The Palmetto Insider

The blog of the South Carolina Policy Council

Killing Jobs: Congress Moves to Extend ‘Death Tax’

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Congress is once again moving to stifle private investment and kill jobs – this time, through the use of the estate tax.

What’s the estate tax? It’s a 45 percent inheritance tax on estates larger than $3.5 million. But small business owners, rather than the uber-wealthy, are most likely to suffer under the tax. Consider that a small business owner who inherits an enterprise worth $5 million will essentially be taxed at $2.25 million – effectively destroying the business he inherited.

With the 2001 tax cuts, the estate tax was supposed to take a 1-year hiatus starting in 2010, but then would increase again in 2011. President Obama, however, has been advocating for a permanent extension of the tax at the current rate of 45 percent on estates over $3.5 million.

Following suit, the House yesterday voted to permanently extend the tax. In defense of the move, Rep. Jared Polis (D-Colo.) declared, “This bill gives our nation’s wealthiest families the ability to know exactly what their obligation to the nation that fostered their wealth will be, and it is fair and it is just.” Added Polis, “In America, it’s not a sin to be rich nor is it a crime to die rich.”

Really? Because when you tax someone 45 percent for dying, sounds like you’re making it a crime. Rep. Louie Gohmert (R-Texas), a former judge, agrees. “After someone dies and someone comes in and steals from them, we consider that in most societies to be reprehensible. I have sentenced people personally to prison for doing that.”

Apparently, as long as the person doing the stealing is wearing a shirt that says “IRS”, it’s legal.

While there are a small percentage of estates directly affected by this tax –  historically about 1 percent – the overall economic impact of this tax – especially on small business – is profound.

Earlier this year, Policy Council analysis showed that 20,326 jobs would be created in South Carolina if the estate tax were repealed.

According to a Cato Institute study, the estate tax also creates a large and wasteful estate planning industry. Needless to say, individuals will do everything in their power to avoid the tax – including not creating more jobs and growing their businesses – when it makes more financial sense to stay in the exemption zone.

Repealing the estate tax would likely have a Laffer-curve type effect on revenue. According to a study by the American Family Business Foundation, eliminating the estate tax would cost the federal government $19.2 billion in revenue – but the improved business climate would then actually raise total government revenue by about $23.3 billion.

The Senate is expected to take up the estate tax after it concludes consideration of proposed federal health care legislation.

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Written by Geoff Pallay

December 7, 2009 at 12:29 pm

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