What is the Death Tax?

October 27, 2007

Posted by Taxman

( 2 ratings )

In the 1990s, the term "death tax" was coined by Frank Luntz who wanted to eliminate the estate tax. Death tax was used over the term estate tax as the terminology used in discussing a political issue affects popular opinion.

The Death Tax was originally initiated in 1916 to fund World War I. The tax was maintained through the 20's and 30's to help prevent the concentration of wealth.

Why do some people want to keep the death tax? There are several reasons, I list a few...
1. A small group of extremely wealthy people believe that eliminating the death tax would decrease the amount of charitable giving, thus endangering American charities. I disagree with this belief, as studies have shown that strong economies increase donations and repealing the death tax would certainly boost the economy.

2. When a family member inherits a family business after the death of its owner, they don't simply pay taxes for the liquid assets inherited. Truth is, they have to pay the government up to 47% in taxes — in cash — on all assets, including land, building, equipment, and more. Because the estate taxes are unreasonably high, many heirs who cannot afford to pay them are forced to sell their business, break up or liquidate their assets soley to pay the tax. This kills jobs and discourages owners from growing their businesses.

Interestingly, Warren Buffett is a strong proponent of the federal death tax. "I would hate to see the estate tax gutted," Buffett told reporters as he announced his gift. "It's a very equitable tax." Just not one he wants to pay.

In 2001 lawmakers started phasing out the death tax. It's scheduled to decline every year until 2010, when it will disappear for one year -- before returning at full strength (55 percent) in 2011. If you find this interesting, Google "Throw Momma from the Train Act."

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