The Death Tax is a product of the politics of envy and notions of wealth redistribution. As a killer of economic and job growth, the Death Tax deserves a speedy execution. Its confiscatory nature amounts to a government grab of property once the owner is gone. And, it’s an inefficient and costly tax for the Treasury to administer.
By James K. Jeanblanc l November 13, 2016
The Death Tax, euphemistically named the “Estate Tax,” functions as a direct tax on the property of those who die. It’s not a tax on the property of the living.
It’s not a broad-based tax, designed with revenue-raising as its main goal. Were that so, it would be low-rate, applying to all decedent property passing through the probate process. Instead, it is designed as a confiscatory tax. It’s imposed on the “excess” property left by a decedent, soaking up as much as 40% of that excess value.
Defenders of the Death Tax assert that it’s not a direct tax on property. They contend it’s an “excise tax” – a tax on the “transfer” of the property, not on the property itself.
Is It an “Excise Tax”?
The Death Tax must be classified as an “excise” for it to be authorized under the Constitution (see Article I, Section 8). But, calling it an “excise tax” doesn’t make it an excise. An “excise” has been defined as “a tax levied on certain goods and commodities produced or sold within a country and on licenses granted for certain activities.”
The Death Tax is not levied at the border. Nor, is it levied at the seller or producer level within the country. It’s a levy on property of a decedent passing under State law. And, it’s not involved with “licenses granted for certain activities.” The Federal Government neither licenses a decedent’s death, nor the passage of his property. Deaths and the passage of decedent property are matters falling under State jurisdiction, not that of the Federal Government.
So, the Death Tax rests on dubious grounds, both in terms of its classification and its design as a revenue-raising tax.
More to Its Dubiousness
The Death Tax is a product of the politics of envy and notions of wealth redistribution. Ironically, the super-rich can avoid the tax by placing their property in charitable trusts which they and their families control, allowing tax escape and continued wealth concentration. Plus, there’s a cottage industry of tax accountants and lawyers to guide wealthy clients through the complicated tax rules to mitigate their tax exposure.
To many, it’s a feel-good tax, but to the Treasury, it’s a “shoot-yourself-in-the-foot” tax. It’s a highly inefficient tax, costing the Treasury nearly as much to administer as the tax revenue it brings in.
Moreover, for those unable to find escape, it’s a tax punishing success and thrift, with collateral damage to wage and job growth. It prompts decisions affecting small business to mitigate the tax impact, often inconsistent with robust business growth.
Schedule the Hearse
As a killer of economic and job growth, the Death Tax deserves a speedy execution. Its confiscatory nature amounts to a government grab of property once the owner is gone. And, it’s an inefficient and costly tax for the Treasury to administer.
The Death Tax is seen by many as just another income tax, a tax on income accumulated in property form and remaining after years of income taxation. So, its repeal takes on an importance to the achievement of real income tax reform, to have uniform taxation of all income and all taxed the same.
James K. Jeanblanc is a CPA and Tax Counsel to the law firm Grove, Jaskiewicz & Cobert in Washington, DC. He is also Senior Fellow for Tax Policy at the Selous Foundation for Public Policy Research, author of The FreedomTax and a contributor to SFPPR News & Analysis.