It’s Time to Bury the Death Tax
By Sen. John Thune
Benjamin Franklin once famously quipped that “in this world nothing can be said to be certain, except death and taxes.” While there’s some truth to what Franklin said, we certainly don’t need a system where Americans are taxed at death. The idea that death could be a taxable event might come as a surprise to some people, but believe it or not, the IRS sometimes and unfairly views death as a final chance to help fill its coffers. I strongly disagree, which is why I’m continuing my years-long fight to permanently repeal the estate tax – or the death tax, which is a far more accurate characterization.
The reality of the death tax hits families at the worst possible moment. The last thing families need to worry about when they’re grieving the loss of a loved one is how and when they’ll deal with the long arm of the IRS. The underlying premise of the death tax, which is re-taxing wealth that has already been taxed, is fundamentally unfair. It also hits every family differently. In South Dakota, for example, family-owned farms and ranches are often land rich and cash poor. On paper, a family with a several-thousand acre farm might seem far wealthier than what’s reflected in the family checkbook or savings account.
Anyone who has run a farm or ranch knows that land alone doesn’t pay the bills. The land represents an opportunity to earn a living, put food on the table, send kids to school, and keep the operation running from one day to the next. Without it, the farm doesn’t exist. The IRS takes the opposite approach. It only sees lines on a balance sheet. The IRS lumps land value with other assets, like cash in bank accounts and the owner’s home. In too many cases, the land and other assets can put the farm owner and his or her family directly in the crosshairs of death tax.
Some people argue that with smart lawyers and accountants and complicated estate planning, individuals can avoid having to pay the death tax at all. While that might be true for some of the wealthiest people who can afford both the ongoing time and financial burden of effective estate planning, that’s not the case for everyone. Estate planning comes at a cost, and every dollar spent on a lawyer or accountant is a dollar that isn’t reinvested into growing a business, hiring new employees, or boosting paychecks. That money isn’t used as effectively as possible while the individual is alive, long before the death tax may even apply.
Abolishing the death tax would give Americans greater peace of mind so they can focus on what really matters, and that’s why I’m committed to this fight. According to the American Farm Bureau, thousands of farms in South Dakota would exceed the death tax’s exemption level today, just based on the value of their land. My primary interest in taking up this cause has always been to protect those farmers and ranchers and to put this onerous tax six feet under once and for all.
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The vast majority of estates — 99.9% — do not pay federal estate taxes. While the top estate tax rate is 40%, the average tax rate paid is just 17%. The estate tax is only paid on assets greater than $5.3 million per individual
Your point is? Oh, wait, I know: So long as it’s those wealthy people who probably stole the money from the middle class, it’s okay to tax people one more time as they walk out the door, metaphorically speaking. I’m sure the federal government will spend it more wisely than the heirs; after all, it’s “patriotic” to pay taxes.
Jaa Dee’s numbers are about right, and they should be since the estate tax generates less than 1% of annual federal tax revenues.
One real problem with the estate tax (“death tax”) is that the costs of compliance have been estimated to be as high as one-third of the amount collected. Another real problem is the unnatural adjustments one must make in one’s investments to legally avoid the estate tax – adjustments that reduce asset flexibility and growth opportunities. Finally, let’s not forget the confiscatory nature of the tax on estates that have not protected themselves. These estates usually need to sell assets (farms, stores, real estate, etc.) to pay estate taxes, though there is the barely more acceptable alternative of having the estate continue as a distinct entity, carrying debt to pay taxes and not distributing residual assets to heirs.
The estate tax was designed as a democratizing tool to avoid concentration of wealth within families, especially in a time when wealth was usually defined as real property. It was also designed to distribute money more freely when the money supply was tied to gold reserves.
These historic reasons for the estate tax are no longer valid. Wealth accumulation is no longer directly tied to real property or the ability to amass labor resources (employees). The national and international money supply is no longer tied to fixed gold reserves. For better or worse, the Fed can tinker with the money supply and the government can engage in deficit spending, providing credit markets with ample resources to lend and invest.
The federal estate tax doesn’t raise much revenue, it’s expensive and a real pain for affected people to deal with, and it no longer serves its original purpose.
The reason the estate tax doesn’t “raise much revenue” is because it doesn’t kick in until you have an estate over $5.45 million. That threshold should be lowered.
And the Senator is wrong. The current answer is to set up a “Dynasty Trust” and if you have a worth of $ 5.45 million or more you should have a trust and the costs involved with that trust are advantageous compared to continually paying taxes on the interest generated from the $ 5.45 million wealth until you die….
This “Death Tax” concern is just a joke. It sounds real good to repeal it on its face value to some and threatening because of the word “Death,” but in actuality it is a moot issue at best given the $ 5.45 million threshold before the tax kicks in and the availability of “Dynasty Trusts” for those with wealth over $ 5.45 million……
Yeah, let’s lower it to dollar one! Why should someone be able to pass on to their kids what the decedent spent a lifetime accruing?
Just make dynasty trusts the law so the people will do what they should, according to you. The heck with letting people make their own decisions. Freedom is overrated anyway.