Phil Gramm, a former Republican Senator from Texas, has written an Op Ed column entitled “The GOP’s ‘Tax the Rich’ Temptation” in the Wall Street Journal which explains how tax cuts benefit economic growth and why Republicans should resist the Democratic attacks that the tax cuts only benefit the rich.
Mr. Gramm’s basic thesis is that lower tax rates encourage economic growth and therefore everyone benefits and budget deficits will be reduced. Mr. Gramm uses the same logic to justify repeal of the estate tax.
I would like to make this crystal clear. This is NOT an article opposing repeal of the estate tax. This is an article opposing specious propaganda. For instance, the Op Ed piece states that President Obama imposed a 40% death tax, without further context. The fact is that the maximum estate tax rate was increased from 35% in 2012 to 40% in 2013. The 40% estate tax rate is still the lowest maximum estate tax rate since 1932, with the exception of the years 2010 to 2012. President Reagan is credited with reducing the maximum estate tax rate from 70% to 55%. Economic growth did not suffer in the 1980s and 1990s when the estate tax rate was at least 55%.
Most importantly, Mr. Gramm never mentions that the estate tax exemption for a married couple is almost $11 million! Of the 2,600,000 people who died in 2013, only 4,700 paid estate tax. Not even one decedent out of 500 paid estate tax. Mr. Gramm asks, “How many baby boomers who retire and squander their accumulated wealth would continue to work…if the government did not prevent them from transferring the benefits of their efforts to their children?” The answer, very clearly, is far less than one per cent, since 99.8% will never pay estate tax. Further, the government does not “prevent people from transferring the benefits of their efforts to their children” (even the excess over $11 million); even if the full estate tax is paid, 60% still goes to their heirs.
Mr. Gramm exaggerates when he says, “Americans…pay tax on every penny they earn, build a business, a farm or an estate--and when they die, the government takes another 40%.” In fact, income taxes are not paid on the increase in the value of businesses or farms or stocks. Currently there is no tax paid on unrealized capital gains during lifetime or at death. It is this fact, rather than the existence of the estate tax, that causes older investors to hold appreciated property until death to receive the step up in basis.
Discussion of tax policy regarding the repeal of the estate tax is not enhanced when knowledgeable people present half-truths and misinformation to support their position. If you believe that wealthiest fraction of this country should pay their “fair share of taxes,” whatever that means, I would suggest that paying some of that share at death rather than during life is the most painless way to pay. Furthermore, the estate tax makes wealthy people more keenly aware of the benefit of the ultimate estate tax shelter: leave money to the charities of your choice.
