Both President Clinton and Vice President Al Gore have lambasted Congress’ $792 billion tax cut scheme as “reckless.” One should note that a section of this “reckless” bill reduces the estate tax over ten years at which time the tax is repealed. Unfortunately, President Clinton threatens to veto the measure. One element of the tax bill that should remain is the elimination of the estate tax, or death tax, as others prefer to call it.
The federal “death tax” is costly to America in a number of ways:
- It forces taxpayers to sell businesses, land and other assets just to pay the “tax reaper.”
- It is immoral for citizens to forfeit their estates, which have already been taxed through capital gains, income taxes and other property taxes.
- It encourages spending down estates so as to minimize the tax bite, which prevents fewer estates being handed down to future generations.
- It encourages urban sprawl since the “land rich, but cash poor” must sell their land to pay the tax. This is particularly true for farmers.
- It is unfair to small businesses, and in particular, those owned by women and minorities. A Center for the Study of Taxation report indicates that 70 percent of family businesses do not make it through the second generation and 87 percent of those fail to pass on to the third generation. A 1995 Kennesaw State University study found that 58 percent of business owners surveyed said their businesses would either fail or have difficulty existing due to the death tax.
The death tax should be buried because it places additional burdens on the keys to a strong economy ¾ saving and investment. With regard to investment, an American Council for Capital Formation (ACCF) report, The Death Tax Impact on U.S. Capital Accumulation and Entrepreneurship, indicated that United States investment by sole proprietors was reduced 2-10 percent or $48 billion. Moreover, the report concluded that our nation’s gross domestic product (GDP) was $106 billion lower in 1998 due to the death tax.
With regard to savings, separate reports by the Heritage Foundation and the Institute for Policy Innovation found that the United States would generate $11 billion more per year in economic output and create 145,000 new jobs or more. As a result, personal income would rise an average of $8 billion dollars per year above current projections. Given that America’s savings as a percent of gross domestic product is only sixteen percent compared to China’s forty-three percent, our citizens need more incentives to save¾ not more taxation. When citizens can keep more of their money, they can invest it any way they choose, which benefits the economy and future generations ¾ truly a sustainable notion.
Finally, the repeal of the estate tax would indirectly benefit our trading status with various nations by encouraging the existence and establishment of small businesses and farms. A second study by the ACCF surveyed twenty-four industrialized nations, concluding that the United States is one of the few nations to have such a high death tax. Currently, the U.S. estate tax rate of 55 percent is second only to Japan’s rate of 70 percent. For U.S. estates over $650,000, the tax rate ranges from 37 to 55 percent for every one thousand dollars above the $650,000 threshold. However, of the twenty-four industrialized nations surveyed, seventeen have a death tax rate of only 30.5 percent which applies to estates worth more than $4 million compared to the $3 million minimum in the United States. Furthermore, the estate tax is nonexistent in Canada, Australia, Argentina, India, Indonesia, Mexico, Israel and even communist China. Little wonder American workers and farmers are at a competitive disadvantage in international trade.
Yet, the United States claims to be a democratic nation intent on equity and lower taxes. If this is true, why do we continue to tax people when they die? Thus, when the Clinton-Gore Administration discusses a sustainable economy, one that values future generations and is socially equitable, then shouldn’t the repeal of the estate tax meet their definition of sustainable?
Jefferson G. Edgens, Ph.D., a native of Rome, Georgia, is a Natural Resource Policy Analyst at the University of Kentucky. He is also an adjunct scholar with the Georgia Public Policy Foundation. The Georgia Public Policy Foundation is a nonpartisan, member-supported research and education organization based in Atlanta, Georgia, that promotes free markets, limited government and individual responsibility. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (August 19, 1999). Permission is hereby given to reprint this article, with appropriate credit given.
Both President Clinton and Vice President Al Gore have lambasted Congress’ $792 billion tax cut scheme as “reckless.” One should note that a section of this “reckless” bill reduces the estate tax over ten years at which time the tax is repealed. Unfortunately, President Clinton threatens to veto the measure. One element of the tax bill that should remain is the elimination of the estate tax, or death tax, as others prefer to call it.
The federal “death tax” is costly to America in a number of ways:
- It forces taxpayers to sell businesses, land and other assets just to pay the “tax reaper.”
- It is immoral for citizens to forfeit their estates, which have already been taxed through capital gains, income taxes and other property taxes.
- It encourages spending down estates so as to minimize the tax bite, which prevents fewer estates being handed down to future generations.
- It encourages urban sprawl since the “land rich, but cash poor” must sell their land to pay the tax. This is particularly true for farmers.
- It is unfair to small businesses, and in particular, those owned by women and minorities. A Center for the Study of Taxation report indicates that 70 percent of family businesses do not make it through the second generation and 87 percent of those fail to pass on to the third generation. A 1995 Kennesaw State University study found that 58 percent of business owners surveyed said their businesses would either fail or have difficulty existing due to the death tax.
The death tax should be buried because it places additional burdens on the keys to a strong economy ¾ saving and investment. With regard to investment, an American Council for Capital Formation (ACCF) report, The Death Tax Impact on U.S. Capital Accumulation and Entrepreneurship, indicated that United States investment by sole proprietors was reduced 2-10 percent or $48 billion. Moreover, the report concluded that our nation’s gross domestic product (GDP) was $106 billion lower in 1998 due to the death tax.
With regard to savings, separate reports by the Heritage Foundation and the Institute for Policy Innovation found that the United States would generate $11 billion more per year in economic output and create 145,000 new jobs or more. As a result, personal income would rise an average of $8 billion dollars per year above current projections. Given that America’s savings as a percent of gross domestic product is only sixteen percent compared to China’s forty-three percent, our citizens need more incentives to save¾ not more taxation. When citizens can keep more of their money, they can invest it any way they choose, which benefits the economy and future generations ¾ truly a sustainable notion.
Finally, the repeal of the estate tax would indirectly benefit our trading status with various nations by encouraging the existence and establishment of small businesses and farms. A second study by the ACCF surveyed twenty-four industrialized nations, concluding that the United States is one of the few nations to have such a high death tax. Currently, the U.S. estate tax rate of 55 percent is second only to Japan’s rate of 70 percent. For U.S. estates over $650,000, the tax rate ranges from 37 to 55 percent for every one thousand dollars above the $650,000 threshold. However, of the twenty-four industrialized nations surveyed, seventeen have a death tax rate of only 30.5 percent which applies to estates worth more than $4 million compared to the $3 million minimum in the United States. Furthermore, the estate tax is nonexistent in Canada, Australia, Argentina, India, Indonesia, Mexico, Israel and even communist China. Little wonder American workers and farmers are at a competitive disadvantage in international trade.
Yet, the United States claims to be a democratic nation intent on equity and lower taxes. If this is true, why do we continue to tax people when they die? Thus, when the Clinton-Gore Administration discusses a sustainable economy, one that values future generations and is socially equitable, then shouldn’t the repeal of the estate tax meet their definition of sustainable?
Jefferson G. Edgens, Ph.D., a native of Rome, Georgia, is a Natural Resource Policy Analyst at the University of Kentucky. He is also an adjunct scholar with the Georgia Public Policy Foundation. The Georgia Public Policy Foundation is a nonpartisan, member-supported research and education organization based in Atlanta, Georgia, that promotes free markets, limited government and individual responsibility. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (August 19, 1999). Permission is hereby given to reprint this article, with appropriate credit given.
