Editor's Note: Welcome to Point-Counterpoint, where Liberty Nation writers face off in an intellectual debate about issues affecting everyday Americans. This week, our financial writer, Dan Ingram, faces off with Editorial Director Leesa K. Donner.
Dan Ingram: The federal government is funded primarily through the income tax, but several other revenue streams flow to the Treasury each year. One of these sources is the estate tax. According to the IRS, the estate tax “is a tax on the right to transfer property at death.”
Here is how it works in practice: after you die, the total value of all of your possessions, including real estate, cash, stocks, business interests and other assets is assessed. After taking out deductions, the amount remaining is then taxed before the assets can be transferred. Due to the fact that spousal transfers are exempt, coupled with the high filing threshold of $5.45 million, only about two out of every 1,000 estates incur any tax liability.
In his most recent tax reform proposal, President Trump proposes to entirely eliminate the estate tax. I submit that there are many other taxes which should be eliminated before turning to the estate tax, and the fact that the president is targeting this one for elimination first reeks of self-serving politics at its worst and a betrayal of his average voter. Do you agree?
Leesa K. Donner: I most certainly do not. And I don’t think it has a damn thing to do with his personal wealth. If you look at his campaign proposal regarding the Estate Tax, he said:
The Trump Plan will repeal the death tax, but capital gains held until death and valued over $10 million will be subject to tax to exempt small businesses and family farms. To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives will be disallowed.
So, if he were trying to allow the big boys to get out of taxes he would not be slapping on a capital gains tax. Make sense? As well, this is absolutely the most immoral tax in the United States – talk about double taxation!
DI: I couldn’t disagree more about the relative immorality of this tax. I find it far more abhorrent that the sweat and blood of labor is taxed through the payroll and income tax, that shrewd investment decisions are taxed through the capital gains tax, that successful business owners are taxed through the corporate tax. When I see the tax levied against an estate left to an heir who has done nothing to earn that money besides being born, I see this as an immensely far smaller breach of liberty than found in any of the other taxes.
The fact that it is assessed against your estate after you die means that you are never around to experience the taxation. Thinking about this as a tax on the deceased is incorrect. It is a tax on the person inheriting the income. We tax any gain when you experience it. When you earn a wage, it is taxed. When you sell investments which have appreciated, they are taxed. And when you gain, through absolutely zero effort or merit of your own, a fortune through inheritance, that should be taxed as well.
LKD: Oh, I get it. Those dog-gone lazy heirs – they have no right to Papa’s money. I think Ed McCafferey of the Wall Street Journal makes the best case against this kind of parochial thinking:
Suppose you overheard a mother schooling her child not to work for regular wages, not to save and, by all means—whatever you do, my dear child!—to spend every cent the little one could accumulate on this Earth and die broke. How bizarre, you would think.
Yet that's exactly what the U.S. tax system tells the American people. If you work hard, save thriftily and accumulate a fortune, you'll be taxed constantly and then see up to one-half of your savings go to your distant Uncle Sam instead of the heirs that you choose. Why not stop building up your net wealth, spend what you have and die poor?
These incentives do not just hurt the heirs of the very wealthy; they hurt the entire nation. We need class teamwork, not class warfare.
Why are we incentivizing people not to save? It’s ludicrous.
DI: I think the more ludicrous assumption is that estate taxes drive behavior in a meaningful form or fashion. First off, the exemption amount is extremely generous – almost $5.5 million, which doubles to nearly $11 million when you factor in a spouse. All of this can go tax free to your heirs. The result is that the effective tax rate paid on inheritance is actually about 17%. To suggest that someone is so averse to their heir being on the hook for a fifth of their inheritance in taxes that the parent would spend every dime they had and leave their child with nothing is laughable.
I’m also shocked that the author of Free At Last: A Life-Changing Journey through the Gospel of Luke is so vehemently defending a practice that flies in the face of teaching found just two books earlier in Matthew 6:
19 “Do not store up for yourselves treasures on earth, where moths and vermin destroy, and where thieves break in and steal. 20 But store up for yourselves treasures in heaven, where moths and vermin do not destroy, and where thieves do not break in and steal.
If a person of faith (or even a complete atheist) chooses to leave their entire fortune to charity, under the current estate tax law, the estate will owe absolutely zero in taxes. Why do you want to incentivize people not to donate to charity?
LKD: I just adore it when people misappropriate Biblical texts to suit themselves. That verse is about giving to God not about giving to your children. If you want to get Biblical think of all the people in the Old Testament who left tons for their children, not to mention verse upon verse that talks about saving. But this is what people who don’t understand the Biblical text do, they try and side track the real argument down a bunny trail.
Not gonna happen here my friend. It’s such a fallacious argument to say that $11 million is enough before taxes because why? You say so? Why not $10 million or $9 million – where to draw the line with other peoples money?
Since you opened the discussion, I’ll take the last word. And I think it’s best said by a guy named Jeffrey Dorfman over at Forbes.
Finally, the absolutely worst part of his argument is that the newly modified estate tax with a roughly $10 million exemption per family means we are only seizing wealth from a tiny number of people. I cannot imagine any religion or system of ethics that says harmful actions become moral if you only do them to a few people. It is not okay to murder people in small numbers and it is not okay to seize wealth from rich people if you only do it to a few of them.
All I can say is that when you gather together $11 million (after you’ve given to your church of course) let’s talk again.
