Discover what 500 multi-millionaires think of estate taxes.
Not long ago, we came across a survey on one of
the most important subjects for all wealthy individuals –
the federal estate tax.
A topic of perpetual debate since it was first introduced
in 1797, the estate tax – or "death tax" as some
call it – should be of vital concern to every wealthy individual
and family.
It's an issue that we as wealth managers talk about
to nearly every client, and we do a good deal of reading about
it. So this particularly interesting study caught our eye.
The authors actually surveyed nearly 500 multi-millionaires
and analyzed the opinions of different segments of the millionaire
population. The survey found, for example, that those who earned
their wealth were more likely than those who inherited their wealth
to support reforming the inheritance tax rather than repealing
it.
The research divided the wealthy into several groups
and found very different opinions among the groups. The report
split those surveyed based on total net worth (64 had estates
exceeding $20 million and 138 had estates between $10 million
to $20 million). It also looked at the opinions of those who made
their own fortunes, those who inherited their money, those who
want the federal estate tax repealed and those who want it reformed.
Almost half of those surveyed thought the wealthy
should bear a larger share of the tax burden; and about 40 percent
said the wealthy owe the government for living in a society where
wealth is possible.
Just 3 percent of millionaires considered the estate
tax a disincentive to hard work and saving, a finding that seems
to refute one of the primary arguments used by advocates of repeal.
Among tax issues, the estate tax is a top priority
among the wealthy. Of a list of six alternatives to estate tax
reform, only one – reducing federal income taxes –
was considered more important than estate tax reform. Of those
surveyed, 78 percent said income tax reform was more important,
47 percent said fixing the alternative minimum tax was more important,
and 38 percent said increasing school funding was more important.
But the study found noteworthy differences based
on wealth: 98 percent of those with less than $10 million thought
cutting federal income taxes was more important, while just 27
percent of those with more than $20 million thought income tax
reduction was more important.
As for the consequences of change, two-thirds thought
reform or repeal would increase the federal budget deficit, 20
percent said either would increase economic growth, and a bit
under 20 percent thought it would lead to other taxes or fees.
Some of the most interesting differences in the
survey were between self-made millionaires and those who inherited
wealth. For example, among the wealthiest, the inheritors were
the only segment to say the tax code was tilted in their favor.
Three quarters said the affluent should bear a larger portion
of the tax burden and just over three quarters thought the wealthy
owned the government for being living in a society where wealth
is possible.
In addition to the survey results, the report discusses
the fascinating political history of the estate tax beginning
in 1797, when a tax was levied on wills to help pay for the country's
war with France. That tax was repealed in 1802 only to be followed
by similar short-lived estate taxes during the Civil War and the
Spanish- American War. The estate tax as we know it came into
being with the Revenue Act of 1916, in part as a way to close
the gap between the wealthy and the poor.
The tax ebbed and flowed until three years ago,
when major changes were made under the Economic Growth and Tax
Relief Reconciliation Act of 2001. Under that law the exemption
level has been rising and the tax rate has been declining.
Those reforms set the stage for the current debate
in Congress and across the country about repeal versus reform
of the estate tax. Anybody interested in that debate should read
this report, which we think will be eye opening for you. If you'd
like to read the full survey and analysis, e-mail us at Estate@PillarOnline.com
and we will send you a PDF copy of The Estate Tax and the Affluent:
A Look at the Impact of the Federal Estate Tax on Those Most Likely
to Pay it, by Prince, Grove and Bavelas.
Christopher G. Snyder and Haitham "Hutch"
E. Ashoo are principals of Pillar Financial Services in Walnut
Creek. Contact them at 925-356-6780.
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