The bunk about the "death tax"

With Democrats in control of Congress, this issue has finally been back-burnered (in an era of record budget deficits, it should never have been on the front). However, I just saw a nice analysis of the estate tax's impact on family farms that should put to rest the concerns of so many Republicans that this tax destroys family farms.

Agricultural economist Daryll Ray summarizes a Congressional Budget Office study that found that in the year 2000, only 138 family farms lacked the liquid assets (cash) to pay off the estate taxes immediately. Ray notes that these 138 farm families don't even have to pay the tax immediately, they have 14 years to do so.

So, at the 2000 exemption level of $675,000, the estate tax puts 138 farms at risk every year. That's 0.007% of the over 2 million farms in the United States. Raise the exemption level to $1.5 million (part of the Bush tax cuts that took effect in 2005) and you reduce the number of farms without sufficient liquid assets to pay the estate tax to 27 (0.001%).

On the other hand, the estate tax is projected to capture $745 billion over the period 2011-2021. As I've mentioned previously, there are several major commitments by the federal government (Medicare, Social Security) and unfunded mandates (special education), as well as deficits that should be covered with estate tax monies.

Note: the debate on the estate tax is complicated by President Bush's tax cuts, which all sunset after 2010. In fact, the estate tax is quietly being phased out by 2010, only to return in its original form in 2011. This odd policy was developed to hide the full cost of the tax cuts and to force someone else to take responsibility for them in 2011.

All fiscal considerations aside, the estate tax is a piece of making a level playing field for achieving the American Dream. Giving everyone a fair shot at the American Dream means that even the progeny of the richest should have to earn their way up the income ladder.