index.cfm?fa=view&id=2861) and Citizens for Tax Justice (see "The Estate Tax--Caviar, Cruises, and Cocaine," http://www.ctj.org/pdf/afbfreports.pdf ).

When Holtz-Eakin was head of the Congressional Budget Office under President Bush, CBO published a detailed study stating that the estate tax annually affects only a handful of farms or businesses--because most are worth less than the $3.5 million estate tax exemption (see "Effects of the Federal Estate Tax on Farms and Small Businesses," http://www.cbo.gov/ftpdocs/65xx/doc6512/07-06-EstateTax.pdf.) Writing for AFBF somehow seems to have changed Mr. Holtz-Eakin's views.

Regarding life insurance, its purpose is not to help families minimize their estate tax obligations, but to set aside enough money that the estate can pay the estate tax that is due. I have talked to many farmers and small businesspeople who say that the amount of life insurance they pay is small and does not impact their business.

Finally, let’s be civil in our posts and not name-call and speculate on who is getting paid how much; I'm willing to assume that each of us is speaking from our own deeply-held political beliefs.

Steve

A few facts: In 2007, the top 10% owned more than 70% of all privately held wealth; the top 1% owned more than a third of the wealth pie, as much as the bottom 40%. Except for Singapore and Hong Kong, the US is the most unequal country in the world. This is not only morally wrong, it is harmful to the health of humans and the planet, democracy, and the economy.

In 2007, we had the greatest concentration of wealth at the top in this country since 1928. And following these periods of excess, the economies of the world crashed. Hundreds of millions of people suffered and are suffering as a result. The super wealthy, not so much.

Jos

The question for Dick Patten is how many of those taxpayers he listed actually faced financial hardship from the estate tax, i.e., had to sell their businesses or farms to pay the tax? He'll have to take a lot of zeros off his numbers to answer that one.

And when did inheriting $7 million tax free become such an injustice? If a person won $7 million in the lottery and then complained that it wasn't enough, we'd call it ridiculous. But when $7 million is given to a wealthy heir in cash and assets he/she never owned or earned (and many times never taxed), we call it unjust.

Estate tax repealers can cite all the one-sided job killing studies they want but it doesn't change the fact that this is simply about a small number of obscenely wealthy people not wanting to pay their fair share.

Tim

The reason Teddy Roosevelt first lobbied for the creation of an estate tax is he saw the damage that robber barons, monopolistic dynasties, and entrenched wealth can do. If there were no estate tax, America would essentially be ruled by de facto royalty, dynastic wealthy families controlling our way of lives for generations without end. It would essentially end the democratic process as we know it. The lower taxes we have as they are have already enabled certain wealthy families of little intelligence and talent to rule our nation. The fact that the son of the a previous president who himself was a C student and got into Yale because of his father's legacy and only entered the White House because he was born with a silver spoon in his mouth should serve as a warning sign to those who want to eliminate the estate tax. Would the previous president have gotten anywhere whatsoever in life without his inheritance?

Strategery

One idea of America was that no matter who you were or how much money you had, you would be treated equally by the government. This used to apply to government officials too--who were not supposed to be above the law. Preventing "old money" and an aristocratic society--who have great clout over the government--was an intent of the estate tax. Eliminating the estate tax will further concentrate wealth until the USA becomes a Third World nation.

cc

The estate tax is anti-family, anti-job creation, anti-capitalist, anti-American, period. It is near criminal to punish a family for being suggessful, and that is exactly what this tax does. It should indeed be a wealth building tool and model for all Americans. It shows that hard work and frugality will increase a standard of living much more fairly and morally than dependency on others, whether it be government, churches, or charity. Isn't this what is good and what we should work and strive for? The wealthier people are, the more taxes they pay. Their tax rate is higher and they spend more, which creates more sales tax and, thus, creates job opportunities. Creating a very high threshold for beginning a tax, say $100,000,000 or so, will indeed prevent excessive hoarding of capital.

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