> SOUTHERN INDIANA — Cash-strapped Indiana legislators, Republican as well as Democrat, will be eyeing easy sources of additional tax revenue this session. This will involve rationalizing Indiana’s so-called “Death Tax” on inherited estates.

They should know, though, that although the poor will always be with us, not so the rich. The wealthy come and go on the whim of tax law. And whether they live on Long Island or in Zionsville, they are rarely fools. Lawmakers risk losing thousands of jobs treating them as if they were.

Adam Nicholson, director of research for the American Family Business Foundation, estimates that state and federal inheritance taxes may cost this generation of Hoosiers more than 32,000 jobs. That figure does not reflect the holes left in the social and economic fabric of small- and mid-sized Hoosier towns as family businesses stretching back generations are replaced by detached corporate management teams.

And Stephen Moore of the Wall Street Journal places Indiana’s inheritance-tax law among the worst on his state-by-state ranking of competitive economic indicators. The reason in part is that Indiana maintains a low tax threshold (kicking in at $100,000) making it one of the most punishing in the nation.

Finally, we are a state that decided not to formally decouple the local inheritance tax from a ruinous federal tax, one that the lame-duck Congress, with the apparent blessing of the GOP leadership, has decided to reinstate Jan. 1 at a smothering rate of 35 or even 55 percent on estates valued well below the worth of a typical family business or farm.

Last year, economists Douglas Holtz-Eakin and Cameron Smith released their study, “Changing Views of the Estate Tax: Implications for Legislative Options.” They estimated that elimination of the tax could by itself have made up for half of the jobs that the Obama administration hoped to “save or create” in its 2009-2010 budget.

Connecticut, where inheritance was heavily taxed, is a sorry example of what it means to ignore such research. Its department of revenue recently found that wealthy emigrants took more than $1.2 billion net out of the state over the four-year period beginning in 2002. The single largest loss was to Florida, which levies neither an income tax nor an estate tax. A companion survey found that the top two reasons why individuals changed their Connecticut address were concerns over estate and income taxes. Climate or recreational opportunities were only third.

So why would a state do that to itself? Or more to the point here, who would do that to those of us left behind to make up the lost tax revenue?

Some insist despite all economic evidence that when one person gains, another person loses. These are the envy zealots and they are moved from issue to issue by politicians who find success in pandering to resentment — and you should know that we live in an age dominated by such men and women. In this case, they see the wealthy as nothing more than actuarially defined targets.

A third group is where hopes lies. It is made up of people who until recently didn’t know better, who lacked sufficient life experience or who had not had time or motivation to think through how wealth is created, how investment is attracted or how jobs are made.

They have been sent to school, however, by this depressed economy. They are coming to understand that economics is not a zero-sum game, that jobs are created at all income levels by persons with the means to invest as individuals or by capitalist proxy.

“How much money or how little money raised by this tax is not the issue here,” says Sen. Jim Banks (R-Columbia City), aligned with a group of legislators studying a bill to repeal the tax this session. “It is an unjust tax, and its motivation is not revenue but envy. Indiana should be shed of it, especially now as Hoosiers are  trying to convince others that we will honor their investment and protect their property.”

That sounds right on all levels. Our grandchildren, be they plumbers or bankers, may want to inherit something more substantial than a tax code that institutionalizes envy, where the “new normal” is resentment of one’s neighbors. They may want the opportunity to build a life of their own — a life “rich” however they choose to define it, one free of a covetous state.



Craig Ladwig is editor of The Indiana Policy Review. A version of this essay was distributed in 2009. Contact him at cladwig@inpolicy.org