NCPA - National Center for Policy Analysis

Who Benefits From The Death Tax?

August 6, 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 will not die because an entrenched group of special interests benefit from it and hold a large sway over Congress, says Dubay.  

Estate tax lawyers and planners: 

  • Even though they face large death tax bills, estates from wealthy families pay considerably lower taxes than they otherwise would -- because of estate tax lawyers and planners.
  • Wealthy families hire expensive estate lawyers to arrange their affairs in a legal manner to minimize the impact of the death tax on their estates, or in some cases escape liability all together.
  • Estate tax lawyers and planners have an obvious vested interest in seeing the death tax remain in place. 

Life insurance companies: 

  • As long as the death tax remains in place, life insurance companies will continue to collect premiums from family businesses that cannot afford estate lawyers and planners, but want to protect their businesses.
  • In order to protect their assets from being liquidated when they die, these families purchase life insurance policies that will pay the living members of the family enough to cover the death tax liability when a family member passes away.
  • The premiums families pay to insurance companies siphon off limited resources that the families could use to expand their businesses and add new workers.  

Large businesses: 

  • The death tax is an impediment for family-owned businesses that could expand to compete with larger businesses because it creates a large disincentive for the family businesses to expand.
  • If a family-owned business grows large enough, it will push the value of the family's estate over the death tax's exemption level and the family will owe a hefty amount when the current owner dies.
  • Faced with endangering the life of the business because of the death tax, many families choose to keep their businesses smaller than they otherwise would have.  

Source: Curtis Dubay, "The Economic Case Against the Death Tax: Who Benefits from the Death Tax?" Heritage Foundation, July 20, 2010.   

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