QandO

July 30, 2004

Estate Tax
Posted by Jon Henke

For whatever reason, I've seen a recent resurgence of debate about the merits of the estate tax. Not sure what brought that on, but I thought I should cite one underreported aspect of the debate. The Joint Economic Committee has investigated the Estate tax and concluded.....it's just not that useful. Specifically, "the estate tax generates costs to taxpayers, the economy and the environment that far exceed any potential benefits that it might arguably produce".

To summarize some main points...

• The existence of the estate tax this century has reduced the stock of capital in the economy by approximately $497 billion, or 3.2 percent.
• The estate tax obstructs environmental conservation. The need to pay large estate tax bills often forces families to develop environmentally sensitive land.
• Empirical and theoretical research indicates that the estate tax is ineffective at reducing inequality, and may actually increase inequality of consumption.
• The enormous compliance costs associated with the estate tax are of the same general magnitude as the tax's revenue yield, or about $23 billion in 1998.
• The deduction for charitable bequests stimulates little or no additional giving.
• The estate tax raises very little, if any, net revenue for the federal government. The distortionary effects of the estate tax result in losses under the income tax that are roughly the same size as estate tax revenue.

Since Democrats seem to consider economic utility calculations above the moral implications of wealth-taxation, one might imagine they would find this an appealing argument against the Estate Tax.

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