Don't Tax the American Dream

As Americans, we’ve always believed that if we work hard, save and invest, we can create a better life for our children and grandchildren. The death tax is a tax on that American Dream.

The federal tax man and his senate Democrat cheerleaders are hovering like vultures over the richest Americans, removing their incentive to create wealth, encouraging lavish overconsumption. The tax backrolls tax lawyers and accountants who game the system, penalizing the honest and the unsophisticated.

With Senate Majority Leader Bill Frist (R.-Tenn.) promising a vote on death tax repeal in May, now is the key time to educate and activate the public, bringing enough pressure to bear for 60 senators to vote to end the Democratic filibuster.

The Free Enterprise Fund recently commissioned a poll by McLaughlin & Associates that found public support above 60 percent for immediate, complete, permanent death tax repeal. The measure on which the Senate will vote, H.R. 8, alas, doesn’t go that far. The bill would repeal the death tax only starting in 2010, keeping the death tax in place for four years, while thousands of Americans, including many World War II heroes, are dying and having nearly half of everything they earned seized. That said, H.R. 8 is an acceptable compromise because, though not immediately, it will finally end the death tax.

The death tax doesn’t just steal from the rich — it manages to hurt just about everyone else too. The class envy thinking behind the death tax may help sooth liberal guilt, but it fails to accomplish any valid policy objective.

The death tax is fiscally and economically destructive: it accounts for only about one percent of government revenue and some studies, including one last year from professors at Carnegie Mellon University, conclude that the tax actually costs the government money. This effect is partly due to capital gains tax avoidance, but is also because the tax is responsible for the loss of hundreds of thousands of jobs a year, as many family businesses can’t afford the government bite.

According to the United States Small Business Administration, companies with fewer than 500 employees (the ones most likely to be affected by the death tax) account for about 45 percent of US private payrolls. Even more astonishing, small businesses have been responsible for 60 to 80 percent of net new job growth annually over the last decade.

In the face of its economic and fiscal consequences, some supporters of the death tax contend it’s necessary to prevent an American aristocracy. But the push for death tax repeal comes not from the super wealthy, but from organizations like the Small Business and Entrepreneurship Council, the National Cattlemen’s Beef Association, and the National Association of Wholesaler Distributors.

Interestingly, some extremely wealthy people such as William Gates Sr. and Warren Buffet love the death tax. Good for them. They should feel free to remember the U.S. Treasury in their wills for as much as they want. If it’s so important to Senators Ted Kennedy and John Kerry that their estates go to the government, they should feel free to contribute as much as they’d like voluntarily.

Death tax proponents may be right on one thing: It doesn’t directly affect very many people. But so what? This tax doesn’t help the government, which loses revenue because of it, and it doesn’t help the working class, many of whom lose their jobs because of it. Penalizing people for their success sends a message loud and clear to all Americans: Stop dreaming.