In the Agora: Death of the Estate Tax

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April 22, 2005

Death of the Estate Tax

As I gear up for my eight hour income tax exam with 8-10 hour study days, I don't feel guilty for taking a few moments away from it to address the potential repeal of the Estate Tax. Many people have trotted out the expected hysterics over it all, but I'm struck by the extreme level of ignorance surrounding the mechanics of the tax, even by journalists charged with reporting it. Most notably Matthew Yglesias has this reaction over the repeal: "F*** the small businessman." But as Mindles H. Dreck points out, the Small Business Council of America does just that:

BETHESDA, Md.--(BUSINESS WIRE)--April 14, 2005--The Small Business Council of America ("SBCA") warned today in testimony before the Subcommittee on Tax, Finance and Exports of the Committee on Small Business of the House of Representatives that more small business owners would be hurt if the estate tax were to be permanently repealed in 2010, than if the law were frozen in 2009. "Proponents of repeal tout the benefits of estate tax repeal to the small business owner when, in fact, repeal will actually harm most small business owners because of the loss in the step-up in basis," said Paula Calimafde, Chair of the SBCA.

The New York Times writes, "Repeal would shield the estates of the very wealthiest Americans from the tax." It does not, and understanding this "step-up basis" that the SBCA referred to is key to understanding why Yglesias and the NYT are wrong. In many cases, capital gains will now be taxed higher for the beneficiary thanks to a new higher basis. Dreck explains this sufficiently well, so be sure to read it. Repealing the estate tax is not an automatic positive for the wealthy, and it's certainly not automatically good for small businesses.

Posted by Joshua Claybourn at April 22, 2005 12:38 PM

Comments

The one thing that the death of the estate tax would do for family businesses: it would give the family the option of keeping it.

The end result of repeal is that taxes on appreciated assets will be paid, but death will no longer cause forced liquidation of illiquid assets, privately-held businesses in particular.

Witness what happened at the Buffalo News when the family matriarch died and warm, fuzzy, compassionate, advocate for the poor, estate-tax advocate Warren Buffett bought them at an undervalued price. Buffett wound up making a bundle at the expense of the workers and the community. But Buffett made a bundle, and he can continue to prey upon families who are cash-poor but need to come up with big bucks to satisfy the IRS upon the death of a family member.

Ask the folks who work for the Chicago-area grocery chain Dominick's if they were better off under the family that ran them for years or Safeway, which has since bought them, closed a number of stores, reduced its workforce, made most of its decisions from California, and infuriated the union, which had a far friendlier relationship with the family.

Thanks for directing me to the post, Josh.

Posted by: T.J. Brown at April 22, 2005 01:25 PM | permalink

Robbing the weathy is an endless parlor game that becomes much easier when that person is dead.

Posted by: Anonymous at April 23, 2005 10:49 AM | permalink

With the Republicans beginning to inflate their way out of their poor spending decisions all of our estates are going to "appreciate". The step up in basis ought to be adjusted (easily done) by using the CPI as a deflator. Most of us have seen, "adjusted for inflation" numbers. Otherwise, the theft remains. This time it will be a clear Republican theft.

Posted by: Anonymous at April 24, 2005 08:25 AM | permalink