Opinion Editorial | |
| Monday, June 28, 1999 | |
U.S. Death Tax High By International Standards |
According to the Federal Reserve, household wealth in the U.S. has doubled in the last 10 years, from $21.5 trillion in 1988 to $43.2 trillion last year. Since the population has only risen by about 10 percent over this period, wealth per capita has increased enormously. To be sure, much of this increase accrued to those who were already rich. But the ranks of the wealthy have also grown, especially if one includes assets held in 401(k) plans. Even those with modest incomes can now expect to have $1 million or more at retirement if they save early and invest aggressively. That is why the estate tax will be an issue of contention for years to come.
At present, the estate tax applies to assets of $650,000 or more at death. This figure is scheduled to rise to $1 million in 2006, a rate of increase that barely keeps up with inflation. Although the lowest estate tax rate is 18 percent, because the exemption is in the form of a tax credit, those with estates larger than $650,000 will pay 37 percent of each additional dollar to the federal government.
At 55 percent, the top estate tax rate in the U.S. is among the highest in the world (see figure). According to the American Council for Capital Formation in Washington, among major countries only Japan has a higher top rate, and it applies to estates of more than $15.3 million, whereas the top U.S. rate hits at just $3 million of assets. Even many countries with governments much more to the left than ours have estate tax rates that are significantly lower. Sweden has a 30 percent rate, Denmark has a rate half that, and Canada has no estate tax at all. (Canada does tax capital gains at death, which the U.S. does not, but the top capital gains rate there is still well below our top estate tax rate.)
Little wonder, then, that many Baby Boomers still in the prime of life are already fretting about how to avoid the estate tax. Talk show host Oprah Winfrey spoke for many when she recently told her audience, "I think it's so irritating that once I die, 55 percent of my money goes to the United States government....You know why that's so irritating? Because you have already paid nearly 50 percent [when the money was earned]."
To be sure, not many people are in Miss Winfrey's tax bracket, but increasing numbers of Americans are falling into the estate tax net--a region once reserved for the truly wealthy. If the tax should remain, that is what it should once again become.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, June 28, 1999.
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