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Harkin, Whitehouse and Sanders Are Pushing an Estate Tax Proposal That Might Be Called the “Die Abroad Act”

2 min readBy: William Ahern

It has been acknowledged by most Democratic Party leaders since at least 2000 that the federal estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. was becoming an intolerable burden. Vice President Gore campaigned on the idea of raising the exemption amount to $4 million for individuals and $8 million for couples because even people so successful and financially sophisticated as multi-millionaires could not reasonably be expected to deal with the estate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. 's legendary complexity and onerous tax rates.

No slouch when it comes to taxing the rich, President Obama has a proposal similar to that Gore platform. In the FY 2011 U.S. Budget, he calls for making 2009 law permanent. That would set a top tax rate of 45% on the taxable portion of estates, granting an exemption of $3.5 million to individuals and $7 million to couples. But some Democrats are now swinging the other way, demanding much higher estate taxes.

As reported by Janet Novack in Forbes, Senators Harkin, Whitehouse and Sanders are urging their colleagues to match Obama's exemption levels — $3.5 million and $7 million — but to demand a top rate of 65% on estate value above $500 million (dubbed a "billionaire's tax" because the threshold for couples would be $1 billion). Rates of 55%, 50%, and 45% would apply to estates valued lower.

Just as elderly, wealthy people have often moved to states with no estate tax to save money for their children, enactment of this bill could well start a wave of relocations to low-tax countries by people who often have homes abroad already. Here is a 2006 study by Jagadeesh Gokhale and Pamela Villarreal that compares estate tax rates in major countries. Only Japan would have a higher top estate tax rate if this bill became law. Of course, wealthy people would be more reluctant to renounce U.S. citizenship than they would be to move to Florida, but with hundreds of millions of dollars at stake, such moves would occur.

A particularly cynical provision is to pay off the powerful farm lobby by allowing farmers to artificially lower the value of their land by $3 million for estate tax purposes. Let's see — the federal government helps make farmers millionaires by funneling taxpayer money to them in super-generous subsidies, and then farmers' get a special estate tax break. Hmmm.

We published a summary of various arguments on estate taxation recently.