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July 21, 2014

The Undead Death Tax

Given the focus on “tax reform” in the last few years, many have forgotten that the “death tax” sprang back to life from the dead in 2011, again haunting estates.
The death tax is placed on the transfer of the estate of a deceased person and hence reduces the value of the estate before an heir can inherit it. In some cases (e.g., many farms and small businesses) the estate must be sold off to cover the tax obligation. Opponents fought this devastating tax for years, successfully convincing Congress to act in 2001: Rates were gradually dropped until the tax was repealed in 2010. However, politics at the time intervened, weakening the outright repeal to a 10 year phase down, with the tax coming back in full force at the end of the 10 years.
To that point, last week a broad coalition of groups sent a letter to Capitol Hill urging the repeal of the tax noting, “We believe that full repeal of the death tax is the only permanent solution for America's family businesses and farms and applaud your efforts to bring this important issue to the floor for the first time in over nine years,” and “We  appreciate  your  work  to  lead  the  country  towards  a  common  sense  tax  code  that  does not  impose  a  destructive  double  or  triple  tax  at  death...”
In 1998, IPI made a very similar point in “The Case for Burying the Death Tax.” The study concluded:
Estate taxes have increasingly reached into middle-class America over the last several decades. The largest estates do not pay the highest tax rates. That dubious honor falls on medium-sized estates, often belonging to people who have started and shepherded successful businesses. 
Estate taxation hurts the economy. Its sheer complexity results in high compliance costs—as much as estate taxes raise by one estimate.
Estate taxes have hit small businesses particularly hard. Heirs sometimes must liquidate at least part of a successful enterprise to pay the estate tax bill. High marginal tax rates on estate assets raise capital costs and depress saving and investment. Almost any move to reduce estate taxes should more than pay for itself through higher growth.
All in all, American taxpayers, the economy and government would be better off without estate taxes. Serious reduction or outright elimination of estate taxes would be one of the best legacies that the 106th Congress could leave future generations.
And now permanently burying the undead death tax would be one of the 113th Congress’s best legacies.


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