What do life insurance companies and non profits have in common?
Not much at first glance. A deeper look reveals otherwise.
There has been a lot of debate recently about reinstating the estate tax. For those unaware, the estate tax has stood at 0% over the last few years. Effectively this has allowed individuals to pass on their estates to their heirs without a huge tax hit to the families. This burden can be quite large. It’s especially onerous when someone bequeaths a relatively illiquid asset such as a family business. If the family intends to keep the business they may have to pony up X % of the worth of that business just to have it remain in their hands. I’m not going to get into the (il)legitimacy of the government’s claim on wealth that’s already been taxed in this piece. What I do want to point out is a strange set of bedfellows that has emerged in the fight to reinstate this tax.
Life insurance companies and non for profits have both been lobbying the government hard to get the estate tax reinstated. What do these groups have at all in common? Simply stated, both groups stand to benefit hugely from high estate taxes. If there is no estate tax fewer people need life insurance to cover the costs normally incurred by death: loss of income, funeral costs, liquidity to cover taxes. They’d be able to cover them out of the inherited assets. Non for profits benefit as well. When there is a large estate tax people recognize that a significant chunk of the wealth that they spent their lives accumulating will get swallowed up by the governement upon their exit to the pearly gates. Not wanting to see this wealth evaporate, many donate it to “a good cause” at a significant tax advantage. They may even set up an annuity through the non for profit that kicks some of the money back to them while they are alive. Either way, the non for profits benefit.
In life it’s not so easy to follow the money. The average citizen with little to pass on is given the class warfare head fake by most politicians: reinstate the estate tax, make the “wealthy” pay their “fair share” they say. The behind the scenes lobbying tells a different story. The average citizen has no seat at this table. He’s left out in the cold regardless hoping that his representative will throw him a redistributed government bone.
