Thursday, July 01, 2004

The United States should not repeal the estate tax

Why you're right:

1. Repealing the estate tax would significantly increase the national debt. Between 2014 and 2023 repealing the estate tax would add $820 billion to the national debt. This would come at a time “when the baby boomers will be retiring in large numbers and Social Security and Medicare costs will be rising substantially.” (CBPP)

2. Repealing the estate tax would only benefit the very rich. In 2001, when the estate tax exemption was $675,000, only 2 percent of all people who died paid any tax at all. Most estate tax is paid by those with estates valued at over $5 million. By 2009, when the estate tax exemption rises to $3.5 million, only .5 percent of all people will pay any tax. (CBPP)

3. Repealing the estate tax would reduce charitable giving. Very wealthy individuals make large charitable contributions to reduce their estate tax. A Brookings study showed that if there would have been no estate tax in 2001, charitable giving would have been reduced by $10 billion dollars. That is equivalent to the total grants doled out by the 110 largest foundations in the United States. (CBPP)

Why they're wrong:

1. Opponents of the estate tax argue is unfair because it is double taxation. They believe the value of the estate has been taxed once as income and should not be taxed again. But people with modest incomes have most of their incomes subject to double taxation through sales and excise taxes. Their incomes are taxed once when they earn it and again when they spend it. Essentially, opponents of the death tax are arguing that the rich should be privileged to protect most of their income from double taxation. Further, without the estate tax, the appreciation of an estate – which many times accounts for much of its value -would never be taxed.

2. Opponents of the estate tax argue that it cripples family farms. First, family owned businesses and farms account for a very small fraction (6 out of every 10,0000) of all estates. Family farms also already receive tax advantages that allows them to reduce, eliminate, or defer tax liability. (CBPP)

A better idea:

Rather than eliminating the estate tax, simply raise the estate tax exemption level for family-owned farms and business to $4 million. A treasury department analysis found that would exempt almost all family-owned farms subject to the estate tax. (CBPP)

Special thanks to WA reader David, who did most of the legwork on this post