Guest Opinion

Tax unearned, untaxed windfalls
By Mike Owen, Assistant Director

As published in the August 3, 2011, Globe Gazette, Mason City

How long can we afford to permit the very wealthiest in America to walk away with millions or billions of dollars — fortune they didn’t earn — without paying tax on any of it?

Many avoid this very real question about the estate tax. We’re in the middle of a temporary, one-year experiment with repeal of the tax and some want to make it permanent — at the same time more Americans are worried about our long-term national debt. The disconnect is inescapable.

When the Globe Gazette reasonably called for congressional action on the issue (July 28 editorial), it should have recognized that a compromise along the lines of what the editorial suggested has been on the table for over a year.

Those complaining the loudest now are the ones who blocked compromise legislation last year that would have cemented in place the 2009 levels for which the Globe Gazette appears to indicate support. No one expects the tax to be at the higher 2001 levels; the fact that there will be compromise has never been in doubt. But still the emotional rhetoric reigns. Hey, did anyone notice it’s an election year?

The Globe Gazette could do more to explore the estate tax and how costly it would be — for generations to come — if it were to be repealed or cut drastically.

In Laura Bird’s July 15 story and the editorial July 28, Eugene Sukup and Congressman Tom Latham give voice to myths that are not true. Rather than restate their inaccurate claims, here are important factual counterpoints to the scare tactics:

• Extremely few estates are affected by the estate tax — fewer than three out of every 1,000.
• Of those extremely few affected, fewer than 2 percent are the estates of farmers or small-business owners.
• A large share of the estate tax affects only wealth that has never been taxed — unrealized capital gains — and the tax never applies to the person, now deceased, who made the investment. Rather, it is a first-instance tax on unearned income that falls into the lap of an heir, so “double taxation” is a false issue.
• The percentage of actual tax is far less than the numbers tossed about in the Globe Gazette story. The top rate only applies to part of the estate, after exemptions, and only above a certain amount.

Repeal of the estate tax would be costly: $393 billion more over 10 years than simply cutting the estate tax to 2009 levels.

If applied at the 2009 levels, proposed by President Obama and others, the top rate would be 45 percent — not 55 percent — and apply to only part of an estate. The effective rate would be more like 20 percent, on average, for the small number of taxable estates. Heirs to a couple’s estate would receive $7 million tax-free. Such exemptions show why most estates aren’t anywhere near large enough to be taxed.

In short, those who call for repeal of the estate tax want a special exemption for millions and even billions of dollars that in many cases have never been taxed. They want these unearned windfalls to go tax-free while working families pay tax on their earned income. And repealers are fine with expanding deficits by almost $800 billion over the first decade of repeal, and with scaring people to do it.

Most Americans may be more concerned that to keep a few million extra tax-free for the Sukups, they would pass on billions more in debt to their own children.


Mike Owen
is assistant director of
the Iowa Policy Project,
a nonpartisan, nonprofit
public policy
research organization
in Iowa City.

IPP reports are at