HOLD FOR 1:00 P.M. RELEASE
JUNE 4, 2009
CONTACT: Jennifer Berkowitz, 828.687.2633 or
Jennifer@PRoactiveSolutionsInc.net
WASHINGTON COULD ADD 1.5 MILLION NEW JOBS
AT NO COST TO TREASURY OR TAXPAYERS, STUDIES SHOW
WASHINGTON, JUNE 4, 2009 – A simple change in the tax code could result in as many as 1.5 million new jobs, at no cost to the government or taxpayers, according to two studies on the federal estate tax published by the American Family Business Foundation (AFBF), the research and education voice of the American Family Business Institute, an organization representing American family business owners and farmers.
Released today at a Capitol Hill policy briefing, the first of the two studies found that the estate tax, because it discourages the expansion of small businesses and causes a drag on the economy, generates virtually no net government revenue and, in fact, appears to produce a “net revenue decrease.” The second study found that the overall economic impact of the tax “is negative, statistically significant, and far stronger than the impact of … income taxes.” Both studies showed that small business owners expand their companies more slowly and add fewer employees when estate tax rates increase – and increase investment and add more employees when rates drop.
“While the studies were conducted independently, they clearly should be viewed together because they send a coherent and compelling message to policy makers,” said Dick Patten, AFBF President.
“The story they tell is simple: Eliminating the estate tax would cost the federal government virtually nothing, but would produce as many as one-and-a-half-million new jobs.” Compare that, Patten said, to the stimulus package approved earlier this year, which will cost $787 billion to generate or ‘save’ an estimated 3 million to 4 million jobs.
“On the one hand we have 1.5 million jobs at zero cost; on the other hand we have 3 to 4 million jobs at a cost of $787 billion. You do the math.
“Put another way, a low estate tax rate provides an incentive to grow the family business,” said Patten. “A high estate tax rate provides the opposite.”
Though the estate tax generates approximately 1 percent of total federal revenues, Stephen J. Entin, president of the Institute for Research on the Economics of Taxation (IRET), found in his study that these revenues are offset by lower rates of capital investment and job creation, which reduce income-tax and other government revenues by more than the estate tax brings in. Doing away with the tax, therefore, would actually be a revenue producer, Entin’s study shows.
“The estate and gift tax is one of the least efficient levies in the tax system,” Entin writes, causing “an unusually large amount of economic damage per dollar of revenue.” This is so, Entin says, because the estate tax “is an added layer of tax on saving and investment, two activities that are very sensitive to tax and likely to shrink if taxed heavily.”
Because the estate tax “reduces annual GDP, income and wages by a substantial amount,” Entin writes, the tax “reduces other tax collections” by more than the tax brings in, “resulting in a net revenue decrease from levying the tax.”
DO THE MATH: “KILLING THE ESTATE TAX” = 1.5 MILLION NEW JOBS
The second study, by former Congressional Budget Office (CBO) Director Douglas Holtz-Eakin, looks at the economic effects of various legislative options being considered by Congress.
Under current law, the estate tax is currently assessed at a 45 percent rate on all estates valued at more than $3.5 million. The tax will cease to exist, however, at the end of 2009, but will return in 2011 at an even higher rate: 55 percent on estates valued at more than $1 million.
President Obama has proposed making the current rate permanent, but congressional Democrats appear divided: some favoring the president’s proposal, others favoring higher or lower rates, and others favoring repeal of the tax.
Holtz-Eakin’s study found that a higher estate-tax rate would slow the economy and kill jobs, while lower rates would increase economic activity and employment.
“Simply killing the estate tax,” the former CBO director found, “would expand investment by 3 percent, increase small business capital by $1.6 trillion, increase the ‘probability of hiring’ by 8.6 percent, increase payrolls by 2.6 percent, and slash the current jobless rate by nine-tenths of one percent.”
Overall, he said, some 1.5 million new jobs would be created in the small business sector, “nearly half the total … the administration hopes to ‘save or create’ under its budget plan.” The flip side, Holtz-Eakin and co-author Cameron T. Smith said, is that a higher estate tax rate will lower payrolls, with an increase to 55 percent resulting in as many as 500,000 lost jobs.
MAIN FINDINGS: ENTIN
Among the main findings of the Entin study, “Economic Impact of the Estate Tax: Effects of Various Possible Reform Options,” are the following:
Within five to ten years, the estate and gift tax reduces annual gross domestic product (GDP), income and wages by a substantial amount. Allowing the rates to revert in 2011 to 55 percent, with the exclusion reduced to $1 million, “would eventually reduce GDP by $183 billion and labor income by about $122 billion.”
Within five to ten years of ending the estate tax, on the other hand, $119 billion would be added to GDP and labor income would be boosted by $79 billion, while lowering the top rate to 35 percent and raising the exclusion to $5 million – as some have proposed – would add nearly $27 billion to annual GDP and nearly $18 billion to labor income.
The damage the tax does to GDP, wages and other income reduces tax collections by more than the transfer tax brings in, in some cases by more than twice as much, “resulting in a net revenue decrease from levying the tax.”
“The economy, the pre-tax and post-tax incomes of workers, savers and investors, and federal, state and local revenue would all be higher if the estate and gift taxes were eliminated.”
The U.S. estate tax rate is one of the highest in the world. Many leading nations, including three of the big-four emerging tigers – China, India and Russia – have no estate tax. Other countries with no estate tax include Australia, Canada, Mexico, and Sweden.
MAIN FINDINGS: HOLTZ-EAKIN
Holtz-Eakins’s study, “Changing Views of the Estate Tax: Implications for Legislative Options,” included the following findings:
“Eliminating the estate tax … would increase investment outlays, hiring propensities, and size of family business payrolls [while] allowing the tax to revert back to the high marginal tax rates and low exemptions of the 1990s [55 percent tax on estates valued over $1 million] would have a crushing impact on businesses, workers, and on the U.S. economy as a whole.”
Estate taxes provide incentives “for legal avoidance through the configuration of assets in trusts and other vehicles.” In other words, “… when the estate tax goes up, the accumulated net worth goes down.”
In 2007, some 36,458 estate tax returns were filed, out of 235 million total tax filers that year. In no year since 1995 has the estate tax accounted for more than 1.3 percent of total federal tax revenues.
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