Skip to comments.Even Secretariat Understood the Death Tax’s Cruelty (Taxing the bereaved produces little revenue)
Posted on 11/16/2010 2:00:56 PM PST by WebFocus
Director Randall Wallaces Secretariat is a well-acted, exciting, and beautifully shot 1970s period piece about the Babe Ruth of thoroughbreds. It also dramatizes the immorality of the death tax.
During a contentious scene in a generally upbeat movie, Penny Chenery Tweedy (the outstanding Diane Lane), her husband Jack (Dylan Walsh), and her brother Hollis (Dylan Baker) convene soon after the family patriarch loses his lengthy fight against Alzheimers. Even before they can organize his funeral, the three loved ones replace grief with acrimony as they contemplate an impending $6 million federal death-tax liability (equal to $29.5 million today). They must dry their tears to debate angrily whether to liquidate the familys 2,798-acre horse farm, sell Secretariat, or take other steps to satisfy the tax authorities.
We dont want to end up foolish or broke, warns Hollis Chenery. The death tax is at 0 percent today. But if the threatened Obama-Pelosi-Reid tax hikes kick in on January 1, that levy will rocket to 55 percent on estates above a $1 million threshold. This would trigger far more Chenery-style family squabbles.
Talk abounds regarding a compromise of a 35 percent rate and a $3.5 million threshold. But Republicans in the midterm winners circle should ask humane Democrats to join them in resisting this deal and keeping the death tax as dead as its victims.
Just because someone has expired, why should Uncle Sam collect even one thin dime of the departeds money?
Some argue that America needs the death tax in order to prevent the serious cash of wealthy dead people from converting their heirs into aristocratic layabouts. If thats the goal, why not simply confiscate everything above $1 million? Thats a horrible idea. But if people like Bill Gates Sr. (who already got his, thank you) really want to avoid the Paris Hilton problem, they should have the courage of their convictions and demand a 100 percent death tax. After all, if they want Paris Hilton at long last to join the productive sector, do they think the prospect of only 45 percent of the Hilton fortune would really make her update her résumé?
Americans spend about as much hiding from the death tax as it generates ($28.8 billion in 2008, according to the latest revenue data). The compliance, or more appropriately, the avoidance costs of the transfer tax system may well approach the revenue yield, observed Alicia Munnell, a member of President Clintons Council of Economic Advisers. The Congressional Joint Economic Committee estimated in 2006 that for every dollar of tax revenue raised by the estate tax, another dollar is wasted simply to comply with or avoid the tax.
Economists call this a dead-weight loss. This money should be devoted to productive investments rather than pre-paid, posthumous tax-avoidance schemes.
Death-tax opponents have no need to drag public opinion toward repeal. The American people already want to drive a stake into the death taxs heart. An April 2009 Tax Foundation/Harris Interactive survey found that among 2,002 adults polled, 67 percent want the death tax interred. Respondents also rated it the least-fair federal levy, with an unfairness ranking of 3.9 on a scale of 1 to 5, higher than the gas tax (3.6) and even federal income and corporate taxes (3.4).
Americans understand the death taxs intolerable cruelty. They believe that people of all income levels should be free to bury their loved ones in peace without enduring family quarrels and worse, refereed by CPAs and financial advisers. Bereavement is excruciating enough without having to inspect spreadsheets and tax schedules. Sweden abolished its death tax in 2005. As publisher Steve Forbes puts it, Stockholms policy is No taxation without respiration. As anyone with some horse sense would ask: If life without a death tax is good enough for the cradle of Scandinavian socialism, what is Americas excuse for keeping it alive?
Deroy Murdock is a nationally syndicated columnist with the Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University.
I haven’t seen this movie yet... ‘ Need to before it goes to video.
Since the money was alreay taxed when it was earned, future money will be taxed when the estate earns a future profit, and property taxes continue to be paid in any event, there is no just reason to put an additional tax on an estate upon the death of the owner.
The “playboy” problem is, first, nobody’s business and second, a problem that usually solves itself in one generation.
I read years ago that the revenue collected by the estate tax was about 2% of federal revenue, and that enforcement and collections costs were about 75% of the revenue collected from the estate tax.
My plan would be to treat a person's death as a "taxable event" only to the extent that the transfer of that person's assets to any heirs would be subject to the normal capital gains taxes. In other words, if someone dies and leaves $X of assets to his heirs, then the estate would file a final income tax return that includes the "sale" of $X in assets to the heirs. The estate would then pay any capital gains taxes on that sale (if applicable) no differently than if the assets had been sold while the person was still alive.
Maybe I'm being too simplistic about this, but I don't see why this wouldn't work.
Then, in the case of Secretariat, the value of the horse could go up when it wins a race, and go down when it loses a race. But the horse must be appraised and the government must get its cut. The same applies to livestock, crops, inventory, and good will.
The death tax really should have been called the Family Farm and Small Business Destruction Act.
Suppose you overheard a mother schooling her child not to work for regular wages, not to save and, by all meanswhatever you do, my dear child!to spend every cent the little one could accumulate on this Earth and die broke. How bizarre, you would think.
Yet that’s exactly what the U.S. tax system tells the American people. If you work hard, save thriftily and accumulate a fortune, you’ll be taxed constantly and then see up to one-half of your savings go to your distant Uncle Sam instead of the heirs that you choose. Why not stop building up your net wealth, spend what you have and die poor?
These incentives do not just hurt the heirs of the very wealthy; they hurt the entire nation. We need class teamwork, not class warfare.
The case against the estate tax is not a fancy one. It does not turn on complex legal or economic argument. It is a simple moral case: As Adam Smith taught, the law should be set up to align the interests of one and all.
If the law allows people to keep what they earn, everyone has a private incentive to work hardwhich ends up benefiting everyone else. Consider Smith’s butcher, baker and brewer. A system that lets them keep what they earn encourages them to produce moreand hence less expensivemeat, bread and brew. They can also put more money in the bank, another positive for their neighbors and the nation. Having large supplies of private capital available for lending keeps interest rates low. That helps all borrowers and, all things being equal, drives up wages, because employers don’t have to spend as much on financing capital investments.
The estate tax encourages the wealthy baker to stop working and go broke. That hurts the brewer, who has to pay more for the bread he eats and the money he borrows. Even if the baker doesn’t blow all of his money, he will likely try to shelter as much as possible with estate planningwhich means he’s spending time engaging in needless, complex transactions instead of doing his best job and hiding his money instead of letting it benefit other borrowers.
Proponents of the tax don’t accept this argument. They argue that the tax doesn’t hurt the economy and doesn’t encourage spending by people trying to die broke. Many experts who have studied the numbers disagree. What’s more, the advocates’ argument goes against a basic tenet of economics: People respond to incentives. It’s curious that estate-tax proponents tend to believe that people respond to the tax’s incentive to give to charitiesand then curiously deny that anyone would respond to the incentives to stop working, stop saving and engage in sophisticated planning to avoid the tax.
Proponents of the tax are a well-meaning lot. They think that the estate tax is needed to raise revenue, break up concentrations of wealth, and serve the goals of redistribution and fairness. Yet the estate tax as is does none of these things, or does them poorly. As taxes go, it raises slim revenue, and its redistributionist goals can be easily avoided through dying broke or estate planning. And if we could tighten the existent tax, make it hard to avoid, then we would run even more forcefully into the incentives to stop working and saving.
So proponents come down to this: It’s the best we have. It may be a bad progressive tax, but at least it’s a progressive tax. It’s the only way to deal with the “Paris Hilton problem” of the spendthrift heir who gets a windfall he or she did not earn. Only, it is not. The right way to deal with that problem is the right way to deal with the general problem of U.S. tax policyto tax spending, not working and saving. Excessive private spendingheirs wasting an inheritance instead of using it thriftily and productivelyis the Paris Hilton “problem.”
My proposal is to scrap the income, gift and estate taxes and replace them with a consistent spending tax, which can easily be progressive. The incentive then is not to spend it all and die broke. It is to save as much as possible and die rich. A progressive spending tax could bring in as much revenue as the taxes it replaces. And it would be better from a moral point of view.
Some jurisdictions have never had estate or inheritance taxes, or have abolished them:
Austria abolished the Erbschaftssteuer in 2008. This tax had some of the features of the gift tax, which was abolished at the same time.
Australia abolished the estate tax federally in 1979.
New Zealand abolished estate duty in 1992.
Sweden abolished estate tax in 2005.
India enforced estate duty from 1953 to 1985. Estate Duty Act, 1953 came into existence w.e.f. 15 Oct 1953 till E.D.(Amendment) Act 1985 discontinued levy of estate duty on deaths occurring on or after 16 Mar 1985.
British Virgin Islands
Singapore abolished estate tax in 2008, for deaths occurring on or after 15 Feb 2008
Some states of the United States: see Inheritance tax at the state level:
LA - Louisiana - In place through 2003
NH - New Hampshire - In place through 2003
This is why a lot of “family farms” have become “corporations”.
I have seen it 4 times. Very inspiring!
And I will buy the DVD!!
Actually, the new Congress SHOULD present a bill to PERMANENTLY abolish this immoral tax. Your estate is taxed when you are alive and then taxed again when you die.
The abolition of the death tax is VERY POPULAR and MOST Americans are for it.
Present it to Obama and dare him to veto it... and if he does, present it to him again ( the same way the partial birth abortion bill was presented to Clinton again ).
If they want to take a page from the Democratic playbook, they can present in public, emotional VICTIMS of the death tax ( let’s call them the Secretariat people ) who can tearfully testify how this tax destroyed their business, estate and family.
It’s very good. I’ve seen it twice now, b/c it was the only current movie I could imagine my elderly mother liking when she was visiting this past weekend, so I didn’t let on I’d already seen it. She loved it!
It’s delicious to have the lovely but liberal Diane Lane take that part.
Your logic escapes me here. You seem to accept the premise that the government should get some kind of revenue after a person’s death; you are just proposing a different way for Uncle Same to get his hands on that money, treating the death and resultant wealth transfer as capital gains. I reject the notion that the money in an estate, which has already been taxed once as it was earned, should generate any more revenue for the government. Taxing assets at 15% or 28% or 33% is still taxing it at a rate a lot higher than zero.
As things stand now, the death of a rich man generates no revenue for the federal government because rich people are careful to set up trusts to handle their assets. The procedure is complex, with lots of possibilities and variables, and keeps a whole industry of financial planners in business. The system instead ruins family businesses, including family farms.
What a bad idea, it just shows how some are willing to bend over.
It isn’t gains if it was ALREADY taxed. It is a gift for a dying person to their loved ones.
It isn’t the G##damed governments money, it’s ours.
I reject the notion that the money in an estate, which has already been taxed once as it was earned, should generate any more revenue for the government.
Understood. You can make the exact same argument against a lot of different taxes on these same grounds. Keep in mind that a capital gains tax is different than other forms of income-based taxation because only the gain is taxed, not the full amount. So if a person died and left an asset worth $X to his heirs, then the capital gains tax would only be paid on the actual gain -- which is $X minus whatever the deceased originally paid for the asset. That way, there is no difference in tax treatment between a person who passes his assets to his heirs and one who sells off his assets one day before he dies.
The system instead ruins family businesses, including family farms.
This is largely a myth -- especially as it pertains to family farms. Farms had been given a special exemption under the estate tax, though certain conditions must be met. One of these conditions was that the "family farm" was not subject to estate taxes -- but only if the heirs who inherited it continued to operate the asset as a farm. If you heard any stories a few years ago about families being "forced to sell their farms to pay estate taxes," it wasn't because of some kind of injustice in the tax code . . . it was because the next generation of those families simply had no interest in running their parents' farms.
Capital gains taxes occur only upon the sale of the capital asset. You are assuming that an owner’s death is equivalent to a sale of the asset. The property has not been sold. It is precisely where the owner wanted it left.
Tell you what, if the old folks could have held onto their fortunes for their families their grandchildren would have all afforded Harvard and Yale with cash to spare.
My proposal is that there should be no taxing of estates of less than $10 million, but larger estates should simply be distributed to the dead person's 500 closest relatives ~ again, without tax provided it doesn't exceed $10 million per person.
We get rid of the Foundations, distribute those assets to the heirs, and put all that money to good use.
We would be better served by a law that prevents politicians and their heirs from becoming drunken, drug addled, aristocratic layabouts
RE: My proposal is that there should be no taxing of estates of less than $10 million
And where on earth did you pick the $10 Million number ? What makes the $10 Million so special that estates above that suddenly have portions of it belonging to government bureaucrats?
This does not sound any different from Obama’s wanting to increase taxes for the “rich” ( in his case he picks the $250,000 number ).
Perhaps rather than no tax, a capital gains tax applied as though the deceased had sold on the day of death, reported on the final tax return.
Marxists invariably hate the concept of passing one’s wealth onto your family.
I think it's much better to do this than have the super-rich imbed themselves in reality far beyond their alloted lifespans. Life is for the living, not ill-conceived special interest foundations and trusts.