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This house would impose an estate tax
This house would impose an estate tax
An estate tax is a tax on a person's property at the time of death before it is transferred to anyone else. An estate tax is different from an inheritance tax, which is a tax on property one receives from the estate of someone who died. The U.S. government has an estate tax but does not impose inheritance taxes, although many states do. One purpose of an estate tax is to encourage the transfer of property through inheritance or charitable giving. In 1906, President Theodore Roosevelt proposed a federal estate tax, saying, "The man of great wealth owes a particular obligation to the State because he derives special advantages from the mere existence of government." Opponents of the tax argue that it is the wealthy the drive the economy and employment, and therefore to increase their taxes is to increase the burden on the nation as a whole. By 2009, the estate tax was imposed on estates valued above $3.5 million at 45%. While the debate is often framed only as a class-war debate (with the wealthy being seen as the potential benefactors of a ban and the poor the losers), it also encompasses other questions that are unrelated to class and wealth. The effect on the US fiscal budget is one consideration that is particularly heavily debated with some estimating the costs in the hundreds of billions of dollars and other estimating much lower costs
Read more
| Points For | Points Against |
|---|---|
| The Estate Tax is an important source of revenue for governments | The Estate Tax places a disproportionate tax burden on a few |
| The Estate Tax encourages economic equality | The Estate Tax is double taxation |
| The Estate Tax creates incentives to leave money to charity | The Estate Tax should not punish the successful |
| The Estate Tax prevents the concentration of wealth in a few |
Remember to choose a winning argument!
The Estate Tax is an important source of revenue for governments
Point
Although historically developed to finance wars, the estate tax is an important continuing source of revenue for the U.S. budget. If its repeal was made permanent from 2010, then more than $1 trillion would be lost to the federal government over ten years. And remember that when the 2001 Act for reducing and eventually repealing the estate tax was passed, the US federal budget was in surplus and government spending was under control. Since then a range of Republican tax cuts and spendthrift expenditure have sent the budget into heavy deficit, while the ongoing costs of wars in Iraq and Afghanistan continue to be heavy. Given that the aging of the baby boomer generation poses huge costs for the USA in terms of health care, social security benefits, and a worsening dependency ratio, abolishing the estate tax is a luxury America cannot afford. Moreover, as Theodore Roosevelt pointed out in 1906, 'the man of great wealth owes a particular obligation to the state because he derives special advantages from the mere existence of government'1
1 Results. (n.d.). Estate Tax. Retrieved June 3, 2011, from Results: The power to end poverty:
Counterpoint
Historically, estate taxes have only been enacted to raise money in times of war. These taxes were repealed soon after the war, therefore they are not important sources of revenue, they are merely emergency sources of revenue. The estate tax should have been repealed following the end of WWI. And if the objection is to wasteful government expenditure, then the only way to cut back the size of government is to reduce the amount it has to spend. Only by restricting the tax take can politicians be forced to cut unnecessary or wasteful programs. The estate tax is a good choice of revenue to cut, as it is not only unfair and economically-distorting, it is also associated with high compliance costs, requiring an expensive government bureaucracy and a whole death-tax planning industry to operate it. Furthermore, as economists like Martin Feldstein argue, 'when the incentive effects of the tax are taken into account, the net impact of the estate tax is probably to reduce overall tax revenue'1. This is because it merely induces wealthy individuals to make large charitable gifts to reduce the revenue loss caused by the estate tax1. Ultimately therefore, the estate tax as public policy is fatally flawed and undermines its very intention.
1 Feldstein, M. (n.d.). Kill the Death Tax Now... Retrieved June 3, 2011, from National Bureau of Economic Research:
The Estate Tax encourages economic equality
Point
The estate tax is a progressive tax that promotes economic equality by taxing the rich more than the poor. It acknowledges that luck, circumstance, and family contribute to wealth along with hard work, creativity, and sacrifice. Only about 2% of Americans, the very wealthiest, actually pay estate taxes because there is a high initial exemption level (rising to $3.5 million in 2009) below which nothing is paid. This means that even the very rich pay only a small percentage of the value of their entire estate - if you died in 2009 leaving an estate worth $5 million, only the $1.5 million above the threshold would actually pay any estate tax. Furthermore, the need to reduce economic inequality has never been greater; in the United States the gap between the earnings of the top fifth and the bottom fifth has jumped 50% since 19801. Therefore, the estate tax is vital in preventing the emergence of a 'hereditary upper class' that would institutionalise wealth and prevent its dispersal to those who work the hardest and deserve the greatest reward1.
1 Mallaby, S. (2006, June 5). Reward for the Hereditary Elite... Retrieved June 3, 2011, from Washington Post:
Counterpoint
The Estate Tax does not encourage economic equality, for it unfairly targets those who pour more of their money into the growth of their businesses, creating jobs, new technologies whilst ignoring those who blow their wealth on holidays and luxury parties1. Specifically it targets family farms and family-owned businesses, often leading to their dissolution. This is because the tax is levied on the value of the farm estate, or the business as a whole, but these are not liquid assets (quickly convertible into cash). In order to pay the Treasury the death tax sum demanded, the land has to be broken up and much of it sold, or the business has to be sold (often below its true market value as it is a forced sale) to generate cash. As President Bush proclaimed in 2005, 'in order to make sure our farms stay within our farming families, we need to get rid of the death tax once and for all'. If fairness is the objective, there can be no fairer result than a son or daughter inheriting the land and business of his father.
1 Mankiw, G. (2006, June 5). The Estate Tax Debate. Retrieved June 3, 2011, from Greg Mankiw's Blog:
The Estate Tax creates incentives to leave money to charity
Point
The estate tax creates an incentive to leave money to charitable causes, as any sum left to a charity is exempt from the tax calculations. This allows rich individuals to exercise choices as to where their fortune goes after their death, rather than leaving it to the federal government to decide, but the whole of society still benefits. In this way the estate tax underpins the whole tradition of American philanthropy which does so much to enrich social, educational, cultural and environmental areas of national life. A study on the effect of the estate tax on charitable giving found that 'estate tax repeal would have significant deleterious effects on charitable bequests and giving during life'. In 2001, 301 decedents with gross estates in excess of $20 million gave $6.8 million to charity, accounting for 42% of all charitable bequests1.
1 Bakija, J. M., & Gale, W. G. (2003, June 23). Effects of Estate Tax Reform on Charitable Giving. Retrieved June 3, 2011, from Tax Break:
Counterpoint
The only incentive the estate tax creates is to try and prevent money going into the state treasury. It distorts estate planning, as rich individuals seek to use accountants, lawyers and specialist consultants to avoid paying money unnecessarily to the federal government. This is not only expensive, it also results in productive assets (e.g. businesses) being run-down or liquidated so that money can be put into trusts, insurance policies, tax free investments, etc. in the hope of reducing liabilities. The result of this is that financial affairs become much more complicated and generally less productive in terms of future income growth.
Improve thisThe Estate Tax prevents the concentration of wealth in a few
Point
The estate tax prevents the concentration of wealth in the hands of a few, avoiding a plutocracy (government by a wealthy ruling class). It allows the pursuit of the American dream by limiting the power of "old money." Repealing the estate tax would also widen the gap between the poor and the wealthy, and could fuel the kind of class envy that would really threaten the property-owning American capitalism that so favours the wealthy. In any case, do we really want to create a class of idle rich who have done nothing themselves to create wealth, but merely inherited it? Would it even be good for the inheritors if this happened? Much better for the government to use some of these windfalls to help give every American child a decent chance in life, for example through better funding for education, health, etc.
The estate tax prevents the concentration of wealth in the hands of a few, avoiding a plutocracy (government by a wealthy ruling class). It allows the pursuit of the American dream by limiting the power of "old money." Repealing the estate tax would also widen the gap between the poor and the wealthy, and could fuel the kind of class envy that would really threaten the property-owning American capitalism that so favours the wealthy. In any case, do we really want to create a class of idle rich who have done nothing themselves to create wealth, but merely inherited it? Would it even be good for the inheritors if this happened? Much better for the government to use some of these windfalls to help give every American child a decent chance in life, for example through better funding for education, health, etc.
Counterpoint
It is the wealthy who drive the economy as a whole, therefore taxing the wealthy does not prevent concentration, rather it prevents the accumulation of wealth for all. There would be no wealth whatsoever without the hard work, savings and prudent investment of those who will be most targeted by the estate tax. The prospect of not being able to hand over your lifetime's work intact to your heirs creates a huge disincentive to work hard building up a family farm or business, and so is bad for the economy as a whole. And even if higher exemptions mean few farms or businesses are subject to the death tax today, who can predict how future values will rise? Many businessmen will avoid expanding their company in order to keep below the exemption threshold– and that means new jobs won’t be created and the government won’t benefit from increased corporate and income tax payments. Better to repeal the whole tax.
Improve thisThe Estate Tax places a disproportionate tax burden on a few
Point
The estate tax is unfair, placing a disproportionate share of the tax burden on a few. It fails to achieve the goals of economic equality suggested by its supporters. Instead it is a collectivist attempt at redistributing wealth in pursuit of a socialist agenda of big government and a society in which everyone is equally poor and no one is allowed to benefit from their own enterprise and hard work. This is both immoral and un-American. After all, although only a few are wealthy enough now to pay estate taxes, many more people aspire to that level of wealth and resent the attempts of the state to stop them achieving it. As a study by William Gale and Maria Perozek found in 2000, the estate tax 'directly affects only the wealthiest households. In 1997 only about 2 per cent of decedents had taxable estates'1.
1 Gale, W., & Perozek, M. (2000, January). Do Estate Taxes Reduce Saving? Retrieved June 3, 2011, from
Counterpoint
Estate taxes are not levied on the amount earned, which would be unfair, but the amount that is being given away to non-charitable causes. Because no one knows exactly when they will die, people will continue to work hard in order to create as much wealth for themselves as possible in their lifetime. A much greater disincentive to wealth creation is likely to come if the estate tax is repealed, as the deficit in the federal budget is likely be made up by raising other taxes that have much constraining effects. Furthermore, the Joint Committee on Taxation estimated that the repeat of estate tax in the US would reduce revenues by $290 million in the subsequent five year period1. Such holes in public finance would inevitably lead to cuts in 'health care, retirement, and other benefits on which ordinary Americans rely'2. Fairness is not denying health care to ordinary citizens to permit the rich getting a little bit richer.
1 Friedman, J., & Carlitz, R. (2005, March 16). Estate Tax Reform could raise much needed revenue: Some reform options with low tax rates raise very little revenue. Retrieved June 3, 2011, from Center on Budget and Policy Priorities:
2 Greenstein, R., & Kogan, R. (2006, June 26). Combined effects of bills moving in the Senate would be to finance near-repeal of the Estate Tax with cuts in Medicare, Veterans Benefits, School Lunches, and other programs. Retrieved June 3, 2011, from Center on Budget and Policy Priorities:
The Estate Tax is double taxation
Point
The death tax is double taxation, raiding again money that has already been taxed once when it was first earned. As Daniel Mitchell describes, 'given that assets are typically purchased with after-tax income, the death tax clearly qualifies as double taxation. Indeed the death tax is often a form of triple, or even quadruple taxation'1. This is unfair in principle as well as discriminatory – why should some people be hit twice by the federal revenue service when others are hit only once? We don’t allow unfair treatment on grounds of gender, race or sexuality; why should we accept discrimination against those who are a little better-off than the average?
Improve thisCounterpoint
Double taxation can occur at several points across the whole tax system, where income, sales, capital gains and property taxes overlap, so it is certainly not a unique flaw of the estate tax. In fact the estate tax raises little money from double taxation as most of the wealth on which it is levied has not previously been taxed at all. Instead it is the only way in which some sorts of unearned income can be taxed at all. Put succinctly, 'many estates are made up of stocks, bonds, real estate or other holdings that have appreciated greatly in value over the lifetime of a person...the owner didn't pay taxes on that profit because they weren't sold'1. Therefore, whilst it is theoretically possible for double taxation to occur, in reality it is rarely the case and estate tax deals predominantly with those sources of revenue which have not been taxed.
1 FactCheck.Org. (2005, June 6). Estate Tax Malarkey. Retrieved June 3, 2011, from FactCheck.Org:
The Estate Tax should not punish the successful
Point
As opposed to a "sin" tax, like the taxes on cigarettes and alcohol, the estate tax is a "virtue" tax. The estate tax runs counter to the law of the harvest, "you reap what you sow." Why shouldn't you be able to die safe in the knowledge that you have disposed of your wealth and property as you see fit, not as the government demands? You may feel your heirs would be better off without a huge windfall inheritance – fine, you can choose not to leave them so much in your will. But what right does the government have to make that decision for you? Instead, this tax taxes the American dream. The estate tax hampers economic growth by discouraging savings and investment in favor of consumption to reduce the size of the estate. To reduce the tax burden, people will either be less productive or consume more.
Improve thisCounterpoint
Any tax can be seen as creating disincentives to hard work and success but the estate tax is less distorting than many other taxes, for example the income tax. This is because the estate tax is not levied on the amount that is earned, but only on the sum that is being given away to non-charitable causes. Because no one knows exactly when they will die, people will continue to work hard in order to create as much wealth for themselves as possible in their lifetime. A much greater disincentive to wealth creation is likely to come if the estate tax is repealed, as the deficit in the federal budget is likely be made up by raising other taxes that have much worse impacts. Paul Volcker, former Federal Reserve Chairman, has written that he would be 'hard-pressed to find evidence that, compared with the alternatives, a reasonable estate tax significantly discourages work or innovation or savings'1. Furthermore, such fears obscure the positive benefits of the estate tax, such as 'more social mobility and higher charitable giving'1.
1 Mallaby, S. (2006, June 5). Reward for the Hereditary Elite... Retrieved June 3, 2011, from Washington Post:
Voting Results
Bibliography
Bakija, J. M., & Gale, W. G. (2003, June 23). Effects of Estate Tax Reform on Charitable Giving. Retrieved June 3, 2011, from Tax Break: FactCheck.Org. (2005, June 6). Estate Tax Malarkey. Retrieved June 3, 2011, from FactCheck.Org: Feldstein, M. (n.d.). Kill the Death Tax Now... Retrieved June 3, 2011, from National Bureau of Economic Research: Friedman, J., & Carlitz, R. (2005, March 16). Estate Tax Reform could raise much needed revenue: Some reform options with low tax rates raise very little revenue. Retrieved June 3, 2011, from Center on Budget and Policy Priorities: Gale, W., & Perozek, M. (2000, January). Do Estate Taxes Reduce Saving? Retrieved June 3, 2011, from Greenstein, R., & Kogan, R. (2006, June 26). Combined effects of bills moving in the Senate would be to finance near-repeal of the Estate Tax with cuts in Medicare, Veterans Benefits, School Lunches, and other programs. Retrieved June 3, 2011, from Center on Budget and Policy Priorities: Mallaby, S. (2006, June 5). Reward for the Hereditary Elite... Retrieved June 3, 2011, from Washington Post:Mankiw, G. (2006, June 5). The Estate Tax Debate. Retrieved June 3, 2011, from Greg Mankiw's Blog: Mitchell, D. (2003, March 5). Protecting Seniors from Double Taxation. Retrieved June 3, 2011, from Heritage Foundation: Results. (n.d.). Estate Tax. Retrieved June 3, 2011, from Results: The power to end poverty:
Further Reading
Internal Revenue ServiceInternal Revenue Code: Chapter 11, Estate TaxAmericans for Tax ReformNo Death Tax.orgEconomist: The Case for Death DutiesJoint Economic Committee Study: The Economics of the Estate TaxBrookings: Taxing Privilege More Effectively
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