The estate tax is not and never has been a “death tax” , yet the nickname that critics gave it a few years ago has stuck. That’s a pity because the levy underscores the notion that America is the land of opportunity where success in business depends on acumen and not a family pedigree.
As the Center for Budget and Policy Priorities noted, permanently repealing the estate tax,would increase the deficit by $698 billion over the next ten years compared to letting the tax return in its pre-2001 form. The near-death experience is due to the Bush tax cuts, which expire at the end of the year, and the continued insistence by critics that it harms the economy though the evidence seems to disprove that notion.
Warren Buffett, history’s greatest investor, supports the tax as does hedge fund billionaire Julian Robertson and former Treasury Secretary Robert Rubin. Writing in the Wall Street Journal, Robertson and Rubin make a compelling case that the estate tax is fiscally responsible.
“An estate tax can provide revenue—with little, if any, adverse supply side economic impact—to fund deficit reduction, additional public investment or added assistance to those affected by the economic crisis,” Robertson and Rubin write.
Their views are backed George Soros, Ted Turner and Vanguard founder John Bogle. Remember that the estate tax is on hiatus this year. Families of New York Yankees owner George Steinbrenner and Texas pipeline tycoon Dan Duncan have reaped the benefits of the government’s unbelievable generosity. There is no evidence that the rich folks are investing this additional wealth to create new jobs. Much of it probably winds up in offshore bank accounts, making it even harder for Uncle Sam to tackle the deficit.
Unless Congress acts — which is likely ahead of the midterm elections — the tax would return as with a $1 million per-person exemption and a 55 percent top rate. That outcome has sent opponents into a tizzy. The American Family Business Foundation, argues that “just stopping President Obama’s death tax hike alone would create 1.5 million jobs.” Sen. Jim DeMint (R-SC), who favors permanent repeal, added: “Washington could get over half of family estates, farms and small businesses, a greater inheritance than the children of the deceased.”
The question over whether the tax causes more harm than good is key as debate rages over what level the tax should be when it returns in 2011 or if it should return at all. President Obama wants to reinstate the tax in its 2009 form. Members of Congress have proposed continuing the tax with exemptions ranging from $2 million to $5 million per person and top rates ranging from 35 percent to 55 percent.
Getting rid of it entirely seems unwise, especially given the more than $1 trillion federal deficit. Under the 2009 rules, which Robertson and Rubin back, people with estates worth $3.5 million or couples with holdings valued at $7 million are exempt from the tax. Very few — only about 1 of every 400 of the wealthiest estates — paid any estate tax under the 2009 rules which have a 45 percent rate. This seem reasonable, particularly since there are protections for small businesses and farmers.
Letting rich people inherit money without restrictions rewards people who don’t need the help and hurts most people who have to pay higher taxes than they would otherwise.