Friday, June 12, 2009

US lobbyists still chiselling away at the Estate Tax

Inheritance taxes, or estate taxes, are perpetually under fire from the rich and powerful, around the world. The United States is no exception. From Citizens for Tax Justice:

"A new report from CTJ examines a duo of new "studies" claiming that repeal of the estate tax is crucial to our economy. The studies, which were commissioned by a foundation established to promote repeal of the estate tax, use one-sided analysis to produce the conclusions that their funders desire.

One study, released a few months ago by Douglas Holtz-Eakin and Cameron Smith, claims that repealing the federal estate tax would create 1.5 million jobs. The other, by Stephen Entin, claims that repealing the estate tax would actually result in increased federal revenue, not to mention higher gross domestic product (GDP).

The CTJ report finds that the "studies" have several fatal flaws. For example, the authors model the impact of taxes on the economy by considering the alleged costs of taxes but ignore the benefits. The benefits of taxes - the public services like roads, schools, law enforcement, national defense and other services that taxes make possible - are simply ignored. Since the authors assume that tax dollars are collected and then simply disappear, of course they can come to no other conclusion but that taxes (including the estate tax) are a drain on the economy!

Other flaws in these studies involve the illogical assumptions they make about how people respond to the estate tax. At one point Holtz-Eakin and Smith explain that the estate tax might cause a wealthy entrepreneur to "buy an around-the-world cruise" instead of investing his money.

But most estate taxes are paid on estates worth over $5 million, and 40 percent of estate taxes are paid on estate worth over $10 million. Let's say you had this sort of money and you wanted to keep your wealth from being taxed by the federal government. What would you do? You can't put it in stocks or bonds or even a savings account. You can't buy fancy houses, because they would become part of your estate. Even if you buy expensive cars or yachts, those would be part of your estate as well (even if they lose some of their value before you die).

You would have to spend your entire estate on caviar or cruises or cocaine or something that won't be around after you die. It's unclear whether anyone can eat away, cruise away, or snort up their nose $5 million. (We won't go so far as to say it's impossible.)"

Read CTJ's report, or their two page summary.


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