Results on the Estate Tax

RESULTS describes itself as "a nonprofit grassroots advocacy organization, committed to creating the political will to end hunger and the worst aspects of poverty." On April 18, it held a press conference concerning the attempts to repeal the estate tax. A transcript of that conference is available here and an mp3 recording is available here.

Former IRS Commissioner Sheldon Cohen offered some of the most pointed remarks:

[A] lot of the confusion in proposed repeal is setting up straw men and then knocking them down. Much of the argument says, well, this is double-taxation; you get taxed on the income, and then you get taxed on it again. Ninety percent – over 90 percent of the value of estates has never been taxed. That is, it’s generally appreciation that's occurred.

Also I think most of us forget that the so-called death tax, which is really an estate tax, occurs at the end of life. So it's been deferred for 50, 60, 70 years of work. So if you discounted it by the fact that it's paid at the end of life, instead of installments during the period of time which accumulated – the wealth is accumulated, you'd get a much lower number.

Progressive taxation – that is, the higher your income, the higher the rate of tax – has been with us since the very beginning. Teddy Roosevelt was in favor of this kind of taxation. This is not particular party or group. We each have our own points of view, depending on where we sit. But progressive tax has been with us right from the beginning. The question is always, "How much progression?" And that's a legitimate argument.

The real impact on small business is almost nil. As Mr. Carlson indicated, the impact on small family farms is virtually nil. The impact on small family businesses is virtually nil because the tax law now has exemptions for family farms and for family business that are slightly larger than the general exemption. And they also allow for longer payout, so that – in my practice – I’ve been practicing law for a little over 50 years – I have never seen a family business that was sold because of the estate tax. They are sold, because the kids don’t want to manage the business, the kids are off just being doctors or lawyers and don't want to go back into the farm, or don't want to go back into the family manufacturing business. That occurs all the time. But it isn't because of the estate tax that the business is sold.

Nobody's talked about – and the (charity, or very charity) of mentioning this – what an important element here – is that the estate tax, as well as the income tax, are an encouragement for charity. That is, since we have deductions in beneficial gifts to charity, we're (all) encouraged to give to worthy causes. Nobody knows for sure how much is going to be lost when, as and if these – either the income tax were to be pushed down in rates, or the – or the estate tax were to disappear. But if that were to be the case, there are estimates that go to 13-plus billion up to 20 billion. I’m not an economist; I don't want to project those numbers.

I do know that it does affect people's behavior. People give a little more to charity because there is tax benefit. We saw that the President and the Vice President both took advantage of large charitable deductions at the end of last year. That was just announced this last week, when they filed their returns.

So it’s an important element. And I think it's been missing from the discussion. And it will be missing, because the charities can't say it out loud. They can't say it because their donors might get offended.

(Emphasis supplied in all cases.)

Another participant in the press conference, Robert Carlson, made this point:

The present estate tax only affects about 300 farm estates per year. That's less than one percent of all farm estates. And those are Department of Agriculture numbers.

What is most dangerous about the proposal to end the estate tax, however, is that with its ending – which would only affect, again, less than one percent of farm estates – we would have imposed the capital gains on gains in farm estates, and that would affect many more people. So there would be a net – there would be a net loss; there would be many more losers than gainers among the farm community and family farms and ranchers, if the estate tax were to be eliminated.

(Emphasis added.)

In other words, as I have pointed out before, the repeal will actually impose additional tax burdens on most small estates, including smaller family businesses and farms.

Finally, Adam Hughes, of OMBWatch, noted that Senator Kyl's suggested "compromise" was no compromise at all:

That proposal would cost between 81 and 84 percent of full repeal. And what we're talking about there is around 770 billion added to the debt over the first 10 years.