The Un-American Death Tax, The Bell Tolls for Thee

Dick Patten

"The Congress needs to make sure that the Death Tax is gone forever…”

So declared President Bush last week, effectively launching one of the most important debates that will come before the nation this year.

Indeed, upcoming deliberations in the Senate over permanently repealing the Death Tax will explore one of the fundamental questions of our time:  Do Americans work for the U.S. Government or does the U.S. Government work for us? Do we own the fruits of our labor or are they just on loan from Uncle Sam while we are alive?

Under our current tax system, the latter would seem the case. We work and pay taxes all our lives on everything we earn—lots of taxes—and when we die, the IRS can swoop in and take about half of everything we’ve acquired in life, as though it really belonged to them all along.

That not only is unfair, it is un-American.

This nation was founded on the premise that what we work for belongs to us, not government. We have a responsibility as good citizens to pay our fair share for services, but once those taxes have been paid, what remains of our assets is ours, and ours alone. It is a key philosophical difference between the U.S. and socialist nations.  At least it’s supposed to be.

This forgotten American principle, however, likely will to take a backseat in the upcoming debate in the Senate to a more pressing and practical concern before our leaders: the enormous damage the Death Tax is inflicting on small enterprise in America.

For family businesses across the U.S.—and the millions of Americans they employ—the Death Tax can be devastating. When the IRS shows up after the passing of a business owner, it is not satisfied with confiscating income alone; it levies its sickle on his or her total assets. The resulting economic damage can be insurmountable. 

Take a family-run farm: After a modest exemption, a son or daughter of a deceased farmer today has to pay a 47% Death Tax on the entire value of the farm, not just what it earns. With land values at historic highs in the U.S., the assessed values of that farm might be 30 or 40 times earnings. As a result, businesses too often are forced to sell because the Death Tax burden is just too high. It is one of the reasons why only 30% of family businesses in this country make it to the second generation, and a mere 13% survive to the third.

Employees of those businesses are, of course, out of luck, too. When the doors close, they close hardest on them. And keep in mind that 87% of businesses in the United States are family-owned, employing half the American workforce. 

But Death Tax proponents never seem to think of the little guy. To them, repeal efforts are a ploy of “the rich.” That may sound good on television, but it is a tired and deeply flawed argument.

Everyone familiar with this issue knows that truly wealthy families in the U.S. have managed to avoid the Death Tax for decades through trusts, foundations and other tactics. (Who can blame them? It is after all their money). The people who really get hurt are hardworking, middle-class families who have managed to accumulate modest assets during their lifetimes. They are the ones caught holding the bill.

The other argument Death Tax advocates can be expected to roll out in the coming weeks is that the nation cannot afford to lose this tax. That, too, rings hollow.

The IRS doesn’t benefit much—if at all—from the Death Tax. The amount of money it generates represents less than one percent of the federal budget, and it is a notoriously inefficient tax to collect.  At any given time, the Death Tax is the source of more than 10,000 lawsuits against the IRS by grieving families. And each of those lawsuits represents a significant loss of time and dollars. For that reason, many respected economists believe that the Death Tax actually may cost America more money through loss of economic activity than it generates. 

2005 may  be the year when Americans finally get relief from this insidious tax. In March, the House of Representatives voted to bury the Death Tax deep in the ground where it belongs. Now it is the Senate’s turn to act. It should do so wisely, because millions of Americans will be watching—watching to see if their senators truly understand who works for whom.