If Hillary Clinton wins the election, a lot of bad things will happen on taxes, not least of which is a big hike in the death tax. Hillary wants to apply the death tax to smaller estates and raise the tax rate to 45%, which means that when you count the state estate taxes, the government will take more than half of many ranches, farms, and businesses. Apparently, this will ring the bell for tax fairness.
It gets worse. The Obama administration doesn’t even want to wait for the election in November. The Wall Street Journal reports this week that Obama is seeking a “stealth death tax increase” by using its executive authority to change the death tax rules. As the Journal explains:
Treasury Secretary Jack Lew is up to his usual tricks, trashing established interpretations of tax law to bypass the legislative branch. Not even Mr. Lew has the gall to claim he can raise the federal death-tax rate of 40% without congressional approval. So the game here is to contrive ways to expose more of the value—or imagined value—of an estate to IRS revenue collectors.
Last month Mr. Lew’s Treasury announced a proposed rule to close what it calls an estate and gift tax “loophole.” Until now, the IRS permitted realistic values for portions of closely held corporations and partnerships.
It’s not clear how much money this will raise from a parent’s estate, but raising money may not even be the purpose here. The goal of the death tax is to confiscate wealth.
This news comes on the 100th anniversary of the estate tax, which has become the unfairest tax in the IRS catalog of revenue raisers.
Donald Trump gets this. He wants to eliminate this tax because a lifetime of paying income taxes, sales taxes, property taxes, dividend taxes, capital gains taxes, payroll taxes, and employee taxes should be enough. Almost every small business association in America agrees and has endorsed the Trump plan.
Many small business owners who want to pass their family legacy on to their kids and grandkids (what is wrong with that?) tend to be asset rich but cash poor, meaning that although their businesses may appear quite valuable on paper in many cases they lack the cash to shell out 40% of a business’s’ value to the IRS when the parent owner dies.
When the kids don’t have the cash on hand to pay a sizable tax bill on their parents’ life savings, they must sell off equipment or land, lay off workers, and in the worst cases dissolve the family business to pay Uncle Sam’s ransom. What a travesty. Sell the farm to pay the taxes to Uncle Sam!
Amazingly, this tax raises almost no revenue. In 2014 the estate tax collected – hold on to your hats – 0.43% of all federal revenues. It raises less than the government spends every 48 hours.
To get that tiny morsel of revenue, the tax does substantial damage. When the death tax is high, two things happen. First, really rich people like Warren Buffett and Bill Gates engage in complicated and costly estate tax planning with the best lawyers money can buy to avoid paying the tax. Both Gates and Buffett put billions into a massive charitable foundation, run by family members, in part to avoid death taxes. So the super-rich almost always find ways around this sinister tax. It’s the smaller businesses without clever tax accountants that get clobbered.
A 2010 report found that the life insurance industry collects almost as much as the government does per year from the perpetuation of the death tax. No wonder Warren Buffett, who owns seven life insurance companies through his behemoth Berkshire Hathaway, is seen cheering on Hillary’s calls for taxing even more businesses at an even higher rate. According to the same report, the Buffett life insurance cabal funded a perky public relations campaign to retain the death tax. He lobbies for a tax he finds every loophole to avoid.
Hillary Clinton may be the biggest hypocrite of all. She says the Trump plan is a tax break for millionaires and billionaires like him. Yet Hillary and Bill have gone to great lengths to shelter their own fortune from the death tax, by using sophisticated trusts and moving their New York home into the Clinton Foundation to shield it from taxation, according to a Bloomberg analysis, all while pushing for higher death taxes on small businesses.
The Clintons want one set of tax laws for the rest of the country while they and their friends skate free under a separate set of rules. Family businesses owners who are too busy sweeping up the shop floor or herding cattle to mount a coordinated national public relations response are collateral damage.
Five Democratic members of the Senate including Sens. Wyden (D-OR), Murray (D-WA), Nelson (D-FL), Feinstein (D-CA), and Manchin (D-WV) have previously voted to abolish the death tax. Senator McConnell would be wise to bring the House-passed bill to the floor this fall to put Senators on the record again.
Meanwhile voters don’t buy into the liberal death tax raid. The public is overwhelmingly in favor of Mr. Trump’s plan to kill the death tax. Consistently 60-70 percent of voters when polled favor full repeal of the federal estate tax. New polling this year by YouGov, the same pollster used by the liberal New York Times, has shown that voters from purple Virginia, to red South Dakota, to blue Washington state support repeal (66 percent, 74 percent, and 56 percent respectfully).
Voters maintain a strong instinctive feeling that no person should have to visit the grim reaper and the tax man on the same day. Also, most Americans may not be rich, but most want to be rich, and if they get there, they don’t want the government helping itself to half the spoils.
Even Hillary’s Veep pick, Senator Tim Kaine of Virginia gets it. Upon the elimination of the Virginia death tax a few years ago, he beamed: “I applaud lawmakers for repealing Virginia’s estate tax. This action protects family-owned small businesses and farms, and helps keep the Commonwealth competitive with more than two-dozen other states that have already taken this action.” He should educate his running mate.
Even socialist Sweden and formerly communist Russia have abolished their estate taxes because these nations realized the tax was hurting their economy. It’s a sad day in America when the Swedes and the Russians have a less confiscatory tax system than the land of the free.