TAXATION

Getting To Real Tax Reform: Don’t Mess With Mr. In-Between (The Death Tax)

LEWIS K. UHLER, PETER J. FERRARA and JAMES L. MARTIN 11/24/2017

In pursuit of major economic growth-inducing tax reform and simpler, fairer personal taxes for our nation, we now have the details. The Ryan-Brady version came out of the House Ways and Means Committee on Nov. 2 and the Senate version was presented by Sen. Orrin Hatch and his Senate Finance Committee one day after.

These plans differ in many (minor) respects but are the same in their central themes: Let’s grow the American economy rapidly as we cut taxes and simplify the tax code and its rules on American workers and businesses.  Unfortunately, they both retreat from their bold elimination of the hated “Death Tax.”

We could get enmeshed and distracted by minor brush fires as the DC lobbyists pound their chests and flex their muscles for their clients.  But we should remember the lead lines of an old popular song that sets the stage: “You’ve got to accentuate the positive, eliminate the negative, but don’t mess with Mister In-between.” (In this case, the Death Tax is the “Mister In-between” that has profound implications on wealth creation, business development and jobs).

Since we are all singing virtually off the same sheet on both major business and personal/family tax reforms, let’s consider how we can  reconcile the differences:

Business Taxes:

  • Start corporate and pass-through rate cuts immediately in 2018  and make them permanent.
  • Territoriality – end U.S. taxation on foreign earnings of domestic corporations and bring home foreign earnings at lower rates.
  • Allow the immediate expensing of capital expenditures – and make it permanent.
  • Compromise on business interest and other deductions.

Family and Individual Taxes:

  • Fewer brackets and lower rates, a positive change.
  • Increase the family exemption, which can lead to postcard-sized returns for a large percentage of families.
  • Expand child tax credits, encouraging people to start and expand families.
  • Base home mortgage and state income and property tax deductions on family income levels.

The Death Tax:

The House and Senate versions double the exemption, but the House kills the tax in seven years while the Senate keeps it.

Every study of this tax – and experience worldwide – confirms that it is hated (75% plus of respondents), generates little revenue ($17 billion annually — less than half of 1% of Federal revenues), with a cost to small businesses and families of $13 billion annually in term insurance premiums to insure around the tax: a $13 billion annual dead weight loss to our economy

This tax has harassed Americans since it was imposed in 1918 to fight World War I, and loved only by the insurance industry, lawyers, and accountants who patrol very wealthy families and individuals. Numerous studies confirm that the American economy would be larger today if the Death Tax had never been enacted.

The most spectacular example of killing the Death Tax occurred in — of all socialist places — Sweden in 2004. The results have been stunning, as reported by Anders Ydstedt and Amanda Wollstad in their recent book, “Mourned by No One — Missed by Few“:

“In 2004 the Swedish parliament, the Riksdag, unanimously repealed the gift and inheritance tax.”

“The repeal of these destructive taxes has given Sweden a smarter tax system, (bringing) entrepreneurs and investment capital back to the country. A smarter tax system generates higher economic growth and thus higher tax revenues.  The tax ratio declined from 51% of GDP in 2000 to 44% in 2014, even as tax income increased by SEK (Swedish kronor) 260 billion, adjusted for inflation.”

“The gift and inheritance tax also generated relatively little income for the state — less than 0.2% of all tax revenue in 2004. Yet, this tax, along with the net wealth tax, had for decades … prodded successful entrepreneurs and capital to exit the country, thus reducing total tax revenue — and jobs — in Sweden (italics ours).”

“The crucial reason the entire Swedish Riksdag, from the Left Party to the Conservative Party, supported the bill to repeal the gift and inheritance tax was that the tax made it much more difficult to pass on a family business from one generation to the next.”

Conclusion: Now is the time for draining as much of the tax lobbyist swamp as possible because the momentum is with us.  But remember, “Don’t mess with Mister In-between” — kill the Death Tax now — must be part of this amazing tax reform package.

Uhler is founder and chairman of the National Tax Limitation Committee and National Tax Limitation Foundation (NTLF).

Martin is the chairman of 60 Plus, which promotes solutions to seniors’ issues that are grounded in free markets, less government, and less taxes.  He is a veteran of the U.S. Marines, and also served as a member of President George W. Bush’s health and human services transition team.

Ferrara is a senior fellow with the Heartland Institute and NTLF. He served in the White House Office of Policy Development under President Reagan, and as associate deputy attorney general of the U.S. under President George H.W. Bush.

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