More Death Tax perspective

Death Tax Gets a Stay of Execution
Big Government has a partner on estate taxes: Big Insurance.
Brett Joshpe
April 15, 2009
National Review Online
http://article.nationalreview.com/?q=Yzk5NTZmODM5ZDYzNzk3OWEzZTljNzM0NWQzYjJlN2Y=
The death tax has won another reprieve, and it’s not just revenue-hungry congressional appropriators and left-wing class warriors celebrating its survival: The insurance lobby, long regarded as a Republican preserve, has been showering Democrats with campaign contributions, and preserving the death tax is one of its top priorities. This might seem strange — until you learn that the insurance industry makes almost as much money from estate taxes as the federal government does.

Insurance companies, through “second to die” life-insurance policies, which help survivors pay estate taxes, generate about $18 billion in premiums annually — which is about three-quarters of the annual revenue the federal government derives from death taxes, according to the American Family Business Institute (AFBI). No death tax, no death-tax-hedging life-insurance policies. The insurance lobby is relying on the Democrats to maintain this revenue stream, and rewarding them with campaign contributions: AIG gave nearly 70 percent of its donations to Democrats in the last election cycle, according to a Center for Responsive Politics Study. Charles Rangel was the House’s biggest recipient of insurance-industry money, and seven of the top ten recipients were Democrats, Barney Frank among them.

While the insurance industry makes real money from death taxes, the federal government does not. About 1 percent of federal revenue comes from the estate tax. And even that may represent a net loss, because the tax destroys jobs and the income-tax revenue they would have created. A new study published by the AFBI, conducted by economist and former director of the Congressional Budget Office Douglas J. Holtz-Eakin, estimates that America could create 1.5 million jobs (half the number Obama claims his $787 billion stimulus will create) by eliminating the death tax. A 2006 study by the Joint Economic Committee of Congress also concluded that there is “abundant evidence that the estate tax, along with its high compliance costs and impact on capital accumulation, may actually cause income tax revenue losses for the federal government.” And a 2009 study, also published by the AFBI, estimates that the government would net approximately $26 billion in additional revenue by eliminating the tax.

So why have one?

Death-tax proponents argue that the tax is necessary to prevent the formation of dynasties. But thanks to various estate-planning mechanisms, such as establishing trusts and foundations that are family-owned, the tax is ineffective at preventing intra-family wealth transfers. In fact there are lots of fat cats, such as Warren Buffett, supporting the death tax. Buffet has long profited from buying family businesses at bargain prices when their owners face death-tax burdens and need to liquidate assets. These include Dairy Queen and R. C. Willey Home Furnishings, among others. Buffet also owns a life-insurance conglomerate that reaps hefty profits from estate-tax planning and insurance premiums.

When Congress passed the first death-tax legislation in 1916, the maximum rate was only 10 percent for estates worth more than $5 million. But by 2001, the rate had increased to 55 percent after an initial $675,000 exemption. As part of President Bush’s tax cuts, it was reduced in 2009 to 45 percent after a $3.5 million exemption, and is scheduled to fall to zero in 2010. It then increases in 2011 to 55 percent after a $1 million exemption. Now Democrats are planning to repeal the 2010 phase-out and tax estates at 45 percent after a $3.5 million exemption ($7 million for couples). Barack Obama’s current budget plan assumes a death-tax rate of 45 percent.

Most Americans realize that the death tax constitutes a double or triple levy on wealth, and favor its abolition: A 2009 Tax Foundation survey conducted by Harris International found that 68 percent of Americans (the number was even higher among middle-income earners) advocate repealing the tax completely.

Dick Patten, the president of AFBI, believes that Congress could lower the death tax to 15 percent after a $5 million permanent exemption as part of a legislative compromise this year. That could be the best thing to emerge from Congress in some time — which means, don’t believe it until you see it.

— Brett Joshpe is co-author of Why You’re Wrong About the Right: Behind the Myths: The Surprising Truth About Conservatives (Simon & Schuster). He is general counsel of The American Civics Exchange.

Jobs and the Estate Tax
Letter to the Editor
April 15, 2009
The New York Times
http://www.nytimes.com/2009/04/15/opinion/lweb15estate.html?_r=1&emc=eta1
To the Editor:

Re “The Forgotten Rich” (editorial, April 2):

There is a key distinction to be made between the incidence of the estate tax and the larger impact of the tax on American family business owners, investors and workers.

Those who owe the tax are disproportionately family business owners — people whose productive lifestyle creates economic opportunities for others.

Family business owners reinvest their life earnings to stay competitive. Investing that wealth in their businesses creates new operations and new opportunities for jobs.

Confiscating the wealth of these men and women every generation is a sure way to reduce their productive abilities and hamper job creation. According to Douglas Holtz-Eakin, a former director of the Congressional Budget Office, eliminating the estate tax would result over the long term in additional investment that would create as many as 1.5 million jobs.

Forget “the forgotten rich” — we are fighting for the forgotten entrepreneurs.

Dick Patten
President
American Family Business Institute
Washington, April 2, 2009

The Forgotten Rich
Editorial
April 2, 2009
The New York Times
http://www.nytimes.com/2009/04/02/opinion/02thu1.html?ref=opinion
The Senate budget debate began this week against a backdrop of war and recession, rising unemployment and surging foreclosures, runaway health care costs and diminishing insurance coverage — to name just a few of the nation’s big problems. But for Senator Blanche Lincoln, Democrat of Arkansas, and Senator Jon Kyl, Republican of Arizona, the most pressing issue is clear: America’s wealthiest families need help. Now.

The two senators plan to propose an amendment to deeply cut estate taxes for the fraction of the top 1 percent of the population still subject to those levies.

The proverbial millionaires next door — the plumbers, contractors and accountants who amass substantial wealth through hard work and modest living — are not the intended beneficiaries of the proposed cut. The Obama budget already takes care of them, because it retains today’s law, which imposes the estate tax only on couples with property worth more than $7 million, or individuals with property worth more than $3.5 million. That means 99.8 percent of estates will never — ever — pay a penny of estate tax.

The heirs of the remaining 0.2 percent of estates are who Ms. Lincoln and Mr. Kyl are so worried about. Their amendment would increase to $10 million the level at which the estate tax kicks in. It would also lower the top estate-tax rate to 35 percent from 45 percent.

With all the serious work before Congress, it is a colossal waste of time to have to rebut the false claims and warped premises of ardent estate-tax cutters. Ms. Lincoln’s and Mr. Kyl’s colleagues in the Senate should make short work of it and move on to urgent matters.

In addition to creating the false impression that the estate tax eventually hits everyone — by mislabeling it a “death tax” — opponents routinely denounce the 45 percent top tax rate as confiscatory. In fact, the rate applies only to the portion of the estate that exceeds the exemption. As a result, even estates worth more than $20 million end up paying only about 20 percent in taxes.

Another misleading argument is that the estate tax represents double taxation. In truth, much of the wealth that is taxed at death has never been taxed before. That’s because such wealth is often accrued in the form of capital gains on stocks, real estate and other investments. Capital gains are not taxed until an asset is sold. Obviously, if someone dies owning an asset, he or she never sold it and thus never paid tax on the gain.

If those arguments aren’t enough to stop the Lincoln-Kyl show, lawmakers should consider this: The estate tax creates a big incentive for high-end philanthropy, because charitable bequests are exempt. On Tuesday, Independent Sector, a nonpartisan charitable coalition representing thousands of public charities, private foundations and corporate-giving programs, urged the Senate to reject the Lincoln-Kyl amendment and to keep the tax as proposed in the Obama budget.

Finally, reducing the estate tax from the level proposed by Mr. Obama would cost an additional $250 billion in forgone revenue over 10 years, at a time when the nation already has to borrow heavily for real needs. Ms. Lincoln and Mr. Kyl have made rumblings about offering a way to offset that cost. Let’s hear what they say, and once we see how they’ve come up with a quarter-trillion dollars, let’s talk about better ways to use the money.