By Ryan Ellis
When the GOP released their “Framework” for tax reform last month, official Washington got excited that they could finally chew on all sorts of wonky tax details. They will get even more excited when the full package is out this week.
That’s why it was very disappointing to read that Senate Finance Committee Republicans (or at least the staff working for the committee) were considering keeping the death tax in place. This despite the committee staff releasing just this year a helpful report entitled “Estate Tax Schemes: How America’s Most Fortunate Hide Their Wealth, Flout Tax Laws, and Grow the Wealth Gap.” The death tax is not a tax so much as it’s a near occasion for a tax shelter.
Keeping the death tax in place would be a grievous error.
The simplest part of the White House-Senate-House tax reform “Framework” is at the same time one of the most powerful:
The Framework repeals the death and generation-skipping transfer taxes.
That’s it. Ten simple words that might hold the key to the dual goals of this tax reform plan: first, to pass it; and second, to bring real economic growth back up to the “old normal” of 3 percent annually.
It’s no secret that it’s hard to pass things in Washington these days. Many of us are still licking our wounds over not being able to pass Obamacare repeal (yet).
So it’s imperative that Republicans unite around tax reform in a way that they never managed to on health care reform. It’s essential to get the public on our side. It’s mandatory for us to put pressure on Democrats.
Death tax repeal does all these things.
Nobody likes the death tax–even Democrats
Let’s start with public opinion. Every poll I can remember going back over two decades has said that repealing the death tax is a lopsided issue in favor of repeal, usually with greater than two-thirds support. The latest poll–sponsored by of all outlets National Public Radio–confirms this.
The death tax is highly unpopular no matter how the question is asked.NPR
That poll is astonishing. First, it’s conducted by an impeccably-liberal source, NPR. Second, it distinguishes between two ways of framing the tax–the preferred Republican way (“the death tax”) and the preferred Democrat way (“the estate tax”), and got virtually identical results.
76 percent of adults want “the death tax repealed,” and this number only dips to 65 percent when they are asked about “the estate tax.”
The basic goodness of the American people comes out in this poll. It’s not hard to see why after hearing the personal story of death tax repeal lead Congressman Kristi Noem (R-S.D.)
Super-majorities persist with Republicans, Independents, and even Democrats. Most shockingly, a majority of Democrats–51 percent–want to see repeal of the tax even when it’s called “the estate tax.” This is a slam dunk, Hill Republicans.
It’s not a surprise a majority of Democrats support death tax (or estate tax) repeal. The folks at the Family Business Coalition (full disclosure–I advise pro bono), the principal conservative death tax repeal group, have tracked a long history of Democrat support for killing or curtailing the death tax.
Just see what Chuck Schumer had to say a few short years ago:
It’s not just the general public–150 business groups and conservative organizations are on record urging Congress to repeal the death tax.
What are the numbers involved with death tax repeal?
Most people probably think the death tax raises more money than it does. In fact, it collects less than $20 billion per year. That sounds like a good number, except that the Congressional Budget Office projects that federal taxation in total this year will exceed $3.3 trillion. Do some quick math, and you’ll see that the death tax is well under $0.01 out of every $1.00 of federal revenues.
Even though it collects no money, the death tax creates a tremendous amount of dead weight losses in tax avoidance. According to a recent study by the National Taxpayers Union Foundation, taxpayers spend 2.1 million hours every year just filling out death tax forms. That’s $10,000 per death tax taxpayer, at a total opportunity cost of $124 million to the economy. According to research compiled for Senator Ted Cruz (R-Texas), some 102,000 closely held non-farm family businesses have paid the death tax since 1995, as well as 36,000 family farms. Countless more have either had to run the numbers, engage in legal estate planning and tax avoidance, or both.
NTUF relays a study that says that mature family businesses spend nearly $75,000 per year on life insurance to avoid the death tax, and over $170,000 annually in other tax avoidance costs, all at a time-value expenditure of 13 percent of owners’ work schedules. That’s supported not only by the Senate Finance Committee report above, but also by this helpful primer from Fox News.
Needless to say, that’s a lot of dead weight loss. As a result, repealing the death tax has outsized growth effects, especially when compared to its paltry tax revenue haul.
The Tax Foundation estimates that full and immediate repeal of the death tax would unlock these unproductive dollars and man hours into real prosperity for everyone: 159,000 jobs would be created, and the economy would be 0.8 percent larger–permanently. After-tax income would rise by almost 1 percent across the board. For a family of four making $90,000, that’s a $900 annual raise.
Death tax repeal (and avoidance repeal) would throw off so much new economic growth that a dynamic analysis suggests the annual revenue loss would be less than $2 billion per year, not the $20 billion per year predicted by a static score. Repealing the death tax doesn’t “pay for itself,” but it comes darn close.
Repealing the death tax is such a no-brainer that over 700 economists, including four Nobel laureates, have signed a letter calling on Congress to repeal the death tax. This letter was started by Milton Friedman and has been added to over the years since. Speaking of Milton Friedman:
States have figured this out. According to Ashlea Ebeling at Forbes, only 18 states and the District of Columbia still have either a tax on estates, a tax on inheritance, or both. This is down from all 50 states less than two decades ago.
Globally, the U.S. has the fourth highest death tax rate in the world–only Japan, South Korea, and France have higher rates. 13 countries have repealed their death taxes in the past two decades–even Sweden.
Congress Has Promised Time and Again to Kill the Death Tax
If there is a tax most voters could say Republicans have run on getting rid of, it’s the death tax. Most elected members of Congress, I’d venture, have vowed to kill the death tax as part of getting elected. There are over 100 cosponsors of death tax repeal in the House.
Just last Congress, the House considered H.R. 1105, the “Death Tax Repeal Act,” and it passed 240-179. Only 3 Republicans voted no. The underlying bill had 135 cosponsors. The identical bill the Congress before had 221 cosponsors, a majority of the House.
Students of recent tax history will recall that Congress voted to repeal the death tax before, in the 2001 “Bush tax cuts.” The death tax actually disappeared for one year, but snapped back to its current 40 percent rate as a result of the fiscal cliff deal. Before that, in the 1990s and early 2000s, the U.S. House used to vote on death tax repeal as an annual exercise.
Meanwhile, Bernie Sanders (and increasingly other liberals like Hillary Clinton aping him) has called for an increase in the death tax to 65 percent. The contrast between the two parties could not be clearer
How much more does Congress need to finally kill the death tax?