Chain Leader

David Farkas

The death tax is a way to give back
May 2, 2006

Estate tax is the means by which the government collects money from the estates of wealthy individuals. Let me stress wealthy, because according to a new study by Public Citizen (press release here), a consumer advocacy group, only one out of 370 estates will be taxed this year.

The report doesn’t say which businesses those estates control. But it’s likely there are at least a few multiunit operators among them. In any event, it’s not likely the National Restaurant Association--staunch supporters of repealing the so-called “death tax”--will want to share this information with you. The NRA believes the tax leads to the demise of family-run operations, particularly small companies.

Which is puzzling because the study details how 18 of the country’s wealthiest families are funneling millions to the Family Estate Tax Coalition--a group made up mostly of trade associations--in an effort to dump the tax altogether, thereby saving their heirs billions but costing taxpayers dearly.

True, the heirs of family-owned restaurant companies like Donatos Pizza and Claim Jumper, for example, will undoubtedly owe taxes on the founder’s estate, but it doesn’t follow that a successful enterprise itself will collapse or be sold off to pay estate taxes--a scare tactic often employed by the anti-tax crowd.

One could argue the tax is a way to spur more charitable giving, because it reduces tax exposure. Estate tax is also a way to “give back,” as they say, to a nation whose free-enterprise system allowed the accumulation of such wealth in the first place. It’s churlish not to give back.

The estate tax will be repealed for one year in 2010, the result of a law passed by Congress in 2001. Until then, the exemption amount has been growing, from $675,000 in 2001 to $3.5 million in 2009, while the maximum tax rate is falling, from 60 percent to 45 percent for the same period. The tax kicks in again in 2011, with a lower standard exemption of $1 million and a maximum taxable rate of 55 percent. Unless the super-rich families can convince politicians otherwise.

Posted by David Farkas on May 2, 2006 | Comments (0)