Milton Friedman was a world-class economist, won the Nobel Prize for Economics in 1976, and passed away in 2006. Friedman championed repeal of the death tax (estate tax) for years. In 2001 he wrote an open letter on the subject and convinced 276 economists to sign on. This week the national Family Business Coalition, of which the Family Business Association of California (FBA) is a member, has announced the letter now has 723 economists signed on including four winners of the Nobel Prize. Here are a few excerpts from Dr. Friedman’s letter:
“Spend your money on riotous living – no tax; leave your money to your children – the tax collector gets paid first. That is the message sent by the estate tax. It is a bad message and the estate tax is a bad tax.
The basic argument against the estate tax is moral. It taxes virtue – living frugally and accumulating wealth. It discourages saving and asset accumulation and encourages wasteful spending. It wastes the talent of able people, both those engaged in enforcing the tax and the probably even greater number engaged in devising arrangements to escape the tax.
The income used to accumulate the assets left at death was taxed when it was received; the earnings on the assets were taxed year after year; so, the estate tax is a second or third layer of taxation on the same assets.
Death should not be a taxable event. The estate tax should be repealed.”
The current federal death tax comes into play when an estate is valued at over $5.49 million and is then 40% of anything over that. It doesn’t take long in California for an estate to get to that size if there is real property and equipment involved. Farmers are particularly hard-hit as many are “land rich and cash poor” meaning they have to sell some or all of the property to pay the death tax bill, saying goodbye to some or all of the family farm.
Just when California families saw some hope as the President and Congress are looking at eliminating the federal death tax in the current round of tax reform proposals, State Senator Scott Wiener of San Francisco introduced a bill that would put the creation of an equal tax, just for Californians, on the state ballot in the event the federal tax is eliminated. It must go to the voters because two initiatives passed by the voters in 1982 prohibit an estate tax in California, and that can only be changed by the voters. Family businesses vigorously oppose a death tax for Californians. FBA leads a coalition of 40 associations opposed to the bill. To again quote Dr. Friedman, “It is a bad message and a bad tax. Death shouldn’t be a taxable event.”