Why Won't Congress
Abolish the Estate Tax?
June 12, 2006
The U.S. Senate had a golden opportunity to repeal the federal estate tax last week, but fell a few votes short. I fear that vote might represent the high-water mark in the movement to get rid of this destructive tax once and for all.
estate taxes no longer devour 60% of some individuals’ wealth when they die.
Congress passed legislation in 2001 that reduced estate tax rates and
increased the amount of assets exempt from the tax.
Yet Congress has been unable to abolish the estate tax altogether, and
due to a political compromise the old rates will be back in effect come 2011
unless Congress acts first.
estate tax raises very little money. In
fact, even at its height the estate tax accounted for only a little more than 1%
of federal revenues. A
congressional Joint Economic committee report estimates that Americans spend as
much avoiding estate taxes—paying attorneys and accountants—as they
do paying estate taxes. A study by a Stanford professor concluded that
“True revenues associated with estate taxation may well have been near zero,
or even negative.”
no longer a matter of tax policy or economics—the arguments in favor of the
estate tax have all been demolished. Instead,
the estate tax survives purely because of politics.
real motivation behind the estate tax is a deep-seated hostility to property
rights, and a misguided fear of family dynasties. But people don’t keep money in mattresses anymore.
Money inherited from an estate is either spent, saved, or invested—all
of which are better for the economy than sending it to Washington, where
bureaucratic overhead consumes at least 50 cents of every dollar.
you truly own your property, you have the right to dispose of it any way you
wish. You can sell it, give it
away, or direct who will receive it when you die.
This control is the essence of property rights.
If you can’t control what happens to your property, you don’t really
why the estate tax is so destructive. Since
people don’t want the government controlling their property when they die,
they twist themselves into pretzels finding ways to avoid turning assets over to
the IRS. Some create elaborate
trusts to minimize their taxes, supporting the economically wasteful
estate-planning industry. Others
simply lose their entrepreneurial spark, stop working, and spend their money--
succumbing to a “die broke” attitude.
the issue is control. People who
have worked hard to build wealth simply cannot stand to see government take a
big chunk of their assets when they die, so they do anything they can--even
economically harmful things—to prevent it.
This is what supporters of the estate tax cannot seem to understand.
smaller, family-owned farms and ranches, the estate tax is especially
threatening. Such operations may be
worth several million dollars when the value of land, livestock, buildings, and
equipment are considered. Yet when
the owner dies, his heirs often do not have liquid cash to pay a hefty tax bill.
As a result, all or part of the family business may be sold to pay the
IRS. This has accelerated the trend
toward corporate ownership of American farms and ranches.
William Beach at the Heritage Foundation summarizes, the estate tax does four
things-- all of which are bad for the economy and frankly un-American:
it discourages savings and investment.
Second, it undermines job creation and wage growth.
Third, it stifles investment.
Forth, it contradicts a central premise of American life, namely, building wealth and “getting ahead.”
For all of these reasons, it’s time to get rid of the estate tax once and for all.