. . . Or Unfair Burden on Families?
This week the Senate is expected to vote on permanent repeal of the estate tax. With this vote, Congress will have an opportunity to finish the job it started five years ago.
The estate tax -- or, as many of us prefer to call it, the death tax -- is a tax imposed on the transfer of assets or property from a deceased person to his or her heirs. This is one of the IRS's most painful taxes, as it hits families at the worst possible time, when they are dealing with the death of a loved one.
Congress passed a gradual phaseout of this tax at the urging of President Bush in 2001, and it was scheduled to disappear in 2010. But because of the peculiarities of the lawmaking process, the death tax will return in 2011 -- at the same high rates that existed before -- unless Congress enacts new legislation. In April 2005 the House passed a permanent repeal of the death tax by a vote of 272 to 162. Over a year has passed since; it is time for the Senate to act.
The list of reasons for eliminating the death tax is long. To begin with, this tax punishes thrift and saving. It tells people that it's better to spend freely during their lifetimes than to leave assets for their children and grandchildren, which will be taxed heavily by the federal government.
The death tax hits hardest at heirs of small-business owners and family farmers. In many cases, the heirs cannot afford to pay the tax and are forced to downsize, lay off employees or even sell their business or farm.
There can be no doubt that closely held family businesses that are growing and beginning to compete with the big guys are often devastated by the tax. I believe the death tax is a major factor in business consolidation and loss of competition.
This tax hurts the growth of minority-owned businesses. As the first generation of African American millionaires begins to die, many of the companies they founded will have to be sold to pay the estate taxes. For example, the tax almost forced the oldest African American-owned newspaper -- the Chicago Daily Defender -- out of business.
According to Heritage Foundation economists, the death tax also costs the American economy 170,000 to 250,000 potential jobs each year. These jobs are never created because the investments that would have financed them are not made, as these resources are diverted to pay for complex trusts and insurance policies to avoid the tax.
The death tax is double taxation. Most of the assets taxed at death have already been taxed throughout an individual's lifetime.
The death tax accounts for a small portion of federal government revenue, an expected $28 billion in 2006, or only 1.2 percent of federal receipts.
Many argue that repealing the death tax would decrease charitable giving, as this tax allows individuals to deduct gifts to charitable organizations. Yet, even though the phasing out of the death tax began in 2001, charitable contributions in the United States reached a record high in 2004.
The death tax even has a negative effect on the environment, as heirs are often forced to develop environmentally sensitive land to pay the tax. According to a study by researchers from Mississippi State University and the U.S. Forest Service, about 2.5 million acres of forest land were harvested and 1.3 million acres were sold each year from 1987 through 1997 to pay the estate tax.
Finally, the American people already understand the unfairness of the death tax and support its repeal. Sixty-eight percent of those surveyed in a recent poll commissioned by the Tax Foundation supported repeal of the estate tax. Moreover, the death tax was rated by Americans in the same survey as the least fair tax .
As a vote approaches, it is essential that constituents let their representatives hear now how unfair they believe this tax is. The death tax is almost dead. Let's put the stake in its heart.
The writer is a Republican senator from Alabama.