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Recently, a group of extremely wealthy Americans voiced opposition to bipartisan efforts in Washington, D.C. to abolish the death tax. However, these billionaire activists do not address the strong disincentive created by the tax, or the burden it imposes on small farms and businesses.
The crux of the argument proposed by William H. Gates Sr. and a handful of his affluent colleagues is that charitable giving would take a hard hit if the death tax were repealed. Historical evidence, however, does not support this claim. In fact, charitable giving as a percentage of GDP has remained fairly constant over the past thirty years after increasing gradually from the 1920s through the 1960s (the estate tax first took effect as a result of the Revenue Act of 1916). This trend has been consistent despite major fluctuations in the top marginal rate for estate taxes, which has been as high as 77 percent in 1941 and is currently 55 percent. Based on this data, it is difficult to conclude that charities would suffer from the elimination of the death tax. In fact, some suggest that charitable giving more closely correlates with gains in wealth, which means eliminating the tax may provide more opportunities for philanthropy.
The purpose of our tax code is not, however, to encourage charitable giving. A fair and just system of taxation should be unbiased towards savings, consumption, giving to charity, giving to relatives, or any other economic activity. In short, the government should not dictate, through punitive clauses in the tax code, how Americans choose to spend their money. Regardless, the death tax is strongly biased in favor of charitable giving and against investment and savings.
Furthermore, the excessive costs of complying with the death tax nearly outweigh the federal revenues its collects. Compliance and enforcement of the death tax take up about 65 cents for every $1 collected. In fact, it is now suggested that because of staggering compliance costs and its adverse effect on the economy, the death tax may not raise any revenue at all.
Even worse, because of its excessive complexity, the richest individuals often are able to take advantage of loopholes and exemptions that allow them to avoid the death tax completely. The medium-sized estates - typically small businesses and family farms - are the ones hit hardest by this unfair tax.
The simple fact is, the death tax needs to be buried. It is anti-job, anti-family, and anti-American. It is stifles entrepreneurship and is the leading cause of dissolution for most small businesses. The death tax reduced the stock of capital in the economy by 3.2 percent in the past century. And a 1998 study by the Joint Economic Committee of the United States Congress concluded that it is not only ineffective in reducing inequality, it may actually increase the inequality of consumption.
Still, the death tax has been a favorite son of leftists for quite a while. In his 1848 The Manifesto of the Communist Party, Karl Marx was among the first to make a case for the estate tax. He listed the "abolition of all right of inheritance" as the third Communist requisite of "the most advanced countries" - behind the abolition of private property and a heavily progressive income tax.
Contrary to centuries of left-wing demagoguery, repealing the death tax would have a positive and significant effect on the American economy. Tax revenues would increase as a dual result of the growth of the economy, and the elimination of estate tax compliance costs - which nearly negate the overall revenue benefit of the death tax in the first place. Furthermore, it would remove some of the punitive actions that the tax code currently exacts on savings and investment and end the dubious practice of double-taxation.
We cannot continue to allow the tax code to destroy families, small businesses, and the work ethic that has made America the most prosperous country in the world. It’s time to truly support American values and principles by repealing the death tax - it’s one tax Americans can certainly live without.