- The Washington Times - Thursday, January 22, 2009

ANALYSIS/OPINION:

”Death and taxes” are often linked as life’s two certainties. Yet, in the United States, there’s a third link to this — “Democrats, death and taxes” - one can always count on Democrats to levy or maintain a tax, if it is in their power, even at death’s door.

According to published reports, the Senate Finance Committee will move quickly, with President Obama’s blessing, to ensure that the tax on estates when one dies - the death tax - is not eliminated in 2010 but is frozen at existing levels. Any way you spin it, it’s a big increase from what the law now says will be the situation in 2010 and beyond. Estates valued at more than $3.5 million per individual, or $7 million for couples, will be taxed at 45 percent. In other words, Uncle Sam will continue to stand at the bedside of a dying American, ready to claim a sizable share of hard-earned wealth - wealth that already was subject to tax at the time of its accumulation.

The Democratic plan is a reversal from the Bush administration’s attempt to lift this burden. President Bush sought to reform the odious death tax in 2001. At his behest, Congress passed a bill that gradually phased out estate taxing, leading to its elimination in 2010. By 2011, unless another bill makes the 2010 status permanent, the estate tax is set to jump back up to its pre-2001 rate in which $1 million is exempt from taxation and the rest of the estate is taxed at 55 percent. Democrats now claim that by simply freezing the current rates, the situation is much improved compared to the Clinton era. That ignores the reality that existing levels of taxation harm small businesses that must devote considerable resources to estate planning, paying for life insurance or maintaining liquid assets for the tax - resources that could otherwise be invested in growing their businesses and generating jobs.

Democrats insist that the federal government would lose too much revenue by eliminating the death tax, especially in the middle of a recession. They are resorting to the usual anti-upper class rhetoric, insisting that the deficit is already high and that Mr. Bush has favored the “wealthy” with his tax cuts. However, failing to repeal or reduce the estate tax harms farmers and small businesses, stunts job creation, penalizes success and perpetuates a disincentive to capital formation. This is hardly distinguishable from socialism - and we already know that these economic measures do not generate prosperity.

The current challenges the nation faces are how to stimulate the economy, address the budget deficit and establish a fair taxation policy. Estate-tax repeal advocates are currently divided among many small-business owners who want to raise the exemption to $10 million and the very wealthy who want a 15 percent capital-gains tax rate, regardless of the size of the estate. The two camps would be wise to make peace, craft a compromise measure and speak with one voice if they want to influence the debate.

On their part, Republicans have an opportunity to begin to rebuild their credibility as free-market advocates by supporting measures to reduce the heavy penalties on dying. The best strategy is to offer an alternative plan that continues to raise the exemption and reduces the percentage rates, while suggesting spending cuts to account for the revenue shortfall of these adjustments. Cutting government programs that are inefficient is a better way to balance the budget than penalizing death.

In America, one class of people should not have to bear a greater burden than another - whether rich or poor, whether the nation is in a recession or not. And those about to die should be able to do so in peace, rather than with the added anguish of pondering how a large portion of the money they have lawfully earned (and paid taxes on) cannot be transmitted to their heirs.

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