Opinion

Killing The Death Tax Is Good Economics

It’s not surprising why the federal estate tax — appropriately nicknamed the death tax — is one of the most hated. It confiscates 40 percent of families’ hard earned savings upon death, stifles economic growth, and distorts the overall economy. Signed into law in 1916 by President Woodrow Wilson, the tax is the archetype of social engineering using the tax code.

The death tax finds support among progressive politicians because it breaks up family wealth. Supporters see it as as a tool to address income inequality, a way to stop top earners from transferring their wealth to undeserving trust fund babies.

This is only part of the story. The impact of the death tax falls much farther down the economic ladder than proponents will admit. It affects families who own small businesses, farms, and ranches — not just the “super-rich” or top earners.

The death tax is especially cruel to the small business owners and family farmers. Much of their estate is invested in land or capital assets; they often do not have enough cash on hand to pay the hefty death tax bill when it comes due. This forces many families to sell their farms or businesses instead of passing them on to the next generation.

The tax disproportionately affects minorities, too. The death tax will reduce wealth among African-American families by 10 to 13 percent by 2055, according to a study from professors at Boston College.

This tax hurts the overall economy by reducing wealth accumulation, investment and savings. According to the Joint Economic Committee, the death tax caused the economy to lose nearly $1.1 trillion in lost capital to date.  If it weren’t for this tax, then businesses would be able to invest these trillion dollars in new facilities and equipment and to hire and train more employees. People would see better economic growth and have an easier time finding a job.

All of this pain yields very little gain. The death tax turns very money into the government’s coffers, historically less than half of one percent of total federal revenue. In fact, studies repeatedly show that repealing the death tax will actually result in higher total revenue. A 2014 report from the Tax Foundation found that this would increase federal revenues by $3.3 billion per year.

Members of Congress should move quickly to consign this misguided tax to the cemetery of bad ideas. Thankfully, for the first time in nearly a decade, they are poised to do so. Later this week, the House of Representatives will vote on Congressman Brady’s legislation to repeal the death tax. Americans for Prosperity has consistently endorsed this legislation, and we’re pleased to see it finally come to the House floor for a vote. We will include this vote in our national scorecard because it’s so important.

This follows recent Senate action on the issue. With a vote of 54 – 46, the Senate passed amendment to the Senate budget resolution sponsored by Senator Thune that repealed the death tax. AFP applauds Senators who supported the amendment, particularly Senator Manchin for crossing party lines to do so. We encourage the Senate to consider the issue in standalone legislation, too.

American families and small businesses have had to cope with the Death Tax for far too long. Congress should seize this opportunity to kill it. It’s good economics and good morals.

Christine Harbin Hanson is national issue campaign manager for Americans for Prosperity