• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • The Economic Case Against the Death Tax

    After months of inactivity, the Senate could finally address the death tax in the coming days. It is about time it acted, because in a little over five months—January 1, 2011—the death tax will rise from 0 percent all the way to 55 percent.

    Proponents of the death tax make several arguments about why Congress should allow the death tax to resume hurting families and harassing family-owned businesses and farms. The most common arguments in favor of the death tax are:

    • The revenue it raises is vital for Congress;
    • It hits only a few large estates, so it really isn’t a drag on the economy;
    • It is necessary to provide a more equal distribution of wealth; and
    • Wealthy heirs would inherit large estates without paying any tax.

    The answers to all these mistaken arguments can now be found in one place: The Economic Case Against the Death Tax lays out how the death tax is a scourge for family-owned businesses, destroy jobs, lowers wages, and stifles entrepreneurship.

    It also shows that the death tax does not serve any of the purposes Congress originally intended it to serve and that, even though a relatively small number of estates pay the death tax, it is still a huge weight slowing down the economy and destroying jobs.

    The paper also lays out the inheritance tax system that would take the place of the death tax if Congress does the right thing and repeals the death tax once and for all. The inheritance tax system would tax assets transferred at death under the capital gains tax system when the inheritors choose to sell them.

    While still a tax on capital, the inheritance tax system would be a marked improvement over the death tax. The inheritance tax system is already in place this year while the death tax is on hiatus. This also means those who argue that the families of billionaires who die this year (such as George Steinbrenner) are not paying any tax on the assets they acquire are wrong. The heirs will pay considerable taxes when they sell the assets they acquired.

    The American public is starting to wake up to the reality that the death tax could soon rise from the ashes. Mitch Albom, best-selling author who is no stranger to end-of-life issues, summed up the problems with the death tax succinctly:

    The estate tax is blatantly unfair and, in my mind, indefensible. … Most of your wealth, by the time you’re ready to leave it, has been spooned into by federal, state, city and local taxes. Your house, you’ve paid taxes on year after year. Your car, you paid taxes on when you purchased it. … Even Sweden, a country that has as many taxes as it does blondes, did away with its inheritance tax. Australia doesn’t have one. Neither does Switzerland. I don’t see them going out of business.

    It is time for Congress to do away with the death tax forever. It recognized way back in 2001 that the death tax was wreaking havoc on the economy and decided to abolish it then. If it goes back against its better wisdom, it will bring back a nightmare for family-owned businesses such as the ones detailed in the videos found here: http://www.heritage.org/issues/taxes/death-taxes.

    Posted in Economics [slideshow_deploy]

    12 Responses to The Economic Case Against the Death Tax

    1. LALaw says:

      Wait, I thought Heritage cared about the deficit. But now you don't care about the deficit when it involves giving huge tax cuts to Paris Hilton, hedge fund managers' kids, etc. Please show us the small business that's effected by the estate tax – we're still waiting for one of those. BTW, we're also still waiting on that family farmer having to give up his inherited farm because of the estate tax – hopefully the American Farm Bureau has found one over the past 10 years since it first was unable to find one.

    2. Kevin Habib says:

      Hard time understanding the want to repeal the estate tax coming from folks who have been screaming about financial austerity, deficits and debts.

      Repealing estate tax helps no one but the richest .3% of Americans. That is it, the top .3%. One third of 1%. That is it. No Americans have lost their homes or family farms from the estate tax. If you believe this is false, please provide any evidence of a family who has lost their home or farm. It simply hasn't happened, but the richest of rich americans are able to get others who don't understand the law to get up in arms about it. You say the number of estates is not the issue, but it most certainly is.

      The question is whether you want congress to work for 99.7% of all americans or .3% of Americans. Seems an easy chocie to me.

      The Democrts want to extend permanently the 2009 levels, that means you are exemopt for the first 7million as a couple. $7 million!

      The question comes down to whether people like Paris Hilton should receive millions upon millions for doing absolutely nothing to earn it, and cause greater deficits and debt – causing bigger drag on economy and costing us all more jobs.

      Who do you fight for – the top .3% or the other 97.7%.

    3. Todd, Albany, OR says:


      You are a Socialist. Please refrain from asking our bloated government to take money earned by others (who already paid taxes on it) and give it to you instead of their loved ones or whoever they choose.

      If you are upset that you are not among the top .3% (if that indeed is accurate), then you need to work harder. Not easy is it? Takes a lot of preparation, hard work, self-denial, and all that.

    4. Jason, USA says:

      Lets say your mother bought a house in 1950 for 70K…it is now worth 1.5 million. She dies and leaves the house to you, your mother wanted you to keep the house in the family. You now owe the goverment 55% of the value of the house minus the orginal 70K…you owe the goverment 786500.00 now is that fair?

    5. Jason, USA says:

      For decedents dying after December 31, 2010, the tentative tax will be calculated by applying the following tax rates[19]:

      For amounts not greater than $10,000, the tax liability is 18% of the amount.
      For amounts over $10,000 but not over $20,000, the tentative tax is $1,800 plus 20% of the excess over $10,000.
      For amounts over $20,000 but not over $40,000, the tentative tax is $3,800 plus 22% of the excess over $20,000.
      For amounts over $40,000 but not over $60,000, the tentative tax is $8,200 plus 24% of the excess over $40,000.
      For amounts over $60,000 but not over $80,000, the tentative tax is $13,000 plus 26% of the excess over $60,000.
      For amounts over $80,000 but not over $100,000, the tentative tax is $18,200 plus 28% of the excess over $80,000.
      For amounts over $100,000 but not over $150,000, the tentative tax is $23,800 plus 30% of the excess over $100,000.
      For amounts over $150,000 but not over $250,000, the tentative tax is $38,800 plus 32% of the excess over $150,000.
      For amounts over $250,000 but not over $500,000, the tentative tax is $70,800 plus 34% of the excess over $250,000.
      For amounts over $500,000 but not over $750,000, the tentative tax is $155,800 plus 37% of the excess over $500,000.
      For amounts over $750,000 but not over $1,000,000, the tentative tax is $248,300 plus 39% of the excess over $750,000.
      For amounts over $1,000,000 but not over $1,250,000, the tentative tax is $345,800 plus 41% of the excess over $1,000,000.
      For amounts over $1,250,000 but not over $1,500,000, the tentative tax is $448,300 plus 43% of the excess over $1,250,000.
      For amounts over $1,500,000 but over $2,000,000, the tentative tax is $555,800 plus 45% of the excess over $1,500,000.
      For amounts over $2,000,000 but over $2,500,000, the tentative tax is $780,800 plus 49% of the excess over $2,000,000.
      For amounts over $2,500,000 but over $3,000,000, the tentative tax is $1,025,800 plus 53% of the excess over $2,500,000.
      For amounts over $3,000,000, the tentative tax is $1,290,800 plus 55% of the excess over $3,000,000.

    6. Billie says:

      You'd think 97.7% of people in this country would use their mentality to do what they can like the .3% did and without even a thought of envy to steal from .3% Mr. Habib.

      But you support a president who insists on what people CAN'T do and WON''T become while limiting their thought process, instead of holding in place or increasing the opportunities and goals that were once freely dreamed, he demonizes those who've achieved without burden to another living soul. You seem not to have the mind to consider that. So you feel good about stealing from someone who earned their way on their own, without government's hand, instead of using your own brain to do it for yourself.

      You're exactly what the government is looking for. Easily influenced and manipulated. A dime a dozen, but government will take all they can.

    7. Dan, Boston says:


      you're either ignorant of estate tax law or spreading some serious misinformation.

      Under the law as it now stands, you do not pay a penny in estate taxes if you inherit less than $1 million. Period.

      Secondly, you only pay estate taxes on the amount of money you have over the exemption. This means that if you inherit $1.5 million, you owe 55% of $500,000, which is $275,000. This is a tax rate of 18.3% of the whole estate. This is eminently fair, as you are coming into $1.5 million for doing absolutely nothing. Therefore, you should be responsible for some taxes, as the rest of us who aren't fortunate enough to inherit millions have to pay taxes at rates far higher than 18% on the income that we make for actually working.

      A reasonable life insurance policy on your mother's part can more than take care of that type of estate tax liability.

      and @ Todd

      it takes no hard work, preparation, or self denial to inherit millions of dollars. As a person whose family had nothing, worked hard and denied themselves plenty in the struggle to become middle class I resent that someone can get far more than what we worked so hard to achieve by sitting back and doing nothing.

      Nobody should inherit lifetimes worth of financial security without having to pay some taxes. It's unreasonable, unfair, and is frankly antithetical to traditional American values of meritocracy.

      Call people with fiscal common sense socialists all you want, but sooner or later we're going to dig ourselves into a whole we can't get out of. The get-rich-quick schemers like the Heritage Foundation and the Dick Cheney's will be living in gated communities, having swindled the rest of America out of any stake in prosperity.

    8. Dan, Boston says:

      I would like to correct myself for Jason's sake. You owe 43% of 500,000, not 55%. So you're estate tax liability for inheriting $1.5 million would be $215,000 or 14.3% of the total estate.

      Extremely reasonable

    9. Becky Georgia says:


      I am not wealthy and I don't propose to know all of the percentages etc. but I do NOT think it is fair to tax estates simply because THEY the family did nothing for the money. Did the government do anything for that 215,000?? They have already gotten their tax money when the money was earned.

      Putting this another way ~ lets say you worked for a company and made 1000.00 and you received your payment. You decided to give your son the money to buy a car. The company that paid you NOW goes to your son and demands 500.00 because your son didn't work hard enough for you to give it to him. fair? It doesn't matter how big or small the estate is…taxes have already been paid and the government has NO rights to monies earned and taxed already. I should be able to do what I want with my money when I die. THEY shouldn't profit simply because a US citizen died.

      • Ian says:

        Yeah!!! totally what did the GVT do for that money?!?! Other than 1) Give legal protection to the corporation under US law, 2) Help build the shared infastructure that allows the goods and services of said corporation to be distributed 3) help educate the people who work for the corpration I could go on and on.
        When you really think about it's imbeciles like you who want something for nothing; you want all the good that the gvt provides you but don't want to have to pay for it.

    10. Diane, OR says:

      The $70K example of a home purchased in 1950 provides more insight than people realize. The original author taxed the full amount (in error), but the next entry corrected that taxable amount to only 55% of the amount over the exclusion.

      Then, the author presents the moral idea – "that would be fair." Nonsense. There is no moral basis for saying, "since your parents worked hard and purchased a home that increased in value – you now owe me, a complete stranger, the excess."

      Additionally, in the example, the original $70K is removed from the sale price, to isolate the "profit earned." Yet, $70K in 1950 dollars represents $633,227 in 2010 dollars. So in this small example, the home's value should not even be appraised as "exceeding the exemption." Inflation makes the logic of the Death Tax even more preverse and unethical.

      I live in rural America and family farms are continually liquidated to pay taxes. All of the above comments about this being a myth are actually wrong. It is real. It would only take original farmland, home, out-buildings and equipment valued at $110K in 1950 to be at the $1M exemption limit today. So please, let's let go of the urban myth that "this never happens…"

      Taxing the "rich and wealthy" because they are few in number and can't fight the mob who seeks their "excess" is not a moral position. It is an emotional assessment about "how much is enough." There is no ethical yardstick that I can use to say Paris Hilton has too much stuff. People freely trade their dollars for her goodies and that freedom represents the liberty that America was founded upon – Life, Liberty and the Pursuit of Happiness.

      Find the Inflation Calculator here: http://www.bls.gov/data/inflation_calculator.htm

    11. jeo, bellingham says:

      my name is joe

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.