Friday, November 12, 2010

Some reasons not to repeal estate taxes

This is a live issue in the United States, where Republicans in particular are hoping to kill the estate tax. The economist Richard Thaler has written some reasons why the estate tax should stay in the U.S. - and this applies to many other countries too. He starts by debunking two misconceptions commonly aired as a reason to junk the estate tax.
"First, it is incorrect to say the estate tax amounts to double taxation. The wealth in many large estates has never been taxed because it is largely in the form of unrealized — therefore untaxed — capital gains. A 2000 study found that for estates worth more than $10 million, unrealized capital gains represented 56 percent of assets. For estates with active farms and businesses, the percentage is much higher. If no estate tax is imposed, capital gains taxes can be avoided indefinitely.

The second myth is that the estate tax somehow threatens family farms — that they would need to be sold if they couldn’t pay the tax. But under the $7 million exemption proposed by the Obama administration, such cases would be exceedingly rare.
What is more, the proposed 45 percent rate is the lowest since 1932, and with the $7 million exemption, only 3 estates in 1,000 would have to pay any tax. And he Congressional Joint Committee on Taxation estimates that eliminating the estate tax would cost about $500 billion over the next decade.

And then there's this:
"There are lots of ways to spend $250 billion. Trim the deficit, improve education, support the troops, or make sure heiresses like Paris Hilton have the proper attire for trips to St.-Tropez.
Well said. Read more on this from Citizens for Tax Justice, who note, among other things:
"In 2006, a report from Public Citizen and United for a Fair Economy documented how 18 extremely wealthy families coordinated to spend hundreds of millions of dollars to promote repeal of the federal estate tax, which would save them, collectively, over $70 billion."
And there is more myth-busting there too.


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