Estate tax increase sparks debate among Iowa legislators


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Some wonder if higher taxes are, in fact, a good thing.

The federal estate tax, which taxes the assets people leave behind after they die, rose from 35 to 40 percent as part of the fiscal-cliff legislation passed in January, and some believe it will help level the playing field for lower-income families.

State legislators are at odds over whether an increase in the tax will help or hurt Iowa families.

Sen. Tod Bowman, D-Maquoketa, said it only seems fair the money that heirs inherit is taxed the same way any income is taxed.

“I think the real question is that people who work 40 hours a week making $15 an hour pay an income tax, but if there was not estate tax, people who inherit million of dollars wouldn’t pay any taxes,” he said. “It seems a little inconsistent.”

The estate tax currently will only tax what is inherited after the first $5.12 million.

“There are multimillion dollars that you can inherit tax free under the estate tax currently,” Bowman said. “At what level should we begin to tax people who receive a huge chunk of money?”

Timothy Hagle, a University of Iowa associate professor of political science, said the argument that the class gap can be bridged by raising the estate tax is a view typically held by those who are more left-leaning on the political scale. He said they trust the federal government to redistribute the wealth in a more equal way.

“This is another way for those on that side of the ideological field to get more money for the government,” he said.

Hagle said on the other side of this issue people will argue that each generation generally tries to leave a better life for those who come after them and a high estate tax tends to make that difficult.

“It also makes sense to say, ‘Well look, I want to provide for my family,’ ” Hagle said. “You’re basically saying that you can’t do that [and] everyone has to start from zero.”

Rep. Dave Deyoe, R-Nevada, said in Iowa, the estate tax can be harmful for farmers and the children who inherit the farms.

“You may need to have millions in dollars in assets just to make an average living,” he said. “You may need that much an asset just to make a living off of a farm.”

A high estate tax on the children of families who inherit family farms will have a hard time keeping the farm, he said.

“Now they have to go sell half the farm just to pay the tax,” he said.

Rep. Dave Jacoby, D-Coralville, said, breaking with his party, that the estate tax should be even lower.

“The only way to bridge the gap is to help bring lower-income-status groups up to the middle class,” he said. “The death tax doesn’t level any playing field, in my book.”

Jacoby said the only thing raising the estate tax accomplishes is making those paying the tax angry, while the lower classes don’t worry themselves about it.

“The estate tax really isn’t on their radar screen, and it shouldn’t be, because they are just trying to get by,” he said.

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