The Sneaky Way Obama Is Hiking Death Taxes

President Barack Obama isn’t afraid to enact his agenda over the will of Congress. At this late stage in his presidency, he’s still overreaching his authority to push through an agenda; his most recent overstep being an effort to unilaterally raise the federal estate tax.

Conservatives have successfully lessened the impact of the estate tax, colloquially known as the “death tax,” in recent years. In 2000, before George W. Bush became president, the death tax had a rate of 55 percent and struck families with assets valued at $675,000 or more.

Today, because of the 2001 and 2003 Bush tax cuts, the rate is down to 45 percent and only estates worth over $10 million face the tax. This is a victory conservatives should be proud of.

Of course, there are no permanent victories in Washington, especially when it comes to tax policy. Raising the death tax is a perpetual desire of liberals. They see this tax as a necessary tool to stop wealth from being concentrated among a few families.

Obama has long wanted to raise the death tax, and has included steep increases to the death tax in each of his budgets. But instead of accepting the will of Congress as a check on his power, Obama has chosen to raise the death tax on his own.

Recently, the Treasury Department released regulations to limit the ability of families to use valuation discounts to reduce their death tax liability when a family member dies.

Valuation discounts make sense economically because they allow families to reduce the taxable value of an asset that does not have a deep and frequently-traded market. For instance, the owner of a family-owned business may pass on a $20 million business to his children. The IRS would assess the death tax on the $10 million value of the business (after the $10 million exemption).

However, that ignores the fact that the family cannot readily sell the business, or some of its assets, because there is no market for a portion of a family-owned enterprise. Valuation discounts allow families to reduce the value of the business to better reflect its lack of marketability.

The same thinking applies to the valuation of any asset. Those assets with deep and active markets will, all else equal, have higher prices than those with inactive markets.

The new IRS regulations would make it harder for family-owned businesses to use valuation discounts, and as a result, raise the death tax bills of families trying to hold onto their companies. This will destroy jobs as those businesses are broken up and slow the economy.

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