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Kill the Estate Tax

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Alas, the bill moving through Congress that purports to repeal the estate tax is more valuable for what it reveals about its opponents than for what it would accomplish.

The big-government lobby is up in arms about a Republican-sponsored bill, passed by the House, that would phase out the estate tax. For them, nothing could be worse than letting wealthy people pass their property on to their children.

But before we take up that matter, we must set the record straight. The Death Tax Elimination Act of 2000 doesn’t really eliminate the death tax. According to tax expert Bruce Bartlett of the National Center for Policy Analysis, the legislation would merely rename the tax. That’s how they do things in Washington, D.C.

Bartlett points out that the original bill would have phased out the estate and gift tax’s top 55 percent rate by five percentage points a year (beginning in 2000) until it disappeared in 2010. But the House Ways and Means Committee, led by Republican Bill Archer of Texas, radically revised the bill, phasing the tax out much slower. Moreover, when the rate finally gets to zero, a new tax on inherited capital gains kicks in!

Today when an heir sells an inherited asset, the capital gains tax is computed on the basis of its value when inherited. “Under H.R. 8,” Bartlett writes, “heirs would inherit the basis as well as the asset. This means that when an heir sells an asset he will pay capital gains taxes from the date the asset was originally purchased.” Not only would such a tax be difficult to carry out, it is a rank injustice. The capital gains tax is itself a gross violation of individual rights and a detriment to general prosperity. But Congress would aggravate the offense by taxing people for asset appreciation they don’t experience. And since the deceased didn’t sell the asset, he surely didn’t benefit from the price rise during his lifetime. This grab for wealth in the guise of repealing a tax is classic politics, the kind of thing that justifies people’s cynicism-if they knew it was happening.

Americans should be incensed that Congress once again is trying to hoodwink them through the deceptive use of bill titles and other subterfuge. We must never forget that this is standard operating procedure in Washington. They don’t want us to know what really goes on.

Despite the prestidigitation, opponents of property rights are wailing like banshees against the bill. Despite the substitution of the new tax, they won’t be happy unless there is an explicit tax on inheritances-even if the new tax raises more money than the old. The New York Times essentially had one “argument” for keeping the estate tax: “The very rich pay almost all of the tax.” There is a $675,000 exemption, and that will rise to one to two million in a few years. John Brummett, a columnist for the Arkansas Democrat-Gazette , wrote that the tax is not levied on the dead. “An estate tax is a tax on the lucky living sons-of-guns who, usually because of the circumstances of their birth, wake up one day to find themselves bequeathed the fortunes the dead guy compiled.” This is supposed to make it okay.

But these defenses of the death tax miss some important points. The rich have rights too. And the “dead guy” has a right to leave his property to whomever he wishes. Heirs’ rights derive directly from the benefactors’ rights. Seething envy directed at people with wealthy parents is not a moral or legal argument. Nor is it a basis for public policy. It is just envy. And it’s ugly.

If heirs don’t have a right to their bequests, by what theory does the government have a right to them? Certainly no theory consistent with the doctrine of individual on which this country was founded.

And don’t fool yourself into thinking that “the people” should have a cut of all inheritances. They have no right to a cut. It’s not the people who get and control the wealth anyway. It’s the politicians. The same ones who lie when they call a bill The Death Tax Elimination Act of 2000.

Sheldon Richman is senior fellow at The Future of Freedom Foundation in Fairfax, Va. (www.fff.org), and editor of Ideas on Liberty magazine.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.