The Fairness of the Estate Tax
The last couple of years have brought the topic of the federal estate tax to the forefront like never before. Not only has there been debate over what Congress should do. The polarizing subject of the fundamental fairness of the tax itself has also taken center stage. Here are some reasons in support of the fairness of the estate tax:
- The estate tax is the fairest method for reducing the deficit. Why? Not necessarily because it taxes those most able to pay, but because it taxes those least deserving of their wealth, i.e. those who inherit rather than working and investing wisely to accumulate wealth.
- The estate tax is our nation’s only tax on accumulated wealth. Often, intergenerational transfers among the wealthiest Americans take the form of unrealized capital gains. So, without the estate tax, those gains would continue to grow and remain untaxed, potentially forever. The playing field is leveled by taxing this accumulated wealth. Most of which, contrary to popular belief, is not being “double taxed,” because the estate tax is the only tax applicable to these assets.
- What about the family farm argument? In theory, at least, one of the stronger arguments against the estate tax is the specter of family farms valued at more than the exemption amount needing to be broken up and sold off, in order to pay the tax bill. In reality, this just isn’t the case. In order to prevent this scenario, family farms get extra breaks. The result is that there are few, if any, examples of an American family farm being dismantled to pay an estate tax bill.
- The estate tax incentivizes work while an unearned windfall is a disincentive to lead a useful, productive, and financially responsible life. According to Warren Buffet, not having an estate tax would be like “choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics.” The estate tax reduces the size of unearned windfalls – this, in turn, encourages inheritors toward self-sufficiency.
Where do you stand on the subject of the estate tax?
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
6050 Santo Rd., Ste. 240
San Diego, CA 92124