Blog #8: THE ESTATE TAX

A recent propaganda piece by the well paid lobbyist for the American Business Defense Council tries to persuade us to pressure our Congressional Delegation to vote to end the estate tax (Grand Forks Herald, December 16, 2015).

But it makes its case only by deceptively appealing to our emotional support for “family farms” and “small businesses.”  Nobody wants to see a parent’s lifetime of hard work wiped out by the estate tax.  But before we let our emotions run away with us, we ought to know, factually, how the estate tax really works. 

Here according to the Center on Budget and Policy Priorities, is what the state tax means to us: 

·         Nationwide, only 2 out of every 1000 estates are subject to the estate tax.  That’s right, 99.8% of estates owe no estate tax at all.  That astounding figure is because of the tax’s high exemption amount, which has jumped from $650,000 in 2001 to $5.4 million in 2015. 

·         No estate valued below $5.4 million pays any estate tax.  Of the few estates which pay the tax, the effective tax rate (the rate actually paid) is far below the statutory rate of 40%.  On average, estates valued at less than $5 million pay nothing; between $5 and $10 million pay under 8%; and those valued between $10 and $20 million pay under 16% -- still leaving a generous head start for the next generation. 

·         Loopholes have been written into law which allows wealthy estates to pass on large portions of their assets while avoiding estate taxes.  These loopholes should be closed. 

·         In 2011, only 18 North Dakotans were required to file estate tax forms.  Their gross value was $444 million.  Of the 18 filing, only 11 ended up paying estate tax.  Their estates paid $7.7 million and kept the remaining $436.3 million.  (If I had to pick a parent, I guess I wouldn’t mind being born into one of those families.)

Far from being a “death tax,” the estate tax is a life tax.  It promotes social mobility and opportunity, it rewards hard work and talent, and it prevents capital from being concentrated into too few hands – thus reducing the evils of an aristocracy of the wealthy and propertied class the founders of the American nation warned against.  In a 1789 letter to his friend James Madison, Thomas Jefferson gave perhaps the shortest explanation of why we need an estate tax:  “The Earth belongs in usufruct to the living.” 

Ben Franklin, himself a wealthy man, gives a more radical justification for the taxing inheritance.  He argues that, beyond minimal subsistence, most wealth is a creature of public laws and convention.  Franklin concludes:  “Hence the public has the right of regulating descents, and all other conveyances of property and even of limiting the quantity and the uses of it.”

Democracy and inherited wealth are incompatible.  Those who argue for an elimination of the estate tax are servants of an aristocracy of wealth and property.  The number obliged to pay the estate tax is relatively few and the amount paid by the estate is relatively small.  The estate tax is just. 

Rather than being eliminated, the estate tax should in fact be increased.