Monday, March 26, 2012

Indianapolis Star Editorial Challenges Wisdom of Inheritance Tax Phase-out

Editorial by Dan Carpenter from the Indianapolis Star:

"There are many reasons that a family business might not be passed down to the kids upon its owner's death; but the Indiana inheritance tax is probably not one of them.

The phase-out of the tax will cost a cash-strapped, budget-slashing state more than $1 billion over the next decade, by government estimates; while the main selling point for the change in law defies logic and mathematics.

"Never again, we hope, will a farm or a small business in our state have to change hands just because someone can't afford the inheritance tax," Gov. Mitch Daniels said in signing Senate Bill 293, a jewel of the Republican agenda which many Democrats were loath to oppose.

The "death tax," after all. How could the revenue raiders be allowed to continue robbing graves and driving businesses into dissolution and Hoosiers to Florida?

Actually, there's an easy answer: It's not happening.

At least, not on any significant scale. It's political lore, unsupported by data and, regrettably, pretty much unchallenged by the media.

It reminds one of the GOP claims that property taxes were evicting senior citizens from their homes, and employers were avoiding Indiana just because it lacked a "right to work" law. The death tax is one more good scary story.

Let's look at numbers.

Say the proprietor of a corner bookstore passes on, leaving an inheritance worth $250,000. His widow pays no tax at all. What if it goes to his two kids? Each gets a $100,000 exemption -- that's $100,000 -- off the top, and the remaining $50,000 is taxed at $250 plus 2 percent of its value over $25,000.

That's enough to cast off a business? Wow. Give me such a deal on my income taxes. It's far more likely the place would be crushed by Amazon, which continues to go free from collecting sales tax on its Indiana mail-order trade.

"Even with the existing system, it really wasn't that onerous a tax," says Erik Gonzalez, staff fiscal specialist for the ranking Democrat on the House Ways and Means Committee, Rep. William Crawford, who fought the bill. "We don't see it impacting small business. The real beneficiaries will be the super-wealthy."

It figures. Given the $100,000 exemption for sons and daughters and the 100 percent exemption for surviving spouses, many Hoosiers never even have to report inheritances, the Indiana Department of Revenue notes. It takes a rich family by any measure to see the kind of bill that would shock a middle-income family. Yet it's supposed to be for the little guy's sake that it's all going away. The consequence is one more dammed-up revenue stream for a state that slashes budgets for the poor. Without a replacement.

"We made over $1 billion in cuts for social services and education because of budget constraints," Gonzalez says, "And yet we have this gratuitous elimination, over time, of some $160 million a year. We have unmet needs."

For some constituencies, the 2012 legislature left few needs, or at least few wants, unmet. The Indiana Chamber of Commerce, in praising SB 293 on its website, describes the inheritance tax exemption as "currently very low," without mentioning the sum. And here we thought our leaders cared about folks who consider 100 grand real money."

http://www.indystar.com/apps/pbcs.dll/article?AID=2012203250304