Letter of Support: Rep. Brady's Death Tax Repeal, H.R. 1259

April 19, 2011 J

Dear Congressman Brady,

On behalf of 1.7 million Americans for Prosperity activists in all 50 states, I write to commend you and your colleagues for introducing a much-needed proposal to permanently eliminate taxation on death: the Death Tax Repeal Permanency Act of 2011, H.R. 1259. Your bill would completely and permanently eliminate the death and generation-skipping taxes, while keeping the gift tax at a reduced top rate of 35 percent and a higher lifetime exemption of $5 million.

Americans find the death tax to be one of most unfair taxes in our system, and most favor its complete elimination. This is especially true when such burdens fall on family-owned farms and businesses. When one generation wishes to pass family business assets down to the next generation the death tax can threaten the continued viability of the business’ operations. As one family business owner commented in testimony before a Senate committee in 2007, “no entity of consequence can survive when 50 percent of its assets are confiscated.”

The economic case for eliminating the tax is just as strong. Make no mistake: the death tax is a tax on the well-being of all Americans. While the tax falls directly on the children and grandchildren of some of society’s most successful members, it also builds harmful distortions and inefficiencies into our economy that hurt everyone by stifling economic growth.

One example: death taxes impose huge costs on the American economy because they discourage savings and wealth accumulation. Under current policy, more than a third of an individual’s savings is confiscated upon death instead of being transferred to their loved-ones, which provides a strong incentive for the individual to spend this money instead of saving it over the course of their lifetime. This shrinks the pool of capital available in the economy for investment – investment that helps to grow businesses and create jobs. The impact here is in fact very large. The Joint Economic Committee estimates that without a death tax the total capital stock in the U.S. today would be 3.8 percent higher, nearly a trillion dollars worth of additional capital. That’s a trillion dollars that would have been available for businesses to invest in new facilities and equipment and to hire and train new employees.

Another example: death taxes induce historically high avoidance, compliance, administrative, and enforcement costs relative to the revenue generated – from an economic perspective the time, money, and labor consumed in this way is pure waste. Moreover, the compliance costs don’t fall exclusively on those paying the tax: individuals with smaller estates must also file complex death tax returns even if they do not owe any death tax, consuming their time and resources in the process as well. The net result is devastating. A recent study by former Congressional Budget Office Director Douglas Holtz-Eakin predicts that the re-imposition of a 35 percent death tax would destroy 857,000 jobs this year.

Opponents of repeal often posit that despite these harmful effects, death and gift taxes are justified by the revenues they generate. This is simply not the case. Death and gift taxes have never been an important source of federal revenue. Over the past decade, such taxes contributed on average only 1.2 percent of total federal revenues per year; 1977 was the last time these taxes accounted for more than 1.5 percent of annual federal revenues. Moreover, their contribution continues to fall: according to official government estimates, death and gift taxes will raise just over $12 billion in 2011, barely 0.5 percent of total revenues estimated for this year.

With the economy is still struggling to recover and unemployment still hovering near 9 percent, repeal of this capital- and job-killing tax is a much-needed step in the right direction. It is simply wrong to punish Americans who work hard throughout their lives by confiscating the fruits of their labor when they die. Americans for Prosperity is proud to support your legislation, I urge your colleagues to support its passage, and I look forward to working with you in the future.


James Valvo
Director of Government Affairs
Americans for Prosperity

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