The year 2010 is a good year to die.
If you plan on dying anytime soon, then try to do so by the end of the year. Just ask the families of George Steinbrenner, Dan Duncan, Mary Janet Cargill, John Kluge, and Walter Shorenstein — all billionaires who died this year.
Steinbrenner was the owner of the New York Yankees. Duncan was a Texas pipeline tycoon. Cargill was an heiress of the Cargill family, holders of the largest privately held corporation in the United States. Kluge was a Virginia media mogul. Shorenstein was a San Francisco real estate investor.
These billionaires all have one thing in common: they, or rather their estates, paid no estate taxes when they died.
The federal estate tax — otherwise known as the death tax — increases to a whopping 55 percent on January 1, 2011, on all estates valued over $1 million, including life insurance proceeds. What makes this tax especially egregious is that in 2010 —for the first time since the estate tax was enacted in 1916 — there is no estate tax in the United States.
In 2009 the number of estate tax returns filed fell to 47,320. The estate tax collected fell as well, to $21,583 billion. The decreases in returns filed and tax collected are the result of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, otherwise known as the first Bush tax cut. This tax reform measure gradually raised the threshold at which estates are taxed and lowered the rate of the estate tax from an exemption of $675,000 and a rate of 55 percent in 2001 to an exemption of $3.5 million and a rate of 45 percent in 2009. Unless the current lame-duck session of Congress legislates otherwise, the estate tax will be reinstated in 2011 with the 2002 exemption level of $1 million and the 2001 rate of 55 percent.
One would think that the very wealthiest of Americans — those who have the most to lose by the reimposition of the estate tax — would be vehemently opposed to any form of an estate tax. But such is not the case. Back in 2001, when the repeal of the estate tax was being proposed, some 120 wealthy individuals, including William Gates Sr., George Soros, and several Rockefellers, issued a joint statement titled “A Call to Preserve the Estate Tax.”
Now, with the estate tax in the news again, over 8,000 people, including billionaire Ted Turner, have signed the “A Call to Preserve the Estate Tax” petition. Billionaires Bill Gates of Microsoft and investment guru Warren Buffett have publicly expressed support for the estate tax. Americans for a Fair Estate Tax, “a coalition fighting to preserve a fair estate tax” made up of groups like the American Federation of Teachers, the National Council on Aging, and the AFL-CIO, supports the Responsible Estate Tax Act (S.3533), a bill introduced earlier this year in the U.S. Senate that would preserve the estate tax.
Many other Americans claim to support the estate tax as well, and especially if they are told that other taxes would have to be raised without it or that government services would have to be cut because of the revenue lost without it. So, if the poor favor the estate tax because it “soaks the rich,” if the middle class favor the estate tax because it makes the rich pay their “fair share,” if small business owners favor the estate tax because it doesn’t affect them, and if the super rich favor the estate tax even though they will pay the bulk of it, then why do libertarians, if they are worthy of the name, oppose the estate tax? Is it because they are “chirping sectaries,” as the conservative Russell Kirk once wrote?
To begin with, it is not just libertarians who oppose the estate tax. Many conservative groups — like the Heritage Foundation, the Manhattan Institute, the Tax Foundation, and the American Enterprise Institute — oppose the estate tax as well. The problem with conservatives, though, is that they are generally too inconsistent. Instead of likewise calling for the elimination of the federal income tax, they focus on making taxes lower, simpler, fairer, and less progressive while accepting the income tax in principle and never getting to the heart of the matter: taxation is theft.
Credible conservative arguments against the estate tax tend to be limited to economics: the estate tax rate is too high, the estate tax rate is higher in the United States than in most other countries, the estate tax taxes income twice —once when it is earned and again when it is passed on, the estate tax punishes hard work, the estate tax punishes success, the estate tax punishes frugality, the estate tax discourages savings and investment, the estate tax is a tax on capital, compliance costs of the estate tax are about the same as the revenue raised, the estate tax stifles entrepreneurship..
There is also one argument against the estate tax used by conservatives that is also used by liberals: The estate tax only contributes about 1 percent of federal tax receipts to the U.S. treasury. Conservatives argue that since the amount of tax collected is insignificant the estate tax should be eliminated. Liberals argue that since the amount of tax collected is insignificant the estate tax should be retained.
Although this is about the best argument for the estate tax that liberals have, they will still talk about the estate tax in terms of what it will cost the U.S. treasury if it is eliminated instead of how much of a deceased person’s money he will be able to pass on to his loved ones and keep out of the hands of the government.
Liberals and other supporters of the estate tax sometimes argue that we need an estate tax because those poised to inherit wealth don’t deserve it because they didn’t do anything to earn it. They were merely born into the right family. But if family members don’t deserve it then strangers certainly don’t either. I suppose supporters of the estate tax think the government deserves it.
It turns out that this is exactly what some estate tax advocates believe. They feel that the rich are obligated to pass the majority of their wealth to the government instead of to their heirs. In a letter to U.S. Senators by Americans for a Fair Estate Tax expressing their support for the Responsible Estate Tax Act it states: “Congress must permanently reinstate the estate tax in a way that ensures the wealthiest among us maintain their obligation to support the government that enabled their prosperity.” Come again? What government is this letter referring to? The government that hinders prosperity at every turn by its taxes, regulations, and mandates?
Liberal proponents of the estate tax also maintain that it encourages Americans to give to charitable organizations and institutions. But if this is a goal of the U.S. government then why did President Obama — a liberal’s liberal — discourage Americans from charitable giving by proposing the reduction in the value of the tax break for donations to charity from 33 or 35 percent to 28 percent for families making more than $250,000?
The estate tax was instituted in 1916. Are we to believe that wealthy Americans never gave large sums of their money to charitable causes before then? Millions of Americans support their local churches with charitable donations even though they receive no tax benefit because they don’t itemize deductions. Clearly, charitable giving is independent of tax benefits. And since when is it the job of government to encourage philanthropy or any other behavior?
Really, though, liberal arguments for the estate tax are no more worth considering than arguments as to why a thief should be entitled to someone else’s money.
Rather than the estate tax being a benign tax, to the libertarian it is one of the most insidious taxes. The estate tax is the worst kind of tax because it is pure 100 percent income redistribution. The estate tax is the ultimate in wealth redistribution because the deceased can’t possibly receive any tangential benefits from it. The estate tax is the most intrusive tax because, according to the IRS: “It consists of an accounting of everything you own or have certain interests in at the date of death.” The estate tax is a misnomer. The tax incidence falls not on the decedent but on his heirs. Those actually punished by the estate tax may not be “the rich” at all, especially when those other than children of the decedent are included among the heirs.
To the libertarian, the arguments against the estate tax all come down to liberty and property. It doesn’t matter if “the rich” and his heirs can “afford it.” The right of the deceased to dispose of his accumulated wealth — whether it is earned or “unearned” — is a natural and inviolable right. He may in fact wish to leave his entire fortune to the government to be redistributed as bureaucrats see fit. But that must be his decision, not the state’s. Every American should have the liberty to dispose of his property — in life or in death — as he sees fit.
Eliminating the estate tax is a first step toward not only simplifying the tax code, making it more fair and less progressive, and lowering Americans’ actual and potential tax burden, but also starving the federal leviathan of revenue. But even more important, libertarians oppose the estate tax for the same reason they oppose an armed robber in a convenience store. Acquiring someone else’s property by force is wrong whether done by individuals or governments.