It's expensive to die

Under the current tax law, the death tax will drop to zero in 2010 from its current level of 45 percent. The tax dropped from 55 percent to 45 percent last year.

But the Obama administration embedded a provision in the new budget to maintain the tax at its current level.

A footnote on page 127 of the President’s budget reads: “The estate tax is maintained at its 2009 parameters."

So the estate tax rate will continue at 45 percent. There is a $3.5 million exemption level. ($7 million for a couple.)

Many will undoubtedly remain unconcerned about this onerous tax because in their minds, it simply taxes “the rich”.

We like to tax the rich.

But the tax does not merely impact the rich. It also affects small business owners and farmers.

Take the farmer for instance. He may have little cash in the bank, and his lifestyle remains modest. But he has millions tied up in his land and the capital assets required to work a farm. He’s what one might call land rich and cash poor. When he dies, he hopes to pass his farm on to his children, but with the estate tax, the children must pay a 45 percent tax on the farm before they can take possession, putting them in a position where they must sell the land to pay the taxes.

The same thing happens to families with large amounts tied up in businesses. The heirs must sell business assets simply to pay the taxes. These dollars taken out of the private economy represents capital that would have been used to create jobs, products and greater wealth. Instead the government collects it for its own, less economically inefficient purposes.

A Wall Street Journal op-ed piece points out: “What all this means is that the higher the estate tax, the lower the incentive to reinvest in family businesses. Former Congressional Budget Office director Douglas Holtz-Eakin recently used the Summers study as a springboard to compare the economic cost of a 45% estate tax versus a zero rate. He finds that the long-term impact of eliminating the death tax would be to increase small business capital investment by $1.6 trillion. This additional investment would create 1.5 million new jobs.”

The estate tax also represents double taxation. The wealth taxed upon death was previously taxed when it was earned.

But beyond the pragmatic reasons to oppose death tax, their exists a deeper philosophical principal. It basically represents legalized theft from the family of the deceased. It encapsulates the government mentality that all wealth belongs to them, and they get to decide how much we the people get to keep. The excessive tax rates imposed on the “rich” are not designed to raise revenue for necessary government purposes, but as a method of social engineering and wealth redistribution. This concept violates our basic inherent right to property and a nefarious encroachment of individual liberty.