OPINION:
With the federal budget debate underway in Washington, both political parties are certainly sparring over different fiscal visions for the country. There is, however, a chance for rare bi-partisan agreement: repealing the federal death tax.
This unpopular tax has long had an adverse impact on small, family business owners who want the next generation to continue the family legacy. Currently, the federal government seizes over 40 percent of an individual’s estate when they die. While the President wants to destroy so many of those legacies and raise taxes, Congress has the chance to go in a different direction.
Federal lawmakers should look to the states for guidance. While twenty-one of them carry an additional death tax on their books, many states have reformed and in some cases eliminated the death tax in recent years. States such as Oklahoma, Ohio, and North Carolina simply abolished their death taxes. Other states like New York have raised their exemption to match current federal law, although the New York exemption is a phase-in and will match the federal level by 2019.
Supporters often claim that the death tax is vital for revenue, but in reality it is a poor way for a state to raise revenue and has led people to leave a given state. According to a study by the Ocean State Research Institute, the death tax was the primary factor in residents leaving Rhode Island. The study found 107,086 or (one in ten) residents left the state between 1991 and 2009. While the state collected $341.3 million in estate tax receipts, it lost over $500 million in other taxes due to people migrating to other states.
The benefits of axing the death tax are clear. Various studies conclude that eliminating the death tax would spur economic growth and create jobs. Former CBO Director Douglas Holtz Eakin found that 1.5 million jobs would be created as well, increasing business capital to the tune of more than $1 trillion. Ending the death tax would also increase payrolls, expand investment, and increase hiring.
By contrast, under the current system of punitive taxes, the Joint Economic Committee reported that over $1 trillion worth of capital has been lost, contributing to fewer jobs and lower wages. Economists have also cast doubt on the effectiveness of the death tax. The death tax discourages savings and its compliance costs are more than the revenue it takes in.
In the 114th Congress, the prospect of repealing the death tax has found new life. Champions of saving family businesses include Senator John Thune (R-S.D.), who has previously introduced repeal legislation, and Rep. Kevin Brady (R-TX), who has introduced the bi-partisan Repeal Death Tax Act of 2015. This spring marks the ten-year anniversary of the last time Congress has held a vote to repeal the death tax. It represents the perfect opportunity for members to give tax relief to the small and family businesses in their districts and states.
The opportunity to repeal the death tax once and for all is here and the chance shouldn’t be wasted. People shouldn’t be taxed after they die and small family businesses shouldn’t be taxed as they are passed down to the next generation. The government shouldn’t be trying to squeeze more money out of people who are trying to live the American dream—and killing the death tax can lead to exactly that.
Thomas Fletcher is a policy analyst at Americans for Prosperity.
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