It may sound surprising at first, but the people working the hardest to save the federal estate tax, or “death tax”, are some of the country’s wealthiest. There are reasons for that. For example, one of these people makes money by selling “death tax insurance” to small businesses, and then making even more money by buying small businesses when they have to be sold to pay taxes because their founder died without such insurance.

This insurance salesman is worried, because the death tax will be completely phased out by 2010.

But unless Congress takes action, it will return in 2011. That means if someone dies in 2010, his estate will pay nothing in inheritance taxes, but if he survives until January of the following year, the estate will have to turn over half of its assets to the government. Because this would provide a perverse incentive for wealthy individuals to die during 2010, an economist referred to this this as the “Throw Momma from the Train Act of 2001.”

Why have death taxes at all? One reason is there is a small number of extremely wealthy people who want to keep the death tax alive, and back up to its confiscatory 2003 levels, because they claim eliminating the federal inheritance tax would decrease the amount of charitable giving, thus endangering American charities.

Of course, the best way to help charities is to boost the economy. It’s a well known fact that charitable donations increase when the economy is strong. And permanently repealing the death tax would give our economy a big boost.

A recent report from the Heritage Foundation estimates that the federal estate tax alone costs the U.S. between 170,000 and 250,000 jobs each year. This additional employment never appears in the economy because the investments that would have resulted in higher employment are not made.

Those additional jobs would do more to help Americans than any charity ever could. By repealing the death tax, we’d open the door for hundreds of thousands of low-income workers needing the chance to enter the workforce. We’d move them from the welfare rolls to the work rolls, and the additional revenue the government would collect from these new workers would far outstrip the amount it would lose from total repeal of the inheritance tax.

Also, the death tax prevents the economy from achieving its investment potential and slows down wage growth. Workers are more productive when they have new tools, machines and factories. And that increased productivity boosts wages and salaries.

In fact, trimming the death tax has actually increased the amount of money given to charities. The Congressional Joint Economic Committee found that last year, with inheritance taxes coming down, a charitable bequest reached a record $21 billion, a 25 per cent increase from 1999. The death tax merely crowds out charitable giving. When estates are paying more to the government, there’s less for donations to worthy causes by heirs. But when we bring those taxes down, our charities benefit.

It’s already well known that charities won’t be left behind. More than two-thirds of Americans donate money to charities. That’s one reason why charitable organizations are a critical part of the American fabric.

But many of the “charities” cited by death-tax supporters aren’t involved in helping the poorest of the poor; they’re making life better for the richest of the rich. Of course, no one would want to live in a country with no art galleries, ballet companies or horticultural gardens. However, these so called “charities” ought to be supported by wealthy private interests, and not propped up by donations from people looking to avoid paying a death tax.

No charity in the world creates hundreds of thousands of jobs per year, but repealing the death tax would. And those who would likely benefit the most are the working poor. We can have both a healthy economy and healthy charities, but the death tax is a danger to both.

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