Double Taxed

Fighting to end destructive double taxation

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Candidates Talk Taxes in Republican Debate

Posted by Brian Garst on June 14, 2011

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.


Posted in Capital Gains Tax, Economic Growth | Tagged: , , | 1 Comment »

DeMint Amendment Would End Death Tax

Posted by Brian Garst on June 10, 2011

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.


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Small Business Owner Cites Death Tax Burden

Posted by Brian Garst on May 22, 2011

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.

Posted in Death Tax, Economic Growth | 1 Comment »

Residents Flee Rhode Island Death Tax

Posted by Brian Garst on May 8, 2011

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.

Posted in Death Tax | Tagged: | Comments Off on Residents Flee Rhode Island Death Tax

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

Posted by Brian Garst on February 26, 2011

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.

Posted in Death Tax | Comments Off on The Worst Places to Die: Comparing the States on Death Taxes

Time to Get Rid of the Corporate Income Tax?

Posted by Dan Mitchell on February 18, 2011

Here’s a video arguing for the abolition of the corporate income tax. The visuals are good and it touches on key issues such as competitiveness.

I do have one complaint about the video, though it is merely a sin of omission. There is not enough attention paid to the issue of double taxation. Yes, America’s corporate tax rate is very high, but that is just one of the layers of taxation imposed by the internal revenue code. Both the capital gains tax and the tax on dividends result in corporate income being taxed at least two times.

These are points I made in my very first video, which is a good companion to the other video.

There is a good argument, by the way, for keeping the corporate tax and instead getting rid of the extra layers of tax on dividends and capital gains. Either approach would get rid of double taxation, so the economic benefits would be identical. But the compliance costs of taxing income at the corporate level (requiring a relatively small number of tax returns) are much lower than the compliance costs of taxing income at the individual level (requiring the IRS to track down the tens of millions of shareholders).

Indeed, this desire for administrative simplicity is why the flat tax adopts the latter approach (this choice does not exist with a national sales tax since the government collects money when income is spent rather than when it is earned).

But that’s a secondary issue. If there’s a chance to get rid of the corporate income tax, lawmakers should jump at the opportunity.

Posted in Capital Gains Tax, Dividends Tax | Comments Off on Time to Get Rid of the Corporate Income Tax?

President’s Budget Proposes Undoing Tax Deal

Posted by Brian Garst on February 15, 2011

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.

    Posted in Capital Gains Tax, Death Tax, Dividends Tax | Comments Off on President’s Budget Proposes Undoing Tax Deal

    Living in New Jersey May Be Bad, but Dying in New Jersey Is Worse

    Posted by Dan Mitchell on February 9, 2011

    New Jersey gets abused by comedians as being some sort of dump, but there are some scenic parts of the state.

    So it actually can be a nice place to live. That being said, it’s not a good place to die. Here’s a chart from the American Family Business Foundation that was featured in a recent Wall Street Journal editorial.

    As you can see, New Jersey has the nation’s most punitive death tax. Most of the blame belongs to the 35 percent federal tax, but successful residents of the Garden State lose an additional 19 percent of their assets when they die. As the WSJ opined:

    Here’s some free financial advice: Don’t die in New Jersey any time soon. If you have more than $675,000 to your name and you die in the Garden State, about 54% may go to the IRS and the tax collectors in Trenton. Better not take your last breath in Maryland either. The tax penalty for dying there is half of a lifetime’s savings. That’s the combined tab from the new federal estate tax rate of 35% and Maryland’s inheritance and death taxes. Maybe they should rename it the Not-So-Free State. …Family business owners, ranchers, farmers and wealthy retirees can avoid that tax by relocating to Arizona, Florida, Georgia, Idaho, South Carolina and other states that don’t impose inheritance taxes. There are plenty of attractive places to go. New research indicates that high state death taxes may be financially self-defeating. A 2011 study by the Ocean State Policy Research Institute, a think tank in Rhode Island, examined Census Bureau migration data and discovered that “from 1995 to 2007 Rhode Island collected $341.3 million from the estate tax while it lost $540 million in other taxes due to out-migration.” Not all of those people left because of taxes, but the study found evidence that “the most significant driver of out-migration is the estate tax.” After Florida eliminated its estate tax in 2004, there was a significant acceleration of exiles from Rhode Island to Florida.

    At the risk of stating the obvious, the correct death tax rate is zero, as I’ve explained for USA Today. Indeed, I also cited evidence from Australia and the United States about how people will take extraordinary steps to avoid this wretched form of double taxation.

    New Jersey has lots of problems. All of those problems will be easier to fix if successful people don’t leave the state. Sounds like another issue for Governor Christie to address.

    Posted in Death Tax | Tagged: , | Comments Off on Living in New Jersey May Be Bad, but Dying in New Jersey Is Worse

    What’s the Death Tax in Your State?

    Posted by Brian Garst on December 29, 2010

    While much of the debate over the death tax focuses on the federal rate, many states have their own versions. This handy chart from McGuireWoods shows whether each of the 50 states has a death tax, and any related legislation currently in the works.

    Posted in Death Tax | Comments Off on What’s the Death Tax in Your State?

    A Moral Case Against Death Taxes

    Posted by Brian Garst on December 16, 2010

    Russ Roberts, George Mason University economics professor and CafeHayek blogger, makes the moral case for death tax opposition in the New York Times‘ Room for Debate feature:

    …I won’t pretend my dislike for the estate tax is because it hurts capital formation, say, which it certainly might. But that’s not the main reason the estate tax bothers me.

    I don’t like the estate tax on moral grounds. It’s wrong for the government to tax people twice, once when they earn the money and once when they give it away, if the giving away is done after death, an arbitrary and unpredictable deadline. It’s wrong for the government to create a tax that benefits tax lawyers and insurance companies for their creativity in structuring tax havens rather than helping to make the world a better place. And it’s wrong to tell the richest Americans that they will be punished for sharing the fruits of their labor or good fortune as they see fit, even if you or I might imagine in moments of hubris and envy that we could spend it so much more wisely.

    Posted in Death Tax | Comments Off on A Moral Case Against Death Taxes