Belmont University

Progress of the Death Tax

A compromise on the death tax passed by the House last week and will be taken up by the Senate this week. While this bill does reduce the tax burden by making estates under $5 million ($10 million for a married couple) exempt, it leaves open the door for changes in this tax in the future. If the Death Tax had been killed, as was the original plan, that would in all probability be the end of estate taxes in our life times. But now with this compromise, estate taxes stay in place and remain a tempting target the next time the government sees the need to raise more taxes.


Posted by Jeff Cornwall on June 26, 2006 07:02 AM |

Comments

How is it a "death tax" if I am not allowed to give my son $1,000,000 without paying taxes while I am alive.

Birdied by: Jackson | June 26, 2006 08:13 AM

I tend to agree with successful entrepreneur Warren Buffett who argued that repealing the estate tax would be analogous to "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics."

That doesn't sound like promoting a free market to me.

Birdied by: S-townMike | June 26, 2006 08:47 AM

Passing wealth to the next generation guarantees nothing about maintaining a free market. That is a distraction from the real issue of ownership. The money you earn belong to YOU, not "society."

Making children rich via inheritence doesn't prevent others from becoming wealthy themselves. Lazy, thoughtless rich children will lose their money, quickly or slowly, through consumption, to those who produce and innovate.

A free market cannot exist where the state intervenes.

Birdied by: James Jeffers | June 27, 2006 08:19 AM

This is not about state intervention. This is about money changing hands that under any other circumstances would be taxed. There is no other situation that I know of where an individual can acquire millions of dollars and not pay a single penny in income tax.

Birdied by: Jackson | June 28, 2006 10:05 AM

The money and property I own was acquired with income that was already taxed at least once, twice in the case of income earned in my business and then paid to me in dividends. My condo was subject to sales taxes (since it was new construction) when I purchased it, as was my car and other tangible parts of my estate.

I should be free to give that money and property to whomever I please, whether it be my nieces and nephews or my cats and whether it be before or after I die, without additional punitive taxation. I might also choose to redistribute my wealth through donations to charity or by giving the money directly to individuals in need.

The one choice I would not make is to give my money to politicians to dole out as they see fit, and this is the choice forced upon me by estate taxes. I would suggest that Warren Buffett's extensive philanthropic activity is evidence that he also prefers to maintain control over what happens to the considerable wealth that he has created.

The argument about tax on an estate vs inter vivos gifts is circular - it's predicated on the restrictions placed on gifts which in turn exist in large part to prevent people from circumventing estate taxes. Regardless, both are unwelcome intrusions on the choices available to the property owner.

Birdied by: Ken King | King Marketing | July 4, 2006 05:55 PM

I agree with the very well-written comments written by Ken King.

I have been a very highly regarded estate planning attorney, a law school professor teaching tax courses, and a partner in several successful wealth management firms. I've seen ALL of the arguments for and against the so-called "death tax." Correction: it is not just a "death" tax; the estate tax is one of 3 transfer tax regimes (in addition to the gift and generation-skipping taxes).

For all of the arguments about what would best promote economic growth, equality of opportunity, reduction in income and wealth disparities (these latter two concerns are arguments made by dropping the context), and promoting free markets, none of them can stand a principled argument against wealth transfer taxation in that such taxation obliterates a critical portion of what constitutes private property--the freedom to transfer wealth to whomever one chooses.

Focusing on those who receive the wealth and arguing that they didn't "earn it" also drops the context--and that context is that the transferor EARNED it (even if the transferor himself received it as an inheritance, at least someone preceding him EARNED it). Because he EARNED it, he gets to decide where it goes, either during his lifetime or at his death.

Also, arguing that repealing wealth transfer taxes is wrong because nowhere else can one receive such a large sum without paying income taxes ALSO DROPS THE CONTEXT. One simply cannot justify one tax regime because it might conflict with another, without addressing the fundamental philosophical underpinnings of the tax to which he compares.

Personally, what irritates me the most are the crocodile tears being shed by the estate planning bar and other estate planning professionals who argue that, in principle, there should be an estate tax, while at the same time make their living helping others mitigate or eliminate it. As an estate planning lawyer, I am zealous in pursuing all all legal opportunities for my clients to achieve the results they want. I have no inner conflict because I believe the tax is unjust, ineffective at accomplishing its supposed aims, philosophically unsupportable and merely a vehicle to give expression to the emotion of envy.

Birdied by: John Bedosky | July 11, 2006 02:58 PM

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