“Now my advice for those who die
Declare the pennies on your eyes
‘Cause I’m the taxman, yeah I’m the taxman
And you’re working for no one but me.”
— “Taxman,” by the Beatles
by Rod D. Martin
July 15, 2004
Everybody remembers the old saying: there are but two things certain in life — death and taxes.
Each does obvious injury. When any government combines the two (or so implied the Beatles), it adds insult to this injury.
Make no mistake about it. America’s death tax is insulting as well as injurious.
It’s a national disgrace. When a loved one dies, Uncle Sam should not even be in the line of vultures — let alone the chief vulture — poised to devour the estate.
But it is.
And that must change.
In my continuing series on the need for a flat tax system for America, I’ve identified five essential reforms to help us break away from our current system of tax oppression and wealth confiscation.
Freeing ourselves from the clutches of the death tax monster is clearly one of the most important of these changes.
The death tax is a form of double — and often even triple — taxation. First, you’re taxed on the income you earn. Next, you’re taxed on the savings you accumulate from what’s left. Then, after you die, your money may be taxed yet a third time before your kids have a chance to mourn.
Do the math and see: when you add all these taxes together, the money you make could easily be taxed at rates approaching 75%.
If that’s not wrong, then nothing is.
But it gets worse.
Once the death tax is triggered, your heirs don’t merely pay the taxman out of your liquid assets. They also pay him up to 55% of all your other assets, including land, buildings, equipment, and more. If the valuation on these assets is high enough the taxes are frequently unaffordable. That forces your heirs to sell off the assets to make the payments.
Translation: Goodbye, family business.
More than 87% of America’s family businesses don’t survive the third generation, and 70% do not even survive the second generation.
Since 91% of businesses in America are family owned, that’s a slew of failed businesses. But why?
According to a December 1998 U.S. Congress Joint Economic Committee Report, “The Economics of the Estate Tax,” the death tax is indeed a leading culprit in family farm and business failure. In one survey, nearly one-third of black business owners say their heirs will have to sell the business to pay the death tax while over 80% say they lack the assets to pay.
The death tax is supposedly aimed at the richest Americans (as if stealing from the rich somehow makes stealing okay). But in fact, it isn’t. Most death tax victims are “the little guy,” typically small businesses, just trying to get ahead. In 1995, for example, 89% of all taxable estates filed were $2.5 million or less, and 54% of all death taxes paid came from net taxable estates of $5 million or less.
That’s the very Mom-and-Pop corner grocery that wealthy trial lawyer John Edwards pretends to care about when he talks about “two Americas.” He fails to mention that he’s the one keeping the poorer America down.
To add insult to injury, the death tax is costly to administer, and a miserable failure at raising revenue. Fully 65 cents out of every death-tax dollar goes to collection and compliance costs. And in 1998, it produced barely over 1% of federal revenue.
And for all this cost, this sacrifice, what do we get? According to The Center for the Study of Taxation, had the death tax been repealed in 1971, by 1991 there would have been 262,000 more jobs, $46.3 billion more in GDP, and $398.6 billion in added capital. Nearly 60% of business owners say that without the death tax, they would be able to add more jobs. And according to a Gallup poll, 68% of businesses report that the prospect of death taxes makes them less likely to invest in new projects.
As a result, the death tax actually reduces total government revenue. As the Heritage Foundation found, the higher economic growth triggered by repealing the death tax would produce significantly increased revenues, easily exceeding those lost by its abolition.
In other words, if you’re worried about budget deficits — or even just jobs — help us abolish the death tax.
You won’t be alone. Over 89% of Americans agree that it’s unfair to tax incomes and then tax the same money after we die. And 96% of manufacturing firms feel the death tax threatens their long-term growth.
Thankfully, President Bush and the Republican Congressional leadership agree. Having enacted a gradual but temporary repeal, they now need support to end this wretched tax once and for all. It’s time we help every American provide a better future for their children, instead of sacrificing their children to the governmental beast.
Read the Whole Flat Tax Series, by Rod Martin
1. 1/9/2004, “Tax Reform for the New Century”
2. 2/13/2004, “Making Real Tax Reform a Reality”
3. 3/4/2004, “Abolish the Capital Gains Tax”
4. 4/5/2004, “Abolish the Alternative Minimum Tax (AMT)”
5. 7/15/2004, “Nothing Certain But Death and Taxes”
6. 8/9/2004, “What America Needs is Real Tax-Free Savings”
7. 9/5/2004, “Full Business Expensing: JFK’s Plan and Ours”