Should the Estate Tax Be Permanently Eliminated?

by Fred Siegmund

The Estate tax, a tax on the value of assets at death before ownership is transferred to heirs, has been subject to many pressures and changes over the years.

Up until 1981, estate tax rates up to 70 percent were applied to the entire value of an estate with only a $50,000 exemption.

Since the early 1980s, Congress has repeatedly reduced the number of estates subject to the estate tax, mostly by raising the exemption. By 2001, the exemption was $1 million and the top tax rate 55%. That year, Congress agreed to a 10-year phase out of the Estate tax.

It is a 10-year phase out because next year, the tenth year, the estate tax is eliminated, but only for one year. The Bush era revisions to the estate tax expire in 2011.

Under the rules that remain for 2009, the first $3.5 million of an estate is exempted from estate taxation. According to a recent editorial in the Washington Post (“Extend the Estate Tax“), only around 100 estates will be subject to any tax.

These 100 estates alone would bring in $266 billion of revenue.

Can the US Afford to End the Estate Tax?

At a time of colossal federal deficits, Congress has to make up its collective mind and decide if it wants to amend the current law to avoid losing that much revenue for 2010, when the tax will be zero.

The decision for 2010 only applies to one year and only a small amount of revenue, but estate taxes have important social repercussions over time.

Citizens are not citizens just because they live in the same country and share the same geography. Citizens need to share some common experience to understand each other and cooperate politically and socially.

One of those common experiences is the need to finish school and find self supporting work.

If the heirs of the 100 estates mentioned above receive $266 billion dollars, they have no need to work, ever. They can afford household servants, private tutors, and lavish lifestyles without working and without understanding what other people have to do.

They also have enough money to influence media and political agendas and perpetuate their status.

Eliminating the Estate Tax Won’t Work

As the matter stands, the estate tax of 2011 will be restored to the estate tax of 2001 unless Congress can agree on new legislation. That was as far as Congress could get toward eliminating the estate tax in the early days of the Bush administration.

Critics in Congress keep pushing to permanently eliminate the estate tax. Eliminating the estate tax would allow a small class of families with extraordinary wealth to be diversified around a global economy and permanently protected from market forces.

The term “banana republic” describes a pattern of inequality, usually in Latin American countries, where a few dozen landholders have 90 percent or more of the wealth and the rest live on whatever is left.

Despite a well documented increase in income inequality, the United States is no banana republic, but abolishing the Estate tax is a step in that direction.

(photo: alancleaver_2000)

About the author: Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

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