Who benefits most from the death tax?
There are two obvious answers.
First, politicians presumably benefit since they get more money to spend. Yes, it’s true that the tax discourages capital formation and may actually lose revenue in the long run, but politicians aren’t exactly famous for thinking past the next election cycle.
Second, there are some statists who are motivated by envy and resentment. These are the folks who make class-warfare arguments about the death tax being necessary to prevent the “rich” from accumulating more wealth, even though evidence shows large family fortunes dissipate over time.
Both of those answers are correct, but they don’t fully explain why this pernicious levy still exists.
Tim Carney of the Washington Examiner has a must-read piece for the American Enterprise Institute. He reveals the groups that actually are spending time and money to defend this odious version of double taxation.
…about two-thirds of Americans tell pollsters that they oppose the death tax. …But some segments of the population feel differently — most notably, the estate-planning industry. A survey by an industry magazine in 2011 found that 63 percent of estate-planning attorneys opposed repeal of the estate tax. That’s fitting. The death tax forces people to engage in complex and expensive estate planning. Lobbying disclosure forms show that the insurance industry is lobbying on the issue these days. The Association for Advanced Life Underwriting, which represents companies that sell estate-planning products, lobbied on the issue last year, as it has for years. Last decade, AALU funded a group called the Coalition for America’s Priorities, which attacked estate tax repeal as a tax break for Paris Hilton. …When the estate tax was last before Congress, the life insurance industry revved up the troops, spending $10 million a month on lobbying in the first half of 2010. In that stretch, only three industries spent more, according to data from the Center for Responsive Politics.
I concur with Tim.
Indeed, I remember giving a speech back in the 1990s to a group of estate-planning professionals. In my youthful naiveté, I expected that these folks would very much appreciate my arguments against the death tax.
Instead, the reception was somewhat frosty.
Though not nearly as hostile, I must confess, as the treatment I got when speaking about the flat tax to a group of tax lobbyists for big corporations.
In both cases, I was surprised because I mistakenly assumed that my audiences actually cared about the best interests of their clients or employers.
In reality, they cared about what made them rich instead (economists and other social scientists call this the principal-agent problem).
But I’m digressing. Let’s look at more of Tim’s article. He cites the Clintons to make a key point about rich people being able to avoid the tax so long as they cough up enough money to the estate-planning industry.
Those same techniques, however, often are not available to farmers, small business owners, and others who are victimized by the levy.
The Clintons may be stupid-rich, but they aren’t stupid — they’re using estate-planning techniques to avoid the estate tax. Bloomberg News reported in 2014 that the Clinton family home has been divided, for tax purposes, into two shares, and those shares have been placed in a special trust that will shield Chelsea from having to pay the estate tax on the full value of the home when she inherits it. Also, the Clintons have created a life insurance trust — a common tool wealthy people use to provide liquidity for heirs to pay the estate tax. The Clintons’ games, and the estate-planning industry’s interest in the tax, highlights how the tax fails at its stated aims of preventing the inheritance of wealth and privilege. Instead, the estate tax forces the wealthy to play games in order to pass on their wealth. These games don’t add anything to the economy, they just enrich the estate-planning industry. Those whose wealth is tied up in a small or medium-sized business, on the other hand, aren’t always capable of playing the estate planning games. They’re the victims.
The bottom line is that the tax should be abolished for reasons of growth.
But it also should be repealed because it’s unfair to newly successful entrepreneurs, investors, and business owners, all of whom generally lack access to the clever tax-planning tools of those with established wealth.
And it should be repealed simply because it would be morally satisfying to reduce the income of those who benefit from – and lobby for – bad government policy.
P.S. The U.S. death tax is more punitive than the ones imposed by even France and Venezuela.
P.P.S. It’s particularly hypocritical for the Clintons to support the death tax on others while taking steps to make sure it doesn’t apply to them.
P.P.P.S. In a truly repugnant development, there are efforts in the U.K. to apply the death tax while people are still alive.
P.P.P.P.S. On a more positive note, a gay “adoption” in Pennsylvania helped one couple reduce exposure to that state’s death tax.
P.P.P.P.P.S. If you live in New Jersey, by contrast, the best choice is to move before you die.
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[…] I particularly like Johan’s advice to copy what works. We should partially privatize our Social Security system (actually, we should be like Australia and have full privatization, but we should at least get the ball rolling). And we should have extensive school choice like Sweden. Moreover, let’s copy the Swedes and get rid of the death tax. […]
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I have a theory that the death tax loses money for the government–and not just because of the wealth destroying liquidation effect–but on a static analysis basis. The death tax only applies to the very wealthy (currently $5.43 million per person or $10.86 million per couple); but everyone receives a stepped-up basis at death. My theory is that the stepped-up basis eliminates more capital gains tax than the total death tax generates. It also adds a new basis to rental property for another round of depreciation that lowers ordinary income taxes.
For example, a decedent has a $5,000,000 estate, all in rental property that is fully depreciated. His estate is too small to be subject to the death tax, but his heirs can either (i) sell the real estate without any capital gain because of the stepped-up basis or (ii) keep the rental property and start the depreciation process over with a new $5,000,000 basis.
Since there are vastly more people who receive the stepped-up basis than there are who actually pay any death taxes, it must be a money loser for the government and another economic distorting, iatrogenic political scheme that hurts the country.
To avoid the estate tax, wealth generators must frequently convert their assets into more fungible assets that can be hidden or distributed. It is in everyone’s interest that these wealth generators continue as long as possible, possibly into the next generation, rather than liquidating for tax purposes.
Wealth can be held in sterile forms like gold or wealth generating forms like stock. It is far preferable for the economy for them to own stock until they die to be passed on, than to have them liquidate it for estate tax purposes, to be redistributed for immediate consumption.
[…] WAIT, THERE’S MORE… […]
“Alicia Munnell, a member of Clinton’s Council of Economic Advisers, estimated that the resources spent on avoiding estate taxes may be as large as the amount that the tax collects.” — Chris Edwards, Cato 6/06
The Death Tax is truly one of the most revolting methods of taxation. The notion that when you die, the government assumes part of your accumulated wealth, denying you the ability to spend your money the way you want even in death, is just morbid.
If you think it about it, it falls right in line with the whole Keynesian / Socialist narrative of the markets. The death tax is meant to keep people from “hoarding” money, which may result in government’s and banker’s worst nightmare: deflation. Since savings = bad and spending = good, according to all variants of Keynesianism, what better way to make sure people don’t (God forbid) save money than to confiscate it under threat of force if they should perish before they spend it.
You better spend your money while you can, because should you die before you spend it all, the rest is ours…
What people like Krugman will never admit is that when people hoard vast sums of money, it makes society wealthier. Without all the money now being hoarded pushing up prices in the market, the money left in circulation is now worth more, due to the falling prices. This deflationary gain of wealth, which in contrast to an inflationary gain of wealth, cannot be directed by governments and banks to favored cronies, lobbyists, and apologists, and this is precisely why they will never tolerate it.
Deflation is true power to the people.
The match up of IRS agents against high priced tax lawyers is no contest.
However, if an IRS agent is good enough, he has a great opportunity to be hired by the other side, as long as he makes a good case, but not quite good enough to be successful.
The death tax is for fools, who are soon parted from their money. If you die with nothing, the tax can be 100% and the fed.gov gets their fair share: $0.00.
Planning always beats depending on Washington and the criminals there (whether they are felons per se or not, they are by results; res ipsa loquitor). Just because a law is passed doesn’t make it enforceable–read the Constitution and its heritage. Bad law cannot not be enforced.
People can revolt against any enactment–it’s overdue for the illegally confirmed 16th Amendment. Since most people have been made poor systematically by the fed.gov, it will be hard to get them revolt against the death tax.
Everything a politician says is a lie, a fabrication, a misstatement, distorted or untrue. Maybe even their names … Hint: entitlement doesn’t appear in the founding documents; it has no legal basis nor justification. It is outright theft.
While your stuff is good, what does it matter if only you, I and a couple thousand others understand? Never under estimate the stupidity of the American people.
Those with a pulpit have to be devoted to The People taking the government (all of them) back or its all over. Religious leaders (not those black fakers) have dropped the ball. In colonial times they lead the march at the local level. If the people aren’t waging war on the fed.gov, we may as well move to Cuba.
Experts in D.C. are a perfect example of puppeteering: they, like a myna bird, say only what their master desires. If an elected official hasn’t educated her/himself about an issue, they have no business voting on it. That’s why they are sent, not to rob us.
I cannot believe how naive and stupid Americans are–the failure of the fed.gov and blatant criminal actions of elected officials is undeniable. Yet they vote for the two majorly inept parties every year.
Who will stop the madness? Not a jackass or truncated mouse. ©2015
PS. We absolutely need a choice of “None of the Above” for every elected office; if NOA wins, neither candidate can run for that office again.
[…] By Dan Mitchell […]