NCPA - National Center for Policy Analysis


July 26, 2010

Due to a legal quirk, the death tax is scheduled to come back to life in 2011.  The renewed death tax would once again inflict serious harm on family businesses, workers and the economy.  Congress should act before the end of the year to repeal this economically harmful tax permanently, says Curtis S. Dubay, a senior analyst in tax policy at the Heritage Foundation. 

The death tax stands in the way of entrepreneurs, says Dubay: 

  • When a person weighs the risk of a new business venture, he takes into account all the costs he will face in order to determine the final return he will earn.
  • The death tax raises the costs an entrepreneur will pay because it promises to confiscate a portion of his business upon his death.
  • The prospect of their children or other family members being forced to pay a hefty tax in order to keep the business they have rightly inherited causes many entrepreneurs to refrain from starting a business.
  • That means fewer jobs are created and economic growth is slower than it would have been in the absence of the death tax. 

Successful entrepreneurs who create the most jobs pay high marginal income tax rates throughout their working years.  When the top federal income tax rate is combined with the average federal rate and federal payroll taxes, those who take the risk to start a business often pay marginal tax rates of close to 50 percent.  The death tax is yet another tax an entrepreneur must pay if he uses the disposable income leftover after paying taxes to grow the business and increase its value, says Dubay. 

Source: Curtis Dubay, "The Economic Case Against the Death Tax:  Stifling Entrepreneurship," Heritage Foundation, July 20, 2010.   

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