ECONOMIC ISSUES
By Brock Bennett
The House voting to extend the estate tax rates on Dec. 3 // Christian Science Monitor
For the first time since 1916, taxes will not be collected from large inheritances this year, despite the worst recession in recent memory.
Because of a bill passed by Congress in 2001, the estate tax has been progressively weakened over the past decade. The previous tax rate was 55 percent on assets exceeding $1 million after a person’s death.
Because of legislative gridlock, no new bill was passed to resume the estate tax for 2010. However, estate tax laws will return to pre-2001 levels by default next year, so debates over the future of the policy are forthcoming.
Since the economy continues to increase wealth inequity, a strong estate tax must be reinstated to help support lower income citizens. Allowing heirs to pass down their wealth within their family is contrary to capitalism and denies funding to charities and social services.
Letting the estate tax stay dead would result in a loss of $1.3 trillion over the next 10 years compared to what would be gained under the old rate. These funds are necessary to reduce borrowing by the U.S. government from foreign countries, which worsen our future economic position. Lacking taxation of inheritances has been shown to discourage charitable giving.
Opponents of the estate tax have argued extensively to change public opinion about the policy, though many of their points do not hold up when the statistics are examined. One idea was to change the popular term to “death tax” to make it universal. Even though in 2006, less than 3 out of 1000 people who left inheritances paid taxes on them.
It also destroys small businesses and family-run farms by removing vital assets. However, facts from the Congressional Budget Office show that few business owners would be affected by the tax. And, since taxes apply only to assets over $1 million, the occurrence of farms or businesses that need to be liquidated as a result of the estate tax is nearly non-existent.
Some characterize the estate tax as a class warfare that unjustly punishes success. These criticisms overestimate the impact the policy has on the wealthy. In 2006, even with a tax rate of 45 percent, most of the substantial people paid less than 20 percent of their assets to the government. Not only are inheritances taxed beyond a certain level, but many of these assets are protected using legal loopholes.
First, many supporters of the estate tax claim the wealthy owe a debt to the society that enabled them to succeed. Second, there is a benefit gained through the estate tax, such as the support it provides for government programs.
“The reason the estate tax makes so much sense is that there is a direct relationship between the net worth people have when they pass on and where they live,” William Gates Sr. has stated. “The government that protects their business activities, the traditions that enable them to rely on certain things happening, that’s what creates capital and enables net worth to increase.”
With midterm elections approaching, legislators are listening to their constituents. Voters must encourage their candidates to support a strong estate tax for the next fiscal year.
Edited by Melody Yeung
