Fixing the Estate Tax
September 20, 2010 12:00 PM
Currently there is no tax on estates. However next year the estate tax reverts to previous levels - a $1 million tax exemption per estate. Congress is trying to decide whether to let the estate tax revert to this previous level, extend the ban entirely, or do something in between. We believe that the latter is the appropriate course.
Most estate tax avoidance tools are used to maximize the amount left to children or preserve the family business. In the latter case, Congress should exempt family farms and businesses up to a reasonable size from the estate tax. We should also remove the inequities in the current estate tax with respect to the number of heirs and their circumstances. Some people have no heirs, others have quite a few kids, and in some cases one or more of the latter children may be handicapped and unable to work and/or care for themselves.
The estate tax exemption should be tied to the number of children. Give everyone an exemption of $1 million per child (out of fairness the childless or those with no surviving children should also get a $1 million exemption). This would enable a parent to provide a good retirement nest egg for each child in an era where economic conditions make it unlikely that most able bodied, hard working, and thrifty children are going to be able to save enough for even a modestly comfortable retirement. Give another $1 million exemption for every child that is handicapped and unable to work and/or care for themselves, in order to provide additional support for their special needs. Then eliminate the trusts and other estate tax avoidance tools and apply the estate tax to whatever is left. The exemption should be indexed to 2010 dollars so we don't have to keep revisiting the issue.
This approach aligns well with the primary estate planning goals of most people and would effectively eliminate taxes on most estates. There is no such thing as a "good" tax, but such a structure would reduce concentrations of wealth which have proved destabilizing in many societies. We do need to reduce the deficit, by spending reductions insofar as possible, but we will still need to tax individuals to bring it into balance. This may not be a "good" tax, but it would be a is a less onerous tax on individuals compared to many of the other alternatives.
Most estate tax avoidance tools are used to maximize the amount left to children or preserve the family business. In the latter case, Congress should exempt family farms and businesses up to a reasonable size from the estate tax. We should also remove the inequities in the current estate tax with respect to the number of heirs and their circumstances. Some people have no heirs, others have quite a few kids, and in some cases one or more of the latter children may be handicapped and unable to work and/or care for themselves.
The estate tax exemption should be tied to the number of children. Give everyone an exemption of $1 million per child (out of fairness the childless or those with no surviving children should also get a $1 million exemption). This would enable a parent to provide a good retirement nest egg for each child in an era where economic conditions make it unlikely that most able bodied, hard working, and thrifty children are going to be able to save enough for even a modestly comfortable retirement. Give another $1 million exemption for every child that is handicapped and unable to work and/or care for themselves, in order to provide additional support for their special needs. Then eliminate the trusts and other estate tax avoidance tools and apply the estate tax to whatever is left. The exemption should be indexed to 2010 dollars so we don't have to keep revisiting the issue.
This approach aligns well with the primary estate planning goals of most people and would effectively eliminate taxes on most estates. There is no such thing as a "good" tax, but such a structure would reduce concentrations of wealth which have proved destabilizing in many societies. We do need to reduce the deficit, by spending reductions insofar as possible, but we will still need to tax individuals to bring it into balance. This may not be a "good" tax, but it would be a is a less onerous tax on individuals compared to many of the other alternatives.
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