French President Francois Hollande ran on a Socialist Party platform of raising the top income tax rate to 75 percent, but his proposal has even smaller relative effect on business owners than the estate tax Senate Democrats intend to levy on wealthy Americans who die next year.
Hollande promised, during his campaign, to tax millionaires in his country at a rate of 75 percent. In the United States next year, millionaires will pay up to 55 percent tax rate on their estates, according to the Americans for Tax Reform, a proponent of lower taxes.
ATR expects the death tax to have a significant effect on the economy, based on past experience. “Prior to 2001, when the death tax stood at 55%, a 1994 study by the Tax Foundation found that a 55% estate tax ‘has roughly the same effect on entrepreneurial incentives as a doubling of income tax rates.’ ATR recalled. “The same death tax today, then, would have similar decision-distorting economic effects as an 80% income tax on affected parties.”
Business owner Jack Fitzgerald explained why the death tax is so costly back in May. “I am in my 70s and have 1,200 very dedicated employees in my car stores, whose livelihoods keep me up at night,” Fitzgerald wrote in The Washington Examiner. “Under current law, it is clear that upon my death, the estate tax liability will be so large that my heirs would have no choice but to sell off the company I have spent 46 years building, real estate and all, effectively dismantling its operations. To prevent this, I have purchased substantial amounts of life insurance. How substantial? My annual premium is $684,000, which I pay in after-tax dollars. All that, just so that my employees will still have jobs and my company can continue without such severe dislocation upon my death.”
What happens if you replicate Fitzgerald’s experience throughout the economy? “Former Congressional Budget Office director Douglas Holtz-Eakin estimates that the Democrats’ 55 percent death tax would destroy as many as 1.5 million small-business jobs, walloping an already weak economy,” Phil Kerpen of American Commitment — a group that describes itself as “dedicated to restoring and protecting the American Commitment to free markets, economic growth, Constitutionally-limited government, property rights, and individual freedom” — wrote in an opinion piece for The Daily Caller.
Another study from the early 1990s, ATR also noted, concluded that “the paperwork and compliance costs of the estate tax largely cancelled out any revenue raised from the tax.”