A Good Year To Die
January 4, 2010
Investor’s Business Daily
http://www.investors.com/NewsAndAnalysis/Article.aspx?id=517003
Fiscal Policy: The new year saw the death of the estate tax. But like Freddie Krueger, this epitome of class warfare and wealth redistribution is sure to return to wreak havoc among the living.

Once dubbed the “Paris Hilton” tax, the levy is supposed to target the inherited wealth of the super-rich who really didn’t earn it or don’t really need so much of it. Or so we’re told. But at some point, even inherited wealth was created and taxed in its creation. The death tax is double taxation, and just because you can’t take it with you doesn’t mean the government should take it from you or your heirs.

The estate tax is mostly gone in 2010 because of language in the 2001 Bush tax cuts that gradually reduced the tax rate to 45% and raised the exemption to $3.5 million in 2009. But in 2011, in the absence of any action, it reverts to prior law with a $1 million exemption and a 55% rate. During this year without an estate tax, many estates will still be subject to the capital gains tax they now avoid.

Though it brings in little revenue, the estate tax has a far-reaching economic impact. Some 5,500 families would have paid a total of $14 billion in estate taxes this year, the Congressional Budget Office estimates. That’s $14 billion sucked out of the economy and into government coffers to stimulate nonexistent jobs when its wider circulation could be creating real ones.

It takes capital out of the cold, dead hands of entrepreneurs and puts it in the unproductive hands of government. Heritage Foundation economists reckon that the federal estate tax alone is responsible for the loss of 170,000 to 250,000 potential jobs each year. These numbers do not appear in employment statistics because the investments that would have created these jobs are never made.

In December, Speaker Nancy Pelosi led Democrats in the House to vote to make the estate tax permanent at 2009 rates. On the Senate side, a two-month extension of the tax was rejected. But Finance Committee Chairman Max Baucus says Congress will seek to restore this tax on the dead retroactively. So if you die in 2010, don’t expect to rest in peace. The IRS may still pay your heirs a visit.

The death tax accounts for around 1% of federal receipts on average. But tax avoidance efforts and compliance costs in term of time and money cost the economy much more than that. Congress’ Joint Economic Committee estimates the tax drains about $60 billion from our economy each year.

The tax is about class envy, every bit as much as was the famous luxury tax of the 1990s. That assessment was meant to punish yacht buyers, but it only succeeded in punishing yacht builders and the workers they employed, to the extent that it had to be repealed.

As it is, we don’t know if the very rich and sick will avoid life-extending medical care in 2010, or if their heirs will pull the plug on them as the next new year approaches. We do know these perverse incentives should not exist. We should be seeking to make the repeal permanent and not to restore retroactively what amounts to grave-robbing.

People should not be punished because they work hard, become successful and want to pass on the fruits of their labor, or even their ancestors’ labor, to their children. As has been said, families shouldn’t be required to visit the undertaker and the tax collector on the same day.

We doubt that those who said give us liberty or give us death meant death to be a taxable event.