August 23, 2004 | Commentary on Taxes
Killing Off the Death Tax
It sounds surprising at first blush, but the people working the
hardest to save the federal estate tax, or "death tax," are some of
the country's richest. Indeed, the membership of the pro-death tax
Committee for Responsible Wealth reads like a Who's Who for a
Vanderbilt birthday party.
There are reasons for that. For example, famed investor and
outspoken death-tax proponent Warren Buffet makes money by selling
"death tax insurance" to small businesses. He also makes money by
buying small businesses (at fire-sale prices) when they have to be
sold to pay taxes because their founder died without such
Much to Buffet's chagrin, as things stand now, the death tax is,
well, expiring. It will be completely phased out by 2010.
However, unless Congress takes action, it will rise from the grave
in 2011. That means if someone dies in 2010, his estate will pay
nothing in inheritance taxes, but if he survives until January of
the following year, the estate will have to turn over more than
half its assets to Uncle Sam.
Because this would provide a perverse incentive for wealthy
individuals to die during 2010, economist Paul Krugman has jokingly
called this the "Throw Momma from the Train Act of 2001."
So why maintain a death tax at all? One reason the small group of
extremely wealthy people wants to keep the death tax alive - and
kick it back up to its confiscatory 2003 levels - is because they
claim that eliminating the federal inheritance tax would decrease
the amount of charitable giving, thus endangering American
Of course, the best way to help charities is to boost the economy.
We know that when the economy is strong, charitable donations
increase. And permanently repealing the death tax would give our
economy a big boost.
Heritage Foundation economists estimate that the federal estate tax
alone costs the U.S. between 170,000 and 250,000 potential jobs
each year. This additional employment never appears in the economy
because the investments that would have resulted in higher
employment are not made.
Those additional jobs would do more to help Americans than any
charity ever could. By repealing the death tax, we'd open the door
for hundreds of thousands of low-income workers and recent college
graduates who simply need the chance to enter the workforce. We'd
move them from the welfare rolls to the work rolls, changing them
from charity cases to taxpayers. The additional revenue the
government would collect from these new workers would far outstrip
the amount it would lose from the permanent, total repeal of the
Furthermore, the death tax prevents the economy from achieving its
investment potential and slows down wage growth. Workers are more
productive when they have new tools, machines and factories. And
that increased productivity boosts wages and salaries.
History proves that charitable giving barely responds to changes in
the estate tax rate or the amount that can be exempted. That's
probably because people won't give their money away simply to dodge
taxes - they need to know it's being used wisely.
In fact, trimming the death tax has actually increased the amount
of money given to charities. The Congressional Joint Economic
Committee found that last year, with inheritance taxes coming down,
charitable bequests reached a record $21.6 billion - a 25 percent
increase from 1999. The death tax merely crowds out charitable
giving. When estates are paying more to the government, there's
less for heirs to donate to worthy causes. But when we bring those
taxes down, our charities benefit.
And we already know that worthy charities won't be left behind.
More than two-thirds of Americans donate money to charities. They
simply want to know where the money is going and how it will be
used before they sign the check. That's one reason why charitable
organizations are a critical part of the American fabric.
But many of the "charities" cited by death-tax supporters aren't
involved in helping the poorest of the poor - they're making life
better for the richest of the rich. Nobody would want to live in a
country with no art galleries, ballet companies or horticultural
gardens. However, these "charities" ought to be supported by
wealthy private interests. They don't need to be propped up by
donations from people looking to avoid paying a death tax.
No charity in the world creates hundreds of thousands of jobs per
year. Repealing the death tax, however, would. And those who would
likely benefit the most are the working poor. We can have both a
healthy economy and healthy charities. But the death tax is a
danger to both. Let's put it out of its misery, for good.
William W. Beach is director of the Center for Data Analysis at
The Heritage Foundation.
First appeared on FOXNews.com