Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Monday, April 6, 2009

Why the estate tax is good

Estate tax Earlier on this blog, I discussed an article explaining why the estate tax is evil.

 In an unsigned editorial, the New York Times has now advocated the benefits of the estate tax in The Forgotten Rich, NY Times, April 2, 2009.

Here are a few excerpts from this editorial which opposes the proposal of Senators Blanche Lincoln and Jon Kyl to raise the exemption to $10 million and reduce the top rate to 35%:

In addition to creating the false impression that the estate tax eventually hits everyone — by mislabeling it a “death tax” — opponents routinely denounce the 45 percent top tax rate as confiscatory. In fact, the rate applies only to the portion of the estate that exceeds the exemption. As a result, even estates worth more than $20 million end up paying only about 20 percent in taxes.

Another misleading argument is that the estate tax represents double taxation. In truth, much of the wealth that is taxed at death has never been taxed before. That’s because such wealth is often accrued in the form of capital gains on stocks, real estate and other investments. Capital gains are not taxed until an asset is sold. Obviously, if someone dies owning an asset, he or she never sold it and thus never paid tax on the gain.

If those arguments aren’t enough to stop the Lincoln-Kyl show, lawmakers should consider this: The estate tax creates a big incentive for high-end philanthropy, because charitable bequests are exempt. * * *

Finally, reducing the estate tax from the level proposed by Mr. Obama would cost an additional $250 billion in forgone revenue over 10 years, at a time when the nation already has to borrow heavily for real needs.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this editorial to my attention.


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How do they arrive at 20 percent for a $20 million estate? I get an effective rate of 37.125 percent. ($20M - 3.5M = 16.5M; 45% of 16.5M = $7.425M; 7.425M is 37.125% of 20M.)

Even if we assume all estates are owned by married persons and aggregate the exemptions, we are still closer to 30 percent, not 20.

Posted by: David Hiersekorn | Apr 6, 2009 7:29:38 AM

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