FORECASTS & STRATEGIES
A Tax by Any Other Name
by Mark Skousen
“Do they realize that every measure leading to capital decumulation jeopardizes their prosperity?” — Ludwig von Mises
A tax by any other name….
Whether you call it an estate tax, an inheritance tax or a death tax, it’s all the same — a tax on capital!
Capital is the lifeblood of the economy. It builds and maintains our roads, buildings, bridges, water systems and other infrastructure. It educates our youth and trains our workers. It finances inventions and new technology. In short, capital is the engine of economic growth and makes possible a higher standard of living for all of us. In his 1920 best-seller The Economic Consequences of the Peace, the economist John Maynard Keynes hoped to see the day when capital would be “allowed to grow in the geometrical proportion predicted by Malthus of population,” resulting in an economic nirvana, with no “overwork, overcrowding, and underfeeding.”
Keynes’s book warned about one of the greatest threats to capital formation-world war. But today the biggest threat to capital formation and economic growth is taxes, particularly estate taxes and capital gains taxes. Politicians call them “death” taxes and “profit” taxes, but these taxes have the same effect. They systematically reduce the pool of investment capital in the world, the seeds of economic progress. In 1999, the federal estate tax removed over $30 billion from the capital investment pool of this nation, and the capital gains tax removed over $100 billion-money sent to Washington that will never return to the private sector to be invested. What a tragedy!
I laud the House of Representatives for taking the “revolutionary” step of eliminating the federal estate-tax. But while one hand giveth, the other taketh away. The House also added to their “radical” bill a provision that would actually do worse-tax the gains on all inherited assets at the time of death! Under current law, heirs don’t have to pay taxes on capital gains of stocks and other assets inherited from a deceased loved one. They automatically receive a “stepped up” basis on all stocks, bonds, etc.But under the new law, that “stepped up” basis is eliminated.
So even under the new bill-if it ever becomes law-estate planning won’t go away. Lawyers and accountants don’t have to worry about seeking added work. They will be busy finding ways to get around the new rules that confiscate capital upon death.
My favorite strategy for avoiding the various capital/estate/wealth taxes is to quietly, privately and legally transfer assets to your heirs. In small amounts, this means investing in gold and silver coins, artworks and other collectibles, all of which can be easily given away. For larger estates, the best strategy involves trusts and foundations. As Larry Abraham says, “There’s never been a tax law without legal loopholes.”