Republican Presidential Candidates Agree: Kill the ‘Death Tax’

Republican Presidential Candidates Agree: Kill the ‘Death Tax’
September 29, 2011

Sean Parnell

Sean Parnell (sparnell@heartland.org) managing editor of Health Care News and a research fellow for... (read full bio)

As candidates for the 2012 Republican nomination spar over differences on health care policy, job growth, and the war on terror, a consensus has emerged on at least one issue: repeal of the federal estate tax, commonly referred to as the ‘death tax.’

All of the major Republican candidates except former Utah Gov. Jon Huntsman and former Louisiana Gov. Charles ‘Buddy’ Roemer have signed a pledge committing themselves to repeal of the estate tax. The pledge was created by the American Family Business Institute (AFBI), a national advocate of repealing the estate tax.

Huntsman and Roemer do support eliminating the estate tax, but as a matter of policy do not sign pledges on any issues, according to AFBI president Dick Patten.

Likely Campaign Issue

The unanimous agreement among Republicans that the estate tax should be repealed stands in contrast to President Obama, who favors keeping it. This makes it likely the estate tax will be an issue in the 2012 contest between President Obama and whoever emerges as his Republican opponent.

“With jobs being a major focus of the 2012 election campaign, and three separate studies showing the job-growth benefits of eliminating the death tax, you have to figure this is going to be part of the campaign,” said Patten. He cited estimates from the studies showing between 1.5 million and 2 million jobs could be created if the estate tax were permanently repealed.

The first estate tax was imposed to help pay for the Civil War. It was repealed in 1870, revived during the Spanish-American War and repealed in 1902 after the end of that conflict. The modern estate tax was established in 1916 alongside the income tax, and quickly raised in 1917 to help pay for World War I.

The Civil War and Spanish-American War estate tax rates ranged between .75 percent and 15 percent, much lower than today’s rates. By 2001, the highest rate was 60 percent. Rates were lowered under the Economic Growth and Tax Relief Reconciliation Act signed by President Bush in 2001, gradually falling to 45 percent in 2007 before being eliminated in 2010. An increase in the amount that could be exempted was also included in the 2001 legislation.

Due to Congressional budgeting rules, the complete repeal was for only 2010, and the tax was scheduled to return to 55 percent in 2011. As part of a compromise with Republicans, in December 2010 President Obama signed legislation setting the estate tax rate at 35 percent, while also increasing the amount that could be exempted from tax. The lower rates are temporary, however, and in 2013 the estate tax is again scheduled to rise to 55 percent and the exemption to drop to $1 million.

Benefit for Jobs, Economy

Several studies have shown that elimination of the inheritance tax could benefit job creation. “Growth Consequences of Estate Tax Reform: Impacts on Small and Family Businesses,” a September 2010 report by former Congressional Budget Office Director Douglas Holtz-Eakin, found that allowing the estate tax to rise to 60 percent would result in up to 1.5 million jobs being lost, and even a modest rate of 15 percent would lead to up to 350,000 jobs being lost.

A 2006 report by the Joint Economic Committee of Congress – “Costs and Consequences of the Federal Estate Tax” -- further documented the negative impact of the estate tax on the economy.

“Survey data suggest that the estate tax continues to be a primary reason why small businesses fail to survive beyond one generation,” according to the report. Close to two-thirds (64 percent) of respondents in one survey of family businesses reported that the estate tax makes survival of the business more difficult.”

Supporters of keeping the estate tax largely focus on revenue to the government at a time of budget deficits, as well as the fact that relatively few estates wind up having to pay the tax.

In May 2011, Gillian Brunet of the Center for Budget & Policy Priorities wrote the tax-cut compromise enacted the prior December would cost the federal government “about $23 billion more than reinstating the 2009 rules … yet will benefit only the largest one-quarter of 1 percent of estates” because they are the only ones that that would owe any estate tax.

Estate Planning Costs

Brunet’s analysis ignores the expense of estate planning and the job-killing effects of the tax, say advocates of repeal. According to AFBI, the inheritance tax imposes a burden well beyond one quarter of one percent of estates because it forces “business owners to use complex tax planning strategies to reduce their estate tax liability… but the resulting compliance costs (such as paying for an accountant or attorney, purchasing life-insurance, and otherwise misallocating capital) impose a heavy financial burden.”

Several bills to repeal the tax are in Congress, including one each by Republican presidential contenders Michelle Bachman and Ron Paul.

Sean Parnell (parnell001@hotmail.com) is a Heartland Institute policy adviser and writes from Alexandria, Va.

Sean Parnell

Sean Parnell (sparnell@heartland.org) managing editor of Health Care News and a research fellow for... (read full bio)