I’ve been following debates over the estate tax since the late 1990s — a couple of years after some smart PR types re-christened it the “death tax.”
I’m struck by how little opponents’ arguments have changed.
We’re still hearing stories of all the family farms and other small businesses that heirs will lose because estates will have to sell of these assets to pay the tax.
Back in 2001, when the Bush administration sought to phase out the tax, an Iowa State University economist told the New York Times that he’d searched “far and wide” for farms that had to be sold. Couldn’t find any.
Doubt he could if he went looking again. We’ve fewer bona fide family farms now. And the estate tax provides special benefits for them, including a long-term payment option.
If the estate tax reverts to the way it was in 2009 — the last year before the brief total phase-out — only 60 small farm and business estates would pay any tax at all next year, according to the Center on Budget and Policy Priorities.
Another estate tax myth opponents are recycling is that people will shy away from starting businesses if they know they can’t pass them on tax-free to their heirs. Fewer start-ups, fewer jobs, warns the far-right Heritage Foundation.
Doubtful on the face of it. And contradicted by hard facts. The Bureau of Labor Statistics, for example, reports well over 667,000 new businesses started in 2006, when the estate tax was higher than it is now — and higher than it would be under the 2009 rules.
Still another myth — again retailed by the Heritage Foundation — is that people won’t try to build their wealth, e.g., by investing, if they know it will be taxed when they die. They’ll spend on trips to Europe, fancy cars, etc.
A bizarre notion of family values if ever there was one.
And either ignorant or deliberately misleading. Because one of the special features of the estate tax is what’s known as the stepped-up basis (or step-up in basis) for capital gains.
Ordinarily, as you know, one pays tax on the difference between what one paid for an asset and what one sold it for — assuming the sale price was higher.
But someone who inherits a house, say, or a parcel of stock pays tax only on the positive difference, if any, between the market value on the date the benefactor died and the price when sold.
No tax at all on what could be very large prior increases in investments held for some period of years. Surely those wealthy people know this — or have financial advisors who do.
As I noted earlier, Republicans in Congress have nevertheless insisted that the current version of the estate tax must be extended, along with other special benefits for the wealthiest 2% of households.
Presidential hopeful Mitt Romney says he’d eliminate the estate tax altogether.
The wealth families have accumulated has already been taxed, he claims — apparently assuming (rightly) that most of us don’t know about the stepped-up basis.
And, lo and behold, he tells us that the “death tax” can have “catastrophic effects” on small family-owned businesses.
Do wish somebody would ask him to name one.
As futile, of course, as asking him to name the deductions, credits and the like that he’d eliminate to keep his proposed tax cuts from increasing the deficit — or taxes on lower and middle-income families.
But it’s worth trying to plunge a stake into the heart of old, recycled estate tax myths anyway.
Because death of the “death tax” will make it just that much harder to curb the long-term deficit. And that will put programs for low-income people even more squarely in the bull’s eye than they are now.