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TIME TO REPEAL THE ESTATE TAX

AN URGENT NATIONAL PRIORITY

IT SHOULD BE A BIPARTISAN ISSUE

In the last 20 years the estate tax has been repealed in one nation after another.  Social Democratic states like Sweden and Norway now have no estate tax. Unfortunately, in America many on the left do not seem to understand the need to correct America's disastrously low savings rate and see the estate tax as some sort of economic justice.  In reality America has one of the world's highest estate tax rates and one of the world's highest levels of economic inequality.  Meanwhile, nations with far lower estate tax rates or none at all are more equal.

The US Republican Party claims to want to repeal the estate tax but unfortunately, neither the House nor the Senate "tax reform" bills in 2017 contain an immediate repeal of this destructive and misguided tax.  The House bill at least has a phased repeal.  The Senate bill has merely a doubling of the exemption.

A lot of false arguments are being thrown around.  Some suggest the estate tax only affects a relatively small number of people.  What this ignores is this tax has created a total perversion of normal economic actions via all sorts of tax gimmick, trusts and life insurance tactics.

There are other ways to tax the rich such as higher marginal rates on upper incomes.  Also every other modern state has consumption tax and almost every other modern state has a serious tax on energy such as a tax on gasoline.

Unfortunately, the main focus of the 2017 Republican tax "reform" bills is a $1.5 trillion tax cut to big corporations on the argument that they are somehow overtaxed.   This is a very dubious argument since the actual rate of tax they pay is not out of the ordinary and at present they are using a huge part of their earnings for stock buybacks instead of creating jobs.

America's very high estate tax levels are a record keeping nightmare and a huge drag on the economy.   Study after study have shown that the tax is a huge economic net minus.

The House plan is start but what is really needed a complete repeal of the estate tax as has already been done in so many other nations.

 

REASONS TO REPEAL THE ESTATE TAX

Other countries have abolished the estate tax.  The United States has the 4th highest level of estate taxes in the world, and yet we have some of the highest levels of economic inequality and the lowest amounts of savings. Several other countries have no estate tax at all, such as China, Norway, Sweden, and Canada (Tax Foundation)

U.S. public opinion is against the tax. In online polls with identical wording taken by Harris Interactive for the Tax Foundation, around two-thirds of those surveyed in 2005, 2006, 2007 and 2009 said they favored "completely eliminating the estate tax. (Tax Foundation)

The estate tax discourages savings. America has some of the lowest levels of savings in the world, despite having high levels of estate taxing (OECD).

The estate tax encourages consumption over savings. If the act of saving money for intergenerational transfer is discouraged, that money will be spent instead of saved. (Tax Foundation).

The estate tax has reduced the amount of capital stock in the economy by discouraging savings and the taxing of intergenerational transfers. As of 2008, the estate tax has cumulatively reduced the amount of capital stock in the U.S. economy by roughly $1.1 trillion since its introduction as a permanent tax in 1916, equivalent to 3.2 of the total capital stock. This gets rid of our ability to compete internationally. (Joint Economic Committee Republicans)

The estate tax does not reduce income and wealth inequality. America has the highest levels of wealth inequality, even though we also have some of the highest estate tax rates in the world. The justification for the estate tax has historically been twofold: to raise revenue and reduce wealth inequality. However, the estate tax has failed on both fronts. The estate tax generates the smallest amount of revenue of any tax in the United States (just 0.42%), and inheritance only accounts for 2 percent of income inequality. The estate tax actually creates a barrier to income and wealth mobility. (Tax Foundation).

The estate tax is bad for business. Because the estate tax discourages savings and investing, it also undermines job creation. It consumes resources that otherwise would have been available for businesses to use to expand their operations and add new workers. (The Heritage Foundation) The estate tax also suppresses wages and productivity. Since the estate tax lowers savings and thus investing, there are fewer resources available for businesses to purchase additional tools and equipment or replace old worn-out equipment. (The Heritage Foundation)

The estate tax is a cause of the dissolution of family businesses. The estate tax is a significant hindrance to entrepreneurial activity because many family businesses lack sufficient liquid assets to pay estate tax liabilities. (Joint Economic Committee Republicans)

The estate tax hurts those who have tied their savings up in land. Some Americans — such as farmers, ranchers, and homeowners — have improved the land upon which their other assets sit, and the estate tax punishes them for this productivity. (The Heritage Foundation)

The estate tax hurts African-American business owners. Many Americans save in their businesses in order to pass an asset along to their children, and many of those businesses are owned by African-Americans and other minorities. The threat of seeing their live savings absorbed in a single tax bill is reason enough to demand permanent repeal. (The Heritage Foundation)

The estate tax hurts women business owners. Small businesses offer a way around the corporate glass ceiling for many women returning to the labor force after raising families or taking care of other obligations. The economy welcomes their enterprise and creativity, but the estate tax makes their return much more difficult. (The Heritage Foundation)

Compliance costs. Three studies found that the compliance costs associated with the estate tax planning industry exceed the revenue yield of the tax itself (Tax Foundation). Economic inefficiencies due to the distortionary effects of the estate tax are burdensome, and the costs of compliance associated with the estate tax add to the paperwork and time necessary to comply with other taxes. The estate tax is perverting the economic structure of the country. (Joint Economic Committee Republicans).

The estate tax raises a negligible amount of revenue. Since its inception nearly 100 years ago, the estate tax has raised just under $1.3 trillion in total revenue. By comparison, that is the equivalent to the U.S. federal deficit for the fiscal year 2011 alone. (Joint Economic Committee Republicans) Repeal could increase revenue. According to a study, income and capital gains tax revenues could increase significantly if the estate tax is repealed even without an increase in economic growth. (Tax Foundation) Many studies have indicated that abolition of the estate tax would actually increase the overall federal tax revenue in at least two ways. (1) The estate tax robs additional federal tax revenues from the collection of other taxes like the income tax, and (2) a larger total of capital stock could increase tax revenue. (Joint Economic Committee Republicans)

Repeal could increase revenue. According to a study, income and capital gains tax revenues could increase significantly if the estate tax is repealed even without an increase in economic growth. (Tax Foundation) Many studies have indicated that abolition of the estate tax would actually increase the overall federal tax revenue in at least two ways. (1) The estate tax robs additional federal tax revenues from the collection of other taxes like the income tax, and (2) a larger total of capital stock could increase tax revenue. (Joint Economic Committee Republicans)



International Estate Tax Rates
 
Estate Tax Fails on All Fronts, Says New Joint Economic Committee Republican Study
(Joint Economic Committee Republicans)

Estate Tax Even Worse than Republicans Say  (Tax Foundation)

U.S. Public Opinion Opposed to Estate Tax  (Forbes)

Economic Case Against the Death Tax (Federal Estate Tax)  Heritage Foundation

Other Studies   Charts