There is now less than a month remaining until the so-called “Super Committee” must reveal its plan to eliminate $1.2 trillion from the federal deficit over the next ten years.
If it fails to produce such a plan, or if Congress or President Barack Obama rejects it, it will lead to a budgetary and national security disaster. Under this incredibly risky scheme, over a trillion dollars will be cut from defense and domestic spending budgets automatically if the closed-door “Super Committee” cannot agree on a deficit reduction package. If Congress fails to pass whatever proposal these twelve select members of Congress come up with—no matter how bad it is—the same automatic cuts go into effect.
They better have a good plan.
There are alternatives, some of them painless, if the members of the committee can get beyond partisanship. According to a study released last week by the American Family Business Foundation, almost a third of the needed savings could be achieved merely by repealing the death tax, something that is both ineffective and immoral.
The federal government would take in about $362 billion more than currently projected over the next ten years if the death tax was eliminated entirely, allowing people to pass the fruits of a lifetime of labor on to their families as they chose. There would be a direct revenue loss but, as the report estimates, U.S. Gross Domestic Product would increase 2.26 percent in a decade just by eliminating the tax. New revenues generated by the economic activity that would result from the elimination of the death tax would be almost twice as much as the revenue derived from it.
This growth would create thousands of new jobs as families kept more small businesses running through multiple generations and shifted their efforts from avoiding estate taxes to investing in America.
As economist Art Laffer described the evidence, “Study after study finds that the estate tax significantly reduces the size of estates and, as an added consequence, reduces the nation’s capital stock and income.”
Many small business owners have an incentive to spend their resources wastefully looking for ways to avoid the tax. Many families are forced to close or sell the family business or the family farm in order to raise the funds needed to pay the federal government.
Hundreds of prominent economists, Peter Roff at US News pointed out, recently added their names to a letter written a decade ago by Nobel-laureate Milton Friedman calling for the repeal of the death tax. They object that it is ineffective—as I have said, the government would be better off eliminating it—but more importantly that it is immoral.
As Friedman wrote on behalf of the original 276 signatories:
“Spend your money on riotous living – no tax; leave your money to your children – the tax collector gets paid first. That is the message sent by the estate tax. It is a bad message and the estate tax is a bad tax. The basic argument against the estate tax is moral. It taxes virtue – living frugally and accumulating wealth.”
An additional 259 economists signed the letter this year, including another Nobel-laureate, advisors to several presidents, and former Federal Reserve Bank presidents.
The American people overwhelmingly agree with Friedman and these economists that “death should not be a taxable event.” Even though relatively few Americans will ever pay the death tax, substantial majorities oppose raising it and support its permanent repeal.
They understand it is a question fundamentally about the right to pursue happiness: if you work hard, if you invest wisely, if you save your money, it is wrong for people who did not spend their lifetimes doing that to take it away.
“The death tax taxes yet again a lifetime of savings and investment that has already been taxed multiple times,” Peter Ferrara wrote recently. “It is double taxation on top of double taxation, which often forces loved ones left behind to sell the family farm, ranch or business to pay the taxes just when they are suffering from their loss the most.”
Eliminating the death tax will create more jobs and more revenue for the federal government. That combination should be an obvious choice for the deficit reduction committee. Repealing it is a painless part of the solution. It’s also the right thing to do.