NCPA - National Center for Policy Analysis

Benefits Of The Estate Tax -- For The Super-Rich

February 21, 2001

It's not surprising that some rich people support the estate tax, says Bruce Bartlett, because they benefit from it in many ways. And those with great wealth pay little in estate taxes now.

The bulk of the tax is paid by the modestly wealthy -- small businessmen, farmers and long-term investors. They often die without the elaborate tax shelters of the very rich, and their assets frequently have to be sold to pay the tax collector.

Thus the estate tax makes it very hard for small businesses to become big ones, and for modest wealth to become great. Thus many of the richest families in the U.S. -- such as the Du Ponts, Mellons and Rockefellers -- are heirs to wealth first created during the 19th century, when there was no federal income or estate tax.

One way the very wealthy avoid the estate tax is by setting up tax-advantaged trusts. Another is by setting up tax-exempt foundations.

Foundations help ensure family fortunes stay in the family. For example, the Ford Foundation owns much of the voting stock of Ford Motor Company, allowing the Ford family to remain in control.

Ensuring continued control without direct ownership is in fact one of the principal means by which the wealthy pass on their wealth, tax free.

Private foundations also create employment for family members. Others use their foundations to buy themselves social status or to advance their businesses.

For those who are already wealthy, the estate tax is no barrier to the maintenance of family wealth and may even limit their competition.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, February 21, 2001.


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