In 2001 the federal estate tax, more accurately dubbed the “death tax,” assessed a levy of 55 percent on savings left at death over $1 million.
The 2001 Bush tax-cuts phased out this tax, reducing it to zero in 2010. Under the scheduled phase out, the assessment this year declines to 45 percent on savings over $3.5 million for individuals, $7 million for married couples.
Now President Barack Obama and congressional Democrats want to freeze the tax at this year’s levels, and eliminate the complete phase-out scheduled for next year.
But every dollar left behind at death has already been subject to federal taxes at least once, under the income tax, and/or the corporate tax, and/or the capital gains tax, and more. It is unfair, harsh and discriminatory for the government to take another big bite out of those funds at death.
Those who think this change will not have negative economic effects are dreaming. Adding another layer of taxation on savings and investment under the death tax discourages such savings and investment, and encourages estate tax avoidance maneuvers which strands precious investment capital in less economically efficient vehicles, or drives it offshore altogether.
Indeed, threats of future taxation and runaway regulatory burdens are already encouraging capital flight from the U.S., which will weaken the recovery and threaten long-term stagnation.
Even unfavorable static economic analysis projects that completely eliminating the estate tax would lose only $18 billion a year on average over the next 10 years.
But many economists believe the existing death tax actually reduces total federal tax revenue. And that eliminating it entirely would not lose any revenue, and might even increase total federal revenues.
The death tax was a key provision of Karl Marx’s Communist Manifesto. President George W. Bush got rid of it; President Barack Obama wants it back.
It’s only fair that those who have worked and saved all of their lives (and have already paid heavy taxes) should be free to leave their money to their children without being subjected to a final heavy tax. That would be a sign of a free rather than a socialized economy.