Milton Friedman Talks Inheritance Tax

Milton Friedman was never one to shy away from debate, but was a master at answering hostile questioning with persuasive economic reasoning. Here’s his take on the death tax:

Huntsman Plan Targets Double Taxation

Another proposed plan by a presidential candidate is tackling the issue of destructive double taxation. Former Utah Governor Jon Huntsman unveiled today his economic plan, titled “Time to Compete: An American Jobs Plan.” From the overview:

Eliminate The Taxes On Capital Gains And Dividends In Order To Eliminate The Double Taxation On Investment. Capital gains and dividend taxes amount to a double-taxation on individuals who choose to invest. Because dollars invested had to first be earned, they have already been subject to the income tax. Taxing these same dollars again when capital gains are realized serves to deter productive and much-needed investment in our economy.

Now if he just throws in the death tax, he can hit the double taxation trifecta.

George Will: Eliminate Estate Tax for Economic Recovery

In the midst of explaining how to fix the economy in an interview with PBS’ Charlie Rose, George Will had this to say about the death tax:

“I would eliminate the death tax. I don’t know why death is a taxable event in this country. No more estate taxes. Eliminate — go back to the classic — no taxation without respiration, that’s right. Go back to the classic Bill Bradley/Ronald Reagan tax reform of 1986. Lower the rates by eliminating loopholes and exceptions.”

Gingrich Joins Chorus to Reduce Double Taxation

Following in the footsteps of two other Republican presidential candidates, Newt Gingrich has promised to eliminate the capital gains tax if elected:

In a broad-ranging speech, Gingrich … promised to make current tax rates permanent, eliminate the capital gains tax and slash corporate taxes in an effort to lure capital back into the United States.

Ideally, we’d like to see every candidate in both parties looking to eliminate harmful double taxation. Unfortunately, President Obama wants to do the opposite. But while we continue to hope he has a change of heart, the more Republican candidates willing to strike a pro-growth position against double taxation, the better the odds of seeing a real change in tax policy become.

Candidates Talk Taxes in Republican Debate

There were a couple of mentions of double taxation in the recent CNN sponsored Republican primary debate in New Hampshire.

Herman Cain took the most definitive stance, pledging to eliminate the capital gains tax:

CAIN: The thing we need to do is to get this economy boosted. This economy is stalled. It’s like a train on the tracks with no engine. And the administration has simply been putting all of this money in the caboose.

We need an engine called the private sector. That means lower taxes, lower the capital gains tax rate to zero, suspend taxes on repatriated profits, then make them permanent. Uncertainty is killing this economy. This is the only way we’re going to get this economy moving, and that’s to put the right fuel in the engine, which is the private sector.

Rick Santorum also mentioned cutting the capital gains tax, but took a more modest position:

We need to cut the capital gains tax in half which others have proposed but for manufacturers we need to give a five-year window where we cut it to zero.

DeMint Amendment Would End Death Tax

Senator DeMint is proposing an amendment that would eliminate the death tax. The death tax repeal is being included in an amendment that also ends ethanol mandates. According to DeMint’s office:

“Unfortunately, Washington’s bad ethanol policies don’t end with just subsidies and tariffs, we must also repeal the mandate, which my amendment would do,” said Senator DeMint, whose amendment will also permanently repeal the death tax.  “The best way to help family farmers is not with mandates, subsidies, and protective tariffs.  We can help farmers and stimulate the economy by repealing the unfair death tax, which cripples family farms and small businesses all over this country.”

In the previous Senate, and due to Majority Leader Harry Reid’s obstinance, DeMint was forced to use a procedural move – which would have required 67 votes – in an effort to prevent the death tax from returning for 2011. It didn’t matter really matter, though, as only 39 Senators supported the bill. That number will certainly increase with the new Senate, but it will still require some who previously voted down the idea to change their minds in order for DeMint’s new amendment to pass.

 

Small Business Owner Cites Death Tax Burden

The Oregon legislature has been debating whether to raise its state death tax. In response, small business owner Peter Nelson explains how the death tax affects their ability to increase employment:

My grandfather started Marc Nelson Oil Products as a one-man shop. Today we employ 30 in the Salem area. We’d like to employ more.

…Despite what some may think, family businesses are not awash in cash; our resources are tied up in equipment, salaries, facilities and the like. The more money diverted to estate tax planning and to estate tax payments when I die, the less resources for expansion and hiring today and in the future.

Residents Flee Rhode Island Death Tax

Looking at the migration of citizens out of Rhode Island for the Ocean State Policy Research Institute, J. Scott Moody found that the death tax played an instrumental role:

The most significant driver of out-migration is the estate tax, especially considering that the number one
destination state for former Rhode Island residents is Florida, a state with no estate tax (or individual
income tax).

…The data in this report shows that migrants have become especially sensitive to Rhode Island’s estate tax, or “Death Tax,” that is the 3rd worst in the country. As a result, income out-migration to Florida has dramatically accelerated since the elimination of their estate tax in 2004. Other analysis also shows a negative post-2004 effect on Rhode Island’s capital income (interest, dividends and capital gains) and high-income taxpayers.

The Worst Places to Die: Comparing the States on Death Taxes

SmartMoney compares how the states rank on death taxes.

With the new $5 million federal estate tax exemption for 2011 and 2012, most folks are blissfully free of any federal estate tax worries (for now). That’s the good news. The bad news: Twenty states and the District of Columbia impose estate or inheritance taxes that kick in below the $5 million mark, and some kick in below $1 million. If you live in one of these places, your estate can be exempt from the federal death tax but still exposed to state death taxes.

…

16 States and DC Have Estate Taxes

The sixteen states and the District of Columbia, which impose their own estate taxes (as opposed to inheritance taxes, which I will explain later) base their taxes on the entire value of an estate in excess of the applicable exemption.

The exemptions vary from a low of $338,333 to a high of $5 million. Specifically:

• Three states have exemptions of less than $1 million (Ohio at $338,333; New Jersey at $675,000; and Rhode Island at $850,000).

• Six states have $1 million exemptions (Maine, Maryland, Massachusetts, Minnesota, New York, and Oregon), and so does D.C.

• Three states have $2 million exemptions (Illinois, Vermont, and Washington)

• Two states have $3.5 million exemptions (Connecticut and Delaware).

• Two states have $5 million exemptions (Hawaii and North Carolina).

The lowest tax rates are 7% (Ohio) and 12% (Connecticut). The highest is 19% (Washington). The other 13 states and D.C. all charge 16%.

…The worst place to die is New Jersey with a combined effective estate and inheritance tax rate of 54.1%. Congrats to the Garden State! In second place is Maryland at 50.9%. Good try! In fact, none of the states mentioned here are good places to die, but some are significantly worse than others. Most of the states listed here are not good places to live either from a tax perspective because they sock it to you with income, property, and sales taxes while you’re still kicking.

Read the whole comparison here.

President’s Budget Proposes Undoing Tax Deal

Although he signed the bipartisan agreement in the lame-duck session that staved off major tax increases, the President’s heart was apparently not in it. ATR has produced a list of the tax increases in the President’s proposed budget for fiscal year 2012. Here some of the lowlights:

Raising the top marginal income tax rate (at which a majority of small business profits face taxation) from 35% to 39.6%.  This is a $709 billion/10 year tax hike

Raising the capital gains and dividends rate from 15% to 20%

Raising the death tax rate from 35% to 45% and lowering the death tax exemption amount from $5 million ($10 million for couples) to $3.5 million.  This is a $98 billion/ten year tax hike

See here for the full list.