by: Dr. Lynn Reaser
The U.S. House of Representatives has voted to repeal the inheritance tax, which currently taxes assets of $5.4 million or more of an individual who dies before they can be passed on to a family member. This often forces an individual to sell the property, business, or farm since it may be difficult to pay the necessary amount.
The inheritance tax fundamentally penalizes savers versus consumers. Specifically, if one chooses to spend his wealth during his lifetime, he is not taxed, but if he saves for his heirs he is. The tax encourages tax avoidance, evasion, and other non-productive activities.
The tax currently affects only about 5,500 families. The overall revenue or deficit reduction impact is also small, adding only about $269 billion to federal coffers over a ten-year span. This amounts to only about one-half of a percentage point of total spending estimated over the next decade.
While the exclusion rate of $5.4 million might be raised, inflation will force more people to be caught in the inheritance tax net over time. This negative influence on incentives to create and preserve entrepreneurships and businesses should be abolished.