A Libertarian View of the Estate Tax

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If you plan on dying anytime soon, then try to do so by the end of the year.
Just ask the families of George Steinbrenner, Dan Duncan, Mary Janet
Cargill, John Kluge, and Walter Shorenstein – all billionaires
who died this year.

Steinbrenner
was the owner of the New York Yankees. Duncan was a Texas pipeline
tycoon. Cargill was an heiress of the Cargill family, holders of
the largest privately held corporation in the United States. Kluge
was a Virginia media mogul. Shorenstein was a San Francisco real
estate investor.

These billionaires
all have one thing in common: they, or rather their estates, paid
no estate taxes when they died.

The federal
estate tax – otherwise known as the death tax – increases
to a whopping 55 percent on January 1, 2011, on all estates valued
over $1 million, including life insurance proceeds. What makes this
tax especially egregious is that in 2010 – for the first time
since the estate tax was enacted in 1916 – there is no estate
tax in the United States.

In
2009
the number of estate tax returns filed fell to 47,320.
The estate tax collected fell as well, to $21,583 billion. The decreases
in returns filed and tax collected are the result of the Economic
Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, otherwise
known as the first Bush tax cut. This tax reform measure gradually
raised the threshold at which estates are taxed and lowered the
rate of the estate tax from an exemption of $675,000 and a rate
of 55 percent in 2001 to an exemption of $3.5 million and a rate
of 45 percent in 2009. Unless the current lame-duck session of Congress
legislates otherwise, the estate tax will be reinstated in 2011
with the 2002 exemption level of $1 million and the 2001 rate of
55 percent.

One would think
that the very wealthiest of Americans – those who have the
most to lose by the reimposition of the estate tax – would
be vehemently opposed to any form of an estate tax. But such is
not the case. Back in 2001, when the repeal of the estate tax was
being proposed, some 120 wealthy individuals, including William
Gates Sr., George Soros, and several Rockefellers, issued a joint
statement titled “A Call to Preserve the Estate Tax.”

Now, with the
estate tax in the news again, over 8,000 people, including billionaire
Ted Turner, have signed the “A Call to Preserve the Estate
Tax” petition. Billionaires Bill Gates of Microsoft and investment
guru Warren Buffett have publicly expressed support for the estate
tax. Americans for a Fair Estate Tax, “a coalition fighting
to preserve a fair estate tax” made up of groups like the American
Federation of Teachers, the National Council on Aging, and the AFL-CIO,
supports the Responsible Estate Tax Act (S.3533), a bill introduced
earlier this year in the U.S. Senate that would preserve the estate
tax.

Many other
Americans claim to support the estate tax as well, and especially
if they are told that other taxes would have to be raised without
it or that government services would have to be cut because of the
revenue lost without it. So, if the poor favor the estate tax because
it “soaks the rich,” if the middle class favor the estate
tax because it makes the rich pay their “fair share,”
if small business owners favor the estate tax because it doesn’t
affect them, and if the super rich favor the estate tax even though
they will pay the bulk of it, then why do libertarians, if they
are worthy of the name, oppose the estate tax? Is it because they
are “chirping sectaries,” as the conservative Russell
Kirk once wrote?

To begin with,
it is not just libertarians who oppose the estate tax. Many conservative
groups – like the Heritage Foundation, the Manhattan Institute,
the Tax Foundation, and the American Enterprise Institute –
oppose the estate tax as well. The problem with conservatives, though,
is that they are generally too inconsistent. Instead of likewise
calling for the elimination of the federal income tax, they focus
on making taxes lower, simpler, fairer, and less progressive while
accepting the income tax in principle and never getting to the heart
of the matter: taxation is theft.

Credible conservative
arguments against the estate tax tend to be limited to economics:
the estate tax rate is too high, the estate tax rate is higher in
the United States than in most other countries, the estate tax taxes
income twice – once when it is earned and again when it is
passed on, the estate tax punishes hard work, the estate tax punishes
success, the estate tax punishes frugality, the estate tax discourages
savings and investment, the estate tax is a tax on capital, compliance
costs of the estate tax are about the same as the revenue raised,
the estate tax stifles entrepreneurship..

There is also
one argument against the estate tax used by conservatives that is
also used by liberals: The estate tax only contributes about 1 percent
of federal tax receipts to the U.S. treasury. Conservatives argue
that since the amount of tax collected is insignificant the estate
tax should be eliminated. Liberals argue that since the amount
of tax collected is insignificant the estate tax should be retained.

Although this
is about the best argument for the estate tax that liberals have,
they will still talk about the estate tax in terms of what it will
cost the U.S. treasury if it is eliminated instead of how much of
a deceased person’s money he will be able to pass on to his
loved ones and keep out of the hands of the government.

Liberals and
other supporters of the estate tax sometimes argue that we need
an estate tax because those poised to inherit wealth don’t
deserve it because they didn’t do anything to earn it. They
were merely born into the right family. But if family members don’t
deserve it then strangers certainly don’t either. I suppose
supporters of the estate tax think the government deserves it.

It turns out
that this is exactly what some estate tax advocates believe. They
feel that the rich are obligated to pass the majority of their wealth
to the government instead of to their heirs. In a letter
to U.S. Senators
by Americans for a Fair Estate Tax expressing
their support for the Responsible Estate Tax Act it states: “Congress
must permanently reinstate the estate tax in a way that ensures
the wealthiest among us maintain their obligation to support the
government that enabled their prosperity.” Come again? What
government is this letter referring to? The government that hinders
prosperity at every turn by its taxes, regulations, and mandates?

Liberal proponents
of the estate tax also maintain that it encourages Americans to
give to charitable organizations and institutions. But if this is
a goal of the U.S. government then why did President
Obama
– a liberal’s liberal – discourage
Americans from charitable giving by proposing the reduction in the
value of the tax break for donations to charity from 33 or 35 percent
to 28 percent for families making more than $250,000?

The estate
tax was instituted in 1916. Are we to believe that wealthy Americans
never gave large sums of their money to charitable causes before
then? Millions of Americans support their local churches with charitable
donations even though they receive no tax benefit because they don’t
itemize deductions. Clearly, charitable giving is independent of
tax benefits. And since when is it the job of government to encourage
philanthropy or any other behavior?

Really, though,
liberal arguments for the estate tax are no more worth considering
than arguments as to why a thief should be entitled to someone else’s
money.

Rather than
the estate tax being a benign tax, to the libertarian it is one
of the most insidious taxes. The estate tax is the worst kind of
tax because it is pure 100 percent income redistribution. The estate
tax is the ultimate in wealth redistribution because the deceased
can’t possibly receive any tangential benefits from it. The
estate tax is the most intrusive tax because, according to the IRS:
“It consists of an accounting of everything you own or have
certain interests in at the date of death.” The estate tax
is a misnomer. The tax incidence falls not on the decedent but on
his heirs. Those actually punished by the estate tax may not be
“the rich” at all, especially when those other than children
of the decedent are included among the heirs.

To the libertarian,
the arguments against the estate tax all come down to liberty and
property. It doesn’t matter if “the rich” and his
heirs can “afford it.” The right of the deceased to dispose
of his accumulated wealth – whether it is earned or “unearned”
– is a natural and inviolable right. He may in fact wish to
leave his entire fortune to the government to be redistributed as
bureaucrats see fit. But that must be his decision, not the state’s.
Every American should have the liberty to dispose of his property
– in life or in death – as he sees fit.

Eliminating
the estate tax is a first step toward not only simplifying the tax
code, making it more fair and less progressive, and lowering Americans’
actual and potential tax burden, but also starving the federal leviathan
of revenue. But even more important, libertarians oppose the estate
tax for the same reason they oppose an armed robber in a convenience
store. Acquiring someone else’s property by force is wrong
whether done by individuals or governments.

Reprinted with permission from the Future of
Freedom Foundation
.

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