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No section of the tax code is more unfair and more dangerous to our entrepreneurial economy than the Death Tax. With rates as high as 55 percent, the death tax punishes people who build a successful business or farm and try to leave that legacy to their kids. Moreover, the Death Tax’s modest contributions to the federal Treasury are more than off set by its staggering impact on the U.S. economy.
The reasons to terminate the death tax are simple:
First, the death tax is unfair. In 1996, 53 percent of the death tax returns were for estates valued below $1 million, and 96 percent of the returns were for estates valued below $5 million. These business owners are not the Rockefellers and Carnegies, they are our neighbors, community leaders, and role models.
Second, the death tax is a tax on American values, a virtue tax, a tax on the American dream. This is especially true for the owners of small businesses and farms who have plowed all of their profits back into the business. At the end of the day, their kids have inherited a business that is asset rich, but cash poor.
Third, the death tax is anti-jobs and anti-entrepreneurship. It’s the leading cause of dissolution for most small businesses. One-third of small business owners today will have to sell or liquidate part of their business to pay estate taxes, and half of those who do liquidate will have to eliminate 30 or more jobs. Is it any wonder, then, that 70 percent of all businesses never make it past the first generation? Or, that 87 percent of all businesses do not make it to the third generation?
Fourth, the Death Tax the collects only a small percentage of federal revenues. Indeed, this year the Congressional Budget Office projects that the Death Tax will comprise just 1.5 percent of total federal revenues. Clearly, with as much as $1.8 trillion in non-Social Security surpluses being projected over the next 10 years, Washington can afford to return a penny on the dollar of federal tax revenues.
Fifth, the compliance costs of the death tax actually cost the economy more than what it collects for the U.S. Treasury. Studies have found that the Death Tax’s compliance costs amount to more than 30 cents for every dollar collected. That means that for the $30 billion the tax will raise this year, the actual cost to taxpayers will be nearly $40 billion.
Lastly, the Death Tax is out of step with our new, investor-based economy. With nearly half of all American households now invested in the stock market, it is possible that millions of average families will soon retire with estates large enough to be hit by the death tax.
Repealing the Death Tax is the right thing to do for American family farms, businesses, and the New Economy. It is also the right thing to do to protect American values at a minimal cost to the U.S Treasury.