Last week U.S. Rep. Peter Roskam, R-Il., rightly denounce the House Ways and Means Committee for refusing to debate the necessity of the estate tax. Roskam argues, and rightly so, that a repeal of the estate tax, also referred to as the death tax by conservative, will benefit small businesses and will help stimulate the national economy.
Roskam called the estate tax an "albatross around the neck" of small business owners and entrepreneurs. A repeal of this tax will help create prosperity, he said. A video of Roskam's argument can be found here.
Currently the estate tax is set to sunset next year, although that would be temporary. It will come back the next year.
Proponents of the estate tax argue the tax on inheritance will prevent the perpetuation of wealth in one family. But put more simply, proponents of the estate tax do not believe money belongs to the people, money belongs to the state. These people believe money should not simply be handed from one person to another without the state getting another taste through taxation. They argue that it is income and should be taxed as such -despite the fact it was already taxed when it was first made.
Following this logic, one can make a Swiftonian argument that the allowance a parent gives his child should be taxed because that's income to the child. Or birthday money should be taxed because that's income to the birthday boy or girl.
Ending the estate tax is the right measure to take. Eliminating the estate tax will allow small businesses to expand at a greater rate. Because of the current rate, many small business owners would rather spend their profits rather than reinvest them back into the company.
Former Congressional Budget Office Director Douglas Holtz-Eakin said in a Los Angeles Times column the "high estate tax rates provide small-business owners with a powerful incentive to limit the size of their companies. Why would a business owner want to expand his or her company beyond a certain size if the end result will be a large "death tax" bill that will negate much of the hard work and sacrifices the owner and the owner's family made over the years?"
Holtz-Eakin cites a study conducted for the American Family Business Foundation, that analyzed the reactions of small businesses to past tax changes. He said they found eliminating the estate tax would "increase the climate for wealth accumulation, ultimately increasing wealth in the United States by $1.6 trillion. Small-business investment would rise by more than 3% annually. That in turn would increase small-business payrolls by as much as 2.6%, adding roughly 1.5 million jobs to the economy, or nearly half the number President Obama hopes to save or "create."
Hopefully Congress will listen to reason rather than tax everyone to death - and beyond.
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The term "death tax" is demagogic B.S. The tax is not on death; it is on estates, and it applies to only a tiny percentage of all estates in the country. Less than one percent of all estates, by most estimates, would be subject to the estate tax as it now stands. The estate tax should allow an entrepreneur or creative person the opportunity to pass along the fruits of his/her labor to descendants, but there must be reasonable limits to what can be bequeathed. To eliminate the estate tax altogether is the first step toward a landed aristocracy, and we see how well that worked out for Britain. Most really thoughtful wealthy people will admit that putting a silver spoon in the mouths of children and grandchildren does them no favors. Unrestrained intergenerational transfer of wealth usually results in shameful behavior of the spoiled children a generation or two down the line and the dissolution or embarrassment of the business that originally created the wealth.
Exemptions to the estate tax should be high — $5 million or $10 million to allow for transfer of small businesses and farms (life insurance can provide a cushion against estate taxes) — but the tax should be in place on larger amounts, both for the revenue the government derives (and badly needs right now) and for the societal good embodied in reining a budding aristocracy.
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