Monday, October 29, 2012
Wall Street Journal editorial: Death Tax Resurrection:
For all the worry in Washington and Wall Street about the January tax cliff, almost no one is paying attention to the impending reincarnation of the death tax. This is one more tax increase that will live or die depending on who wins on November 6. ...
Mitt Romney wants to repeal this wealth grab once and for all, while Mr. Obama now proposes a 45% rate with a $3.5 million exemption. Even that is too low for some Democrats in Congress. The President declared in debate that killing the estate tax is another Romney tax cut for the rich. But new research on the fiscal and economic effect of the death tax underscores how wrong Mr. Obama is.
The revenue generated by the estate tax is too trivial to make even a dent in the $1.1 trillion deficit. In 2011 the tax raised a scant $7.4 billion and the best estimate for fiscal 2012 is about $11 billion. ...
It's worse than that because the nonpartisan Tax Foundation calculates that the death tax is a long-term revenue loser. "Tax revenue is likely to increase" upon repeal of the tax, the Foundation finds. At least three other recent studies agree. How is this possible?
First, repeal or even a substantial reduction would be coupled with elimination of a provision called the "step-up basis at death" for calculating capital gains. ... There would be no grave-robber tax imposed at death, but all gains from a business or stocks or real estate would get taxed at the capital-gains rate (now 15%) when eventually sold by the heirs.
Abolishing the estate tax would also mean higher income-tax revenues. Under current law, billionaires like Warren Buffett and Bill Gates escape the tax by diverting their wealth into charitable foundations. But when income-generating assets are sheltered in this way, these foundations with a few exceptions don't pay tax on the future income from dividends, capital gains or interest. Eliminate the death tax and fewer people will shelter their money in foundations, meaning the money will continue to earn taxable income.
Most important, because the estate tax is a penalty on saving and capital investment, the economy grows more slowly over time. This is why so many industrialized nations, including Canada and Russia, have thrown out this tax as more trouble than it is worth....
The strongest case against the death tax is moral. ... Mr. Obama is so obsessed with redistributing income that he thinks it is unfair to leave behind a family business for the kids. What is truly unfair is when a family-owned enterprise has to be sold at auction to pay the death tax to the IRS.
Mitt Romney was right when he told a gathering in Van Meter, Iowa earlier this month that "we ought to kill the death tax. You paid for that farm once. You shouldn't have to pay for it again."