(CNSNews.com) - Unless Congress acts to extend its repeal, the death tax is scheduled to return in 2011-- a tax that liberals and conservatives alike seem to agree is designed only to attack the “pockets” of the wealthy.
A moratorium on the tax expires after Dec. 31, 2010, and the tax will return in 2011 taxing inheritances at a rate of 55 percent with only a $1 million exemption unless Congress changes the tax law.
On a 39-59 vote, the Senate on Wednesday rejected a measure sponsored by Sen. Jim DeMint (R-S.C.) that would have permanently repealed the tax.
DeMint’s measure, which came in the form of an amendment to a small business bill, would have made permanent the repeal of the federal estate tax, which is set to expire on Dec. 31.
Wesley Denton, a spokesman for DeMint, told CNSNews.com that the death tax is an “immoral double tax on property and assets that people have already paid taxes on throughout their lives,” and hurts small businesses. (EDITOR'S NOTE: A previous version of this story incorreclty added the term "illegal.")
Denton, quoting his boss, called the tax “terrible public policy," and said that the vote is sure to be an electoral issue.
“I think it will separate those who are serious about creating jobs and those who are just hiding behind rhetoric,” Denton said.
In 2001, Congress passed the Economic Growth and Tax Reconciliation Act, which gradually lowered the death tax rate over the next 10 years and repealed it altogether for 2010. From a top rate of 55 percent in 2001 on estates worth $675,000 or more, it dropped to 50 percent in ’09 on estates worth $3.5 million or more. The tax was repealed for 2010.
But, unless Congress extends the law, the estate tax will return in 2011, and estates over $1 million will be taxed at a rate of 55 percent.
Sen. Bernie Sanders (I-Vt.), a self-described socialist, is sponsoring legislation that would restore the estate tax in 2011 with a $3.5 million exemption level, boosting the tax rate for what he calls the “super wealthy” to 65 percent.
On the floor of the Senate on Tuesday, Sanders attacked a few of the “rich” specifically, pointing out, with the help of a visual aid, that repealing the tax would give the Walton family, owners of the retail chain Wal-Mart, a $32.7 billion tax break. He also said repealing the tax would provide $11 billion in tax breaks for the family that owns Mars candy company, $9 billion for the Cox cable family, and $2.5 billion to the family that founded Campbell’s Soup.
Sanders, a self-professed socialist who caucuses with Senate Democrats, listed places where he wants to send revenues taken from inheritances through the death tax.
“It seems to me that a time when this country has a $13-trillion national debt -- at a time when 22 percent of our children are living in poverty, the highest rate of child poverty in the industrialized world, at a time when our infrastructure is crumbling, at a time when we have a desperate need to transform our energy system, and by doing that we can put millions of people to work rebuilding America, transportation, infrastructure, energy -- it is beyond comprehension, literally beyond comprehension, that anyone can come down to the floor of this United States Senate and argue with a straight face that we should provide hundreds of billions of dollars of tax breaks to millionaires and billionaires,” Sanders said.
Liberals want the death tax re-imposed precisely because it “discourages the concentration of wealth and power, which undermine our democratic institutions,” according to Chuck Collins, co-founder of Wealth for the Common Good.
“The original vision of an estate tax was to slow accretions, slow concentrations of wealth and power,” Collins told CNSNews.com. “I actually would make the case it’s the fairest tax because it’s essentially taxing for the most part accumulated assets, land, property, stocks, and appreciated assets that have never been subject to any tax.”
But Ryan Ellis of Americans for Tax Reform, a conservative taxpayer group, scoffed at the idea that the tax on inheritances and estates is fair.
“It doesn’t raise a lot of money, and it’s not tied to anything in particular, and it’s not a particularly efficient tax,” Ellis said in an interview with CNSNews.com. “The only reason left that you would ever support it is because you want to kick perceived rich people in the nuts when they die.”
Adam Nicholson of the American Family Business Institute told CNSNews.com that the liberal claim that re-imposing the estate tax will make the rich pay their “fair share” is an affront to the American dream.
“They are appealing to a class warfare argument that really has no cache among Americans as a whole,” Nicholson said. “Sixty-eight percent of Americans support permanent death tax repeal. Many Americans will not technically pay the estate tax, but I think that Americans recognize that the tax primarily is an affront to achieve the American dream.”
“They also recognize that socking the rich might be the worst thing you can do to encourage small business owners,” said Nicholson.
A congressional Joint Economic Committee report in May 2006 concluded that the estate tax is a drag on the economy.
“The estate tax exerts a negative effect on the economy by generating extremely high compliance costs, introducing economic inefficiencies, and by reducing the stock of capital in the economy,” the report stated.
In fact, the study estimated that the estate tax “has reduced the stock of capital in the economy by approximately $847 billion.”
The report also said the estate tax “has a negative influence on entrepreneurial activity by hindering entry into self-employment and by breaking up family-run businesses.”
Family-run firms and farms particularly feel the pinch of the estate tax, the committee said, because they are less “likely to have the liquid resources needed to meet their estate tax liabilities.”
The report also concluded that the estate tax hinders upward income mobility.
“One study estimates that the estate tax will consume 11 to 13 percent of African-American wealth over the next 50 years. With the number of minority-run businesses surging in recent years, the estate tax will come to affect more and more such firms,” the report added.