NCPA - National Center for Policy Analysis


January 14, 2009

President-elect Obama and Congressional leaders intend to maintain the estate tax rather than let it expire on schedule in 2010, says the Wall Street Journal.  They will do so even though their economic stimulus plan is supposed to be about creating millions of new jobs in a hurry.

Obama wants to make the current estate tax rate of 45 percent permanent, along with an exclusion of $3.5 million ($7 million for couples).  One issue to watch is whether this exclusion is indexed for inflation, or else over time it will hit more and more average earners who build up a small nest egg over a lifetime, says the Journal:

  • According to a 2006 Joint Economic Committee (JEC) study, death tax "liabilities depend on the skill of the estate planner, rather than on capacity to pay."
  • By contrast, "family-run firms and farms particularly feel the pinch of the estate tax, because they are less likely to have the liquid resources needed to meet their estate tax liabilities."
  • The latest JEC estimate is that the death tax has reduced the stock of capital in the economy by about $847 billion.
  • Yet, with no death tax, the economy would create roughly 1.3 million more small business jobs.

So the estate tax strikes most heavily at small- and medium-sized family-owned businesses that generate the majority of new American jobs.  Thus, hitting these family businesses with a multimillion dollar tax bill when the owner dies won't help job creation.

But Republicans alone won't have much chance to stop this plan, so its fate will hang on Senate Democrats.  For years many of those Democrats -- especially in swing states like Arkansas and Montana -- campaigned on the promise to lower or eliminate the estate tax.  Now it's time to see if they mean it, says the Journal.

Source: Editorial, "Estates of Pain," Wall Street Journal, January 12, 2009.

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