Death Tax

Federal death tax—the top rate is now 35% and is scheduled to rise to 55% next year

Death Tax - The radical far left has long been confused by polls showing that two thirds of Americans want theFederal Death tax abolished. Why would Americans oppose a tax that politicians say is aimed at the top 1%?

Death Tax - 29 States abolished this Tax

Last year Ohio abolished its estate tax, joining the 28 other states that do not impose such a tax at death. Indiana's legislature recently passed by big margins a bill to phase out its death tax by 2021, and Governor Mitch Daniels signed it this week. Heated debates are going on in Tennessee and Nebraska over the issue. Even in Oregon taxpayer groups are attempting to put an initiative on the November ballot to abolish the death tax, and polls show it could win.

The answer is that Americans understand that the tax is unfair. It punishes a lifetime of thrift and investment solely due to the accident of death. And it does so in a way that imposes another tax on income that in most cases has already been taxed at least once, or sometimes twice.

A majority still believes that anyone can get rich in America, and that someday that could happen to them or to their children. They reject the idea that the government could then steal half their hard-earned fortune. All of this is to say that Americans generally view the death tax debate not in tax-the-rich terms, as the radical left does, but as a moral issue: Thou shalt not steal.

Death Tax Studied

A November 2011 study of tax return data by well respected economists Arthur Laffer and Wayne Winegarden shows how people avoid state death taxes. The study compared Florida and Tennessee high income returns. Both states have no income tax, but Tennessee is one of only two states that imposes an estate and a gift tax. (Connecticut is the other.)

Tennessee Tax

The Tennessee tax really does cause the rich to flee. The writers found that in 2010 Florida had nearly twice as many federal tax returns with taxable estates (per 100,000 population) as did Tennessee. The average estate is also larger in Florida—$7.4 million versus $4.4 million in Tennessee.

Avoiding the Death Tax

Because wealthy people avoiding the estate tax take their businesses and spending with them, the study concludes that "had Tennessee eliminated its gift and estate tax 10 years ago, Tennessee's economy would have been over 14% larger in 2010." They also find the estate tax cost Tennessee state and local governments over $7 billion in tax collections. There CAN NOT be a more self-defeating tax.

With Ohio and Indiana zeroing out their estate taxes and others likely to follow, the remaining high-rate states will have an increasingly hard time holding onto their mobile high-income citizens as they get older. Mr. Obama wants a 45% federal estate tax rate next year, which in many states would mean a more than 50% combined rate. That is not fairness. It is self-defeating confiscation.

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