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Why We Should Say Goodbye to the Estate Tax

In 1789, one of America's greatest statesmen, Benjamin Franklin, received credit for writing the now-famous line “in this world nothing can be said to be certain, except death and taxes,” and it still rings true in 2012. However, as smart and wise a man as Mr. Franklin was, I have to believe that he never anticipated the government combining the two to create a permanent and destructive form of taxation that flies in the face of American entrepreneurial spirit.

The initial intention of the estate tax or death tax was to utilize it as a temporary tax to help fund war efforts, first during the Civil War and then during the Spanish-American War. After these engagements were completed, the tax was repealed. In 1916, the government reinstated the death tax, this time to fund American efforts in World War I, but a funny thing happened on the way to the Treaty of Versailles. Congress never repealed the tax.

After 90-plus years on the books, proponents of the death tax believe it continues to serve dual purposes. The first is the socio-economic benefit of preventing the transfer of wealth among a limited number of families, an argument that clearly fits into today's talk of “income inequality.” The second argument is the revenue the death tax creates for the federal government, especially in times of record budget deficits, a narrative that fits into the Robin Hood populism of taking from the rich to give to the poor or in this case, Uncle Sam.

Opponents of the death tax feel it does much more harm to the economy than good. A recent study by Douglas Holtz-Eakin, Ph. D., a noted economist and former director of the Congressional Budget Office, stated that a permanent repeal of the death tax could create upwards of 1 million jobs, citing the nearly $900 billion in working capital that the tax, directly and indirectly, removed from the private sector during a 10-year period. Additionally, death tax opponents claim that in an ever-competitive global economy, the United States remains one of the few that levy an estate tax. Our neighbors to both the north and south (Canada and Mexico) forego a death tax as well as Russia and communist China.

Currently, the death tax is levied on estates and assets at a rate of 35 percent, with the first $5 million exempted, an amount that may seem large, but when real estate, equipment and inventory are factored in, it becomes a low threshold for many small businesses. The current rates are set to expire at the end of 2012, when, if Congress and President Obama do not act, they will rise to a 55 percent tax on estates and assets, with only the first $1 million exempted.

If you're a regular reader of this column (and why wouldn't you be?), you probably know that I dislike taxes. So when I tell you that the death tax is my least favorite tax, it should mean something. I still believe that we live in a country where the goal is to work hard and leave your children and family with a better life and opportunity than you have had; and to levy a tax on income and assets that have already been taxed previously seems wrong. I cannot see the logic behind taking money from someone else's family to give it to Uncle Sam, who has proven to be a poor steward of taxpayer money. That's why I am pleased to see the movement behind H.R. 1259 introduced by Rep. Kevin Brady (R-TX) that would permanently repeal the death tax.

Taxing successful people at an extraordinary rate will not create opportunity for someone else. In fact, taking money out of the working economy prevents people from having opportunities. The death tax is an impediment to upward mobility, slows economic growth and hurts small and family-owned businesses. To view the misfortune of someone's passing as an opportunity to enlarge the federal government runs counter to the American spirit.

Mr. Franklin also received credit for another famous quote, stating “a penny saved is a penny earned.” Obviously, Mr. Franklin never paid the exit fee known as the death tax, or that quote may have read differently.


Jon Melchi is director of government affairs for HARDI. Contact him at 614/345-HEAT (4328) or [email protected].

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