Bernie Sanders and Hillary Clinton are pushing for a ‘sensible’ estate tax reform.
They propose raising the rate to 45% and cutting the exemption amount from $5.45 million to $3.5 million.
The death of the pop star Prince brings onto the front pages of our news sources a cold hard fact.
That fact is, that is high time for the repeal of the federal estate tax.
The news reports tell us that Prince died without a will or any other estate planning. He leaves behind a likely multi-million dollar estate. How much it is worth will be left up to a battle between valuation experts for the estate and the valuation experts for the federal and state tax bureaucrats.
He leaves behind a full sister and five half-siblings who will share in whatever his estate turns out to be.
However, they will not be the biggest beneficiaries.
Between the inheritance tax of Minnesota of 16% and the federal estate tax of 40%, theoretically, the total amount of tax as a percentage of the taxable estate would be north of 50%.
As I have regularly joked in conferences for years, the U.S. tax system is based on taking half of everything when you are alive, and then half of the remaining when you die.
The problem is that the estate tax gets paid in cash either within nine months of death or shortly after that on essentially an installment basis.
The situation that Prince’s estate is in is not any different than all the other estates where the value of the estate is in non-cash assets like on-going businesses or hard to value assets.
Is it moral for the government to confiscate over 50% of anybody’s lifetime of work?
To Bernie and Hillary, it is a question of getting the rich to pay for getting wealthy off the backs of the poor. OK, maybe that is the way Bernie views it while Hillary is just going hard left to get the nomination before she pivots and reverses her position to get rich donors contributions after she gets the nomination.
Let’s examine that point of getting the rich to pay for their sins.
What did Prince do that ripped off the poor?
He started off without money, built a business based on his talent, worked hard, and became rich.
Bernie and Hillary and their ilk think nothing of penalizing success. Then again, what have either of them done for society except mooch off the political system for their own benefit?
Lots of academics claim that it is important to keep the estate tax because the federal government spends so much money it needs to confiscate the estates of the dead to fund the deficits.
This argument shows not only their political bankruptcy but is also factually wrong.
The Joint Committee on Tax has been issuing reports for years pointing out that the estate tax is a net revenue loser for the government.
The government’s numbers show that the estate tax applies to only 0.2% of the decedents and raises less than 0.6% of federal tax revenues.
The federal estate tax raises revenue less than the cost of one Congressional pork barrel project.
Maybe there is something I am missing here?
Does the estate tax law have some vital underlying purpose so compelling as to require we continue it even though it is immoral, a source for political corruption, and a money-loser?
The United States has enacted four estate taxes during its history. They were all passed for the same reason. To pay off war bonds.
The present estate tax was passed in 1916 to pay WWI bonds.
That war was over a long time ago, and there have been no WWI bonds in our lifetimes. The point is, that whatever reason Congress used 100 years ago in passing another estate tax, that reasoning no longer applies.
Death is the great equalizer. All lives are important and the death of any of our loved ones brings strong emotions of loss and reflection.
I do not feel that the death of Prince is any more momentous than the tragic death of others.
His death, however, reminds us and underscores the reasons to repeal the estate tax.