The Death Tax: Is It On It’s Way Out?
With tax reform right around the corner, lawmakers must consider which onerous provisions to target first. While there’s no shortage of taxes that unfairly gauge taxpayers, inheritance (death) taxes are in a class of their own. Prevailing law requires that every deceased person’s estate worth at least $4,450,000 be subjected to a “death tax” of forty percent. This, paired with the gift tax targeting gifts over $14,000, transfers nearly $25 billion per year from landowners to bureaucrats.
After a failed attempt at repeal during the Obama administration, President Trump promised on the campaign trail to remove these onerous provisions from the tax code. Next week, the House can fulfill this vision by passing H.R. 198, which plans to eliminate a host of inheritance taxes including estate, gift, and generation- skipping transfer levies. Congress can finally axe a series of taxes that are immoral, unnecessary, and burdensome to business owners.
Thorny issues prevent the smooth administration of estate taxes. Resulting expenses force families to liquidate assets because they may not have the actual money in the bank. There arises trouble in distinguishing monetary value of an art collection, first edition novels, cars, homes, jewelry, and other valuable items. Placing a final number on the worth of someone’s total estate forces families to make painful decisions over what to sell in order to pay the tax. Many small business owners and farmers are vulnerable to this cruel calculus as well. For these enterprises, estate value is typically wrapped up in land, equipment and stocks, all of which are fair game for the tax. As a result, these businesses may decline to take as many entrepreneurial risks for fear of losing most of their future profits. Business expansions are hampered, and even shut downs may occur.
Inheritance taxation in America has worn out it’s welcome. It collects less than one percent of the federal revenue, despite hitting thousands of taxpayers annually. According to the Tax Foundation, nixing the estate tax would free up small businesses to create roughly 150,000 jobs. Eventually, $8 billion would be added to federal revenue by increasing widening the income tax base through increased prosperity. Similar results were found by the Heritage Foundation, which concluded that estate tax repeal would pave the way for 18,000 more jobs annually and increase economic growth by $46 billion. Rolling back inheritance taxation is beneficial for businesses and workers alike.
While nixing these tax may seem “radical,” the US would merely be following the example of other developed nations. In the last seventeen years, eleven countries have cut back on inheritance taxation. This list includes Scandinavian countries such as Norway and Sweden who are notorious for their tax-heavy philosophies. Swedes benefited from increased investment, job growth, and stronger businesses following their rollback of death taxes. Norway found similar benefits after their elimination of inheritance levies, and a subsequent net wealth tax designed to take its place. Middle class families, heavily burdened by both iterations of the tax program, were promptly unshackled and enjoyed greater wealth as a result. America would benefit tremendously to follow the examples set by these Nordic nations.
While it is always difficult to take money away from bureaucrats, the passage of H.R. 198 looks promising. The bill, which has 61 co-sponsors in the House, will likely pass through the GOP- controlled Congress. By turning this legislation into law, legislators and the President can signal that they are finally serious about tax reform. Axing inheritance taxes is a winning strategy that can both relieve estate owners and protect small businesses. More importantly, though, it’s the right thing to do.