The Estate tax which is commonly referred to as the Death tax among opponents, is a tax on inheritance. First off, this is a double dip tax, because all of the money being inherited has already been earned and therefore was taxed as income, or capital gains. Second, this tax has at times cost more to collect than it raised in revenue. That is the subject of a recent report by the congressional Joint Economic Committee, which found that the tax is ineffective at raising revenue.
“Its repeal would increase economic growth and some studies even find that it would raise tax revenues,” a separate analysis released by the Tax Foundation concluded.
“The estate tax has a higher compliance costs than it collects in revenue, in total,” Tax Foundation economist and analyst Scott Drenkard told The Daily Caller News Foundation. (Full Article Here.)
The tax is currently set to take 35% of inheritance over $5million, which will rise to 60% if the Bush tax cuts expire. The threshold for applying the tax will also be lowered if the Bush tax cuts are not extended, but ideally congress would remove this detrimental tax once and for all.
The tax does the most damage to family owned businesses, which usually do not have the liquid assets needed to pay the tax, and therefore must dismantle the business. This does not effect large businesses with stockholders nearly as much as it effects small businesses.
“If you have a family business,” Drenkard said, “it’s hard to grow a business to an appropriate scale, because every generation you are taxed away rates as high as 50 percent of whatever the size of the business is. Corporations don’t suffer from that because they have shareholders.”
Since being enacted nearly 100 years ago, the estate tax has raised just under $1.3 trillion, the equivalent of the U.S. federal deficit in 2011 alone.