The Estate Tax is on Life Support, and Everyone Has an Opinion
Written by Bogutz and Gordon
The modern federal estate tax, which has been with us for just over 100 years, might finally be on its last legs. The tax at death on transfers made to certain people is before the Republican establishment, which is taking aim at the tax as part of a broader tax-reform plan. The fact that the tax’s demise might be imminent has prompted quite a bit of news and commentary on both sides as well as more neutral analysis. Below is a roundup of some of the most interesting takes on the estate-tax controversy we’ve seen this month.
Even if the kill-the-tax effort doesn’t manage to do the job, multi-millionaires have some solace nonetheless: The estate tax exemption is going up in 2018 to $5.6 million per person ($11.2 million for couples), and the annual gifting exclusion is going up to $15,000 per person, so those with estates large enough to fact the tax will be able to unload more assets tax-free.
Are you among the many who don’t know everything about this complicated tax? For an excellent introduction, click here.
Now for the roundup of various views:
If Estate Tax Is Repealed, Charitable Giving Will Take a Major Hit, editorial in the Denver Post: “The estate tax . . . creates a strong incentive for the super-wealthy to give to charity rather than pay the tax. Removing that incentive will cause a substantial decline in very large gifts: the kind that can be truly transformational for charities, colleges, hospitals and the arts. The best evidence we have comes from 2010, during which the estate tax was not in force. Charitable bequests dropped by 37 percent from the previous year, and then rose by 92 percent in the following year when the estate tax was restored.”
Estate Tax Repeal Is Really ‘The Donald Trump, Jr. Relief Act,’ Robert Creamer, political organizer and strategist, HuffingtonPost.com: “According to the non-partisan Tax Policy Center, sons and daughters of millionaires would collectively receive an estimated $174 billion of new tax cuts over the next 10 years and $324.5 billion over the next two decades. . . . You really have to empathize with the plight of kids like Donald Trump, Jr. It will cost the kid a lot to live up to his father’s expectations that he maintain many homes – own an airline-sized private jet – support a series of ex-spouses – dine at the finest restaurants – and jet off to one of many golf clubs every weekend. These kids worked hard to earn the right to be born into the right family at the right time. After all, they have earned all of this money the old-fashioned way: they stand to inherit it.”
Real World Economics: A Disingenuous Take on the Estate Tax, Edward Lotterman, economist, writing for the St. Paul Pioneer Press: “[F]ew economists like the estate tax as structured; few would argue that it is a good tax. . . . . [I}t certainly has negative aspects. One is that it has a high “excess burden.” That means the total cost to society, including the costs of avoiding paying it, are high relative to the revenue raised. . . . [W]hile few farms or small businesses ever fall in estates that owe tax, some are big enough that the tax must be considered in the course of business planning to ensure that they will be exempt. So while only a few dozen such estates owe taxes in any one year, tens of thousands of farms and small businesses will have to hire an attorney or CPA to structure things to ensure that.”
A Defense of the All-American Estate Tax, opinion piece for BloombergView: “One of the principles which controlled the action of Jefferson and other founders of the republic, was the abolition of hereditary distinctions and privileges, and their aim was to force each one to rely on his own exertions for his own fortune, desiring to give to all as nearly as practicable an equal start in the race of life. It has been urged by others that one of the most dangerous tendencies of our times is the increasing aggregation of wealth in a few hands. This scheme is a slight corrective, which is in harmony with the spirit of our institutions,” quoting Richard T. Ely, co-founder of the American Economic Association, assessing the merits of an estate tax in 1888.
Trump Is Right: Kill the Death Tax, Once and for All, Op-Ed for the Washington Examiner: “The inheritance of multigenerational wealth allows people, especially young people, to comfortably pursue callings that, despite their vital importance to human flourishing, are typically uncompensated by the market. For example, an early inheritance allowed luminaries such as Lord Byron, Ludwig Wittgenstein, and Thomas Jefferson, respectively, to pursue the unprofitable yet enduringly valuable aims of poetry, philosophy, and political reform. Essentially, multigenerational wealth ensures there can be at least some people who can disregard the costs of living and focus on generating public goods that are universally enjoyed but rarely paid for.”
The Death Tax Must Die, Stephen Moore, senior economic analyst with CNN, for Investor’s Business Daily: “[E]state taxes put the entire American concept of the “family business” at risk. I have met many people who literally sold the farm to pay the taxes. This hurts the economy. It incentivizes business owners to sell their companies and live lavishly during the retirement years so there is little left at their death for the government to snatch. Dying broke beats the taxman but is terrible for future generations who could keep building the business and hiring more workers.”
Here’s What You Need to Know About the Estate Tax and Family Farmers, Gracy Olmstead,associate managing editor, for The Federalist: “Throughout the last four years I’ve spent researching family farming, few people have brought up the death tax as a serious problem. Of those, a few were farmers living in states like Oregon, which are subject to lower levels of elibigility. Others were wealthy business owners who are themselves eligible for the federal estate tax, and likely assume a large portion family farmers share the same burden.”
Fact and Fiction About Estate Tax Repeal, Bernie Kent, financial advisor, for Forbes: “If you believe that wealthiest fraction of this country should pay their ‘fair share of taxes,’ whatever that means, I would suggest that paying some of that share at death rather than during life is the most painless way to pay. Furthermore, the estate tax makes wealthy people more keenly aware of the benefit of the ultimate estate tax shelter: leave money to the charities of your choice.”
Closing the Door on the Estate Tax Could Reduce American Charitable Giving, Patrick Rooney, Business Insider: “The estate tax encourages giving by providing a dollar-for-dollar deduction from estate and gift tax liabilities matching any amount of money bequeathed to charities after death. . . . Without an estate tax, there’s nothing to be gained, accounting-wise, from rich people writing posthumous charitable gifts into their wills. The question is, do fewer multimillionaires write charities into their wills when this incentive goes away?”
‘The Super Rich Don’t Pay Estate Tax,’ Ted Cruz says. IRS Says Otherwise, Robert Frank, CNBC. “According to the Tax Policy Center, nearly two-thirds of the estate taxes paid come from the top-earning 1 percent. Of the roughly $20 billion in estate taxes that are expected to be paid this year, more than $12 billion comes from the top 1 percent. More than a quarter of all the taxes paid are paid by the top 0.1 percent.”
Warren Buffett, the World’s Second Richest Man, Says Eliminating the Estate Tax Would Be a ‘Terrible Mistake,’ CNBC: “If they pass the bill they’re talking about, I could leave $75 billion to a bunch of children and grandchildren and great-grandchildren. And if I left it to 35 of them, they’d each have a couple billion dollars. . . . Is that a great way to allocate resources in the United States?” quoting Warren Buffett.
My Turn: The Numbers Behind the Estate Tax, Opinion, Concord (N.H.) Monitor: “Regardless of how one feels about the proposed tax reform, it is always better to be informed about the actual law than what pundits and politicians may say on television, the papers, etc. Often misleading and inaccurate statements are made which confuse or, even worse, mislead taxpayers.”
No, the Estate Tax Isn’t Killing Family Farms, Jeanne Sahadi, CNN Money: “[Most U.S. family farms are unaffected by the federal estate tax. For starters, about 90% of farms are small — meaning they bring in $350,000 or less in revenue a year, according to the USDA. And the median wealth for farm operator households was $827,300 in 2015.”
Tax Reform: Trump Proposal to End Estate Tax Renews Wealth Debate, Jeff Ostrowski, Palm Beach Daily News: “Opponents decry the estate tax as a wealth-sapping “death tax,” a form of double taxation that punishes hard-working Americans for their financial success. Proponents say it’s an appropriate way to tax the wealthy, and a useful barrier to creating a new American aristocracy.”
Repealing Estate Tax Would Provide Windfall to Heirs of Wealthiest Estates, Center on Budget and Policy Priorities: “Inheritances account for about 40 percent of all household wealth and are extremely concentrated at the top. This contributes to inequality and hinders upward mobility from one generation to the next. Repealing the estate tax would eliminate the nation’s most effective tax policy tool to mitigate the negative effects of large inheritances.”
An Unfair Burden to Farmers, Opinion Letter, Kevin Kester, National Cattlemen’s Beef Association, U.S. News & World Report: “In farming and ranching communities, the facts on the ground are clear: The death tax is a primary obstacle for keeping family-owned farms and ranches intact and viable. To understand why, consider that ranchers – like many agricultural producers – rely on a land-rich, cash-poor business model. According to the U.S. Department of Agriculture, 91 percent of all farm and ranch assets are illiquid, meaning they cannot be easily converted to cash. With few liquid assets, family ranchers facing the death tax are forced to sell land, farm equipment or other parts of the operation to raise money for the tax liability.”