Death and taxes

The Federal Estate Tax rate is set to spike.

By Dick Patten
  • Friday, December 7, 2007

The battle over the Federal Estate Tax, also known as the Death Tax, just won’t go away. It’s like the energizer bunny – it keeps going and going.

It has been fought on the floors of Congress seven times in the last 10 years. Temporary changes have been made to the tax, yet the issue keeps coming back to the center of national debate.

Public officials evoke enthusiastic applause when they call to “kill the Death Tax.” Current Republican presidential candidates report that “Death Penalty for the Death Tax” is their best applause line. No surprise there. Polling throughout the last decade tells us that more than two-thirds of the American people would like the Death Tax repealed.

Yet in a vote last year on whether to repeal the tax, repeal was defeated narrowly in the U.S. Senate. Opposition to repeal was led by then-Senate Minority Leader Harry Reid (D-NV). From the Senate floor, Reid stated: “The estate tax is not high on the agenda of people in Nevada.”

The 2007-08 Death Tax rate is 45 percent, with a $2 million exemption. In 2009, the exemption will rise to $3.5 million with a 45 percent rate beyond that. Then for all of 2010, there will be no Death Tax (making 2010 a “good” year to die). But on Jan. 1, 2011, if no action is taken, the Death Tax rate will jump to 55 percent, with a $1 million exemption. This will become a permanent rate unless the law is changed.

Consider that there is no single investment a family business or farm can make that will make up for the 55 percent of family property to be confiscated by the Death Tax. For a family, the Death Tax constitutes a “taking” of property by the government of unfair proportions – combined with tragic timing.

What’s at stake in all of this?

  • Half of a family’s net worth. In 2011, the Death Tax will settle at 55 percent of a family’s net worth, after the first $1 million of exempted property.

  • Life. As each of us lives our life, we exchange our time and energy and risk our capital for monetary compensation. When the government confiscates half of what’s left over when we pass on, is it not confiscating that portion of our life we spent working?

  • Family businesses and farms. By confiscating half of a family’s capital every generation, the government makes Nevada’s economy more dependent on outsiders. Nevada’s economy was built on a tradition of family businesses, farms and ranches. Visionary entrepreneurs built the gaming industry — only recently was it “discovered” by Wall Street.

  • Property rights. If Uncle Sam (or Uncle Harry) confiscates half of a person’s property because his heart stops beating, we must ask this question: Are we property owners, or merely tax-paying caretakers?

  • Jobs. According to a study by the eminent economists Gary and Aldona Robbins of the Heritage Foundation, 237,000 jobs are lost each year from the American economy because of the Death Tax. To put this in context, the first two years without a Death Tax would bring more new jobs into the American economy than were lost to Hurricane Katrina.

So how is the battle playing out?

The House of Representatives held an Oct. 10 procedural vote (properly called a “motion to recommit with instructions”) that would have legislated permanent Death Tax repeal. It failed on a 212-196, party-line vote. Nevada Republicans Dean Heller and Jon Porter voted in favor of repeal, while Democrat Shelley Berkley voted against it.

As of press time, the Senate was scheduled for a hearing on the matter in November, with another scheduled for January. Early 2008 will bring a “mark-up” — the creation of a new Senate Death Tax bill.

Congress will be under a great deal of pressure to do something, lest America’s most hated tax go from zero in 2010 to 55 percent in 2011. Family businesses and farms believe strongly that the Death Tax should be repealed permanently. Death, after all, should not be a taxable event. 

Dick Patten is president of the American Family Business Institute and a policy fellow of the Nevada Policy Research Institute. This commentary was first published in the December 2007 issue of the Nevada Business Journal.

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