WASHINGTON—A Texas think tank has released a report heralded by small business and other opponents of the estate tax as proof the tax must be repealed. ``Large estates do not pay the highest estate tax rates,'' said Aldona Robbins, senior research fellow with the Institute for Policy Innovation, who co-wrote the study, ``The Case for Burying the Estate Tax,'' with her husband Gary, also an IPI senior research fellow.
``Because wealth is often unexpected, and middle-class taxpayers don't know about estate planning, they end up paying most of that tax,'' Ms. Robbins said at a March 17 press conference announcing the report's release.
The U.S. enacted the first estate tax in 1797 to finance an undeclared naval war with France, the Robbinses said. It brought back the tax several times as a wartime measure, but not until 1916 was there a permanent death tax.
When it was first established, the tax covered only those estates worth $9 million or more in today's money. Over the years, however, the value of tax exemptions—$600,000 now, set to go up gradually to $1 million—has become almost nil with inflation, so that 89 percent of estates caught in the death tax are worth less than $2.5 million, they said.
According to the study, eliminating the estate tax would cost the U.S. government less than 1 percent of its total tax revenue, while adding 236,000 jobs to the economy and stimulating $3.67 worth of growth in gross domestic product for every $1 lost in tax.
``The estate tax is one of the most infuriating and wasteful parts of the Tax Code,'' Gary Robbins said. ``Eliminating it would be one of the best legacies the 106th Congress could leave Americans.''
Four Republican legislators who want to repeal the estate tax—Sen. Jon Kyl of Arizona, Sen. John Ashcroft of Missouri, Rep. Jennifer Dunn of Washington and Rep. Jerry Weller of Illinois—told horror stories of constituents whose livelihoods had been hurt or destroyed by the tax.
The cases they discussed were of people who inherited family farms or businesses. Rich in taxable property, but poor in cash or liquid assets, they were forced to sell some or all of the inherited property just to pay their taxes.
``It's devastating to have to visit the undertaker and the IRS all at once,'' Ms. Dunn said. The legislators noted figures that nearly three-fourths of family businesses don't survive past the first generation, largely because of the tax. ``When a family business closes, that's a 100-percent tax on the employees,'' Mr. Weller said.
Mr. Kyl is sponsoring a bill to repeal the tax outright, while Ms. Dunn's bill would phase it out through 2010, an approach she said is cheaper than outright repeal. Neither bill has been scheduled for hearings; a staff person for Mr. Kyl said hearings on his bill would wait until Congress passes the pending budget resolution.