The intensity of interest in the estate tax issue surprised many observers, given that only an estimated 1.75 percent of all adult deaths will result in any estate tax liability in 1998. Moreover, the tax is not a major revenue source, raising just $17.2 billion in 1996, a mere 1.18 percent of total federal receipts. However, both the number of estates affected by the tax and the revenue yield have increased in recent years and are expected to rise sharply in coming years. According to the Joint Committee on Taxation (JCT), the number of taxable estates, 0.87 percent of adult deaths in 1988, is expected to rise to 2.64 percent by 2005. Receipts are projected to rise to $35.1 billion by 2007. ²² These projections do not take into account the effects of the legislation.

The rise in the number of taxable estates and estate tax revenue result mainly from the fixed level of the estate tax exemption, which has not been increased since 1986. In the time since, the Consumer Price Index has risen by almost 50 percent, raising the nominal value of many estates above the $600,000 threshold. Real economic growth and the aging of the population also serve to generate heightened interest in estate tax reform.

From all indications, the increase in the estate tax exemption will have a minimal impact on the growing effort to abolish the estate tax altogether. For one thing, the exemption increase is being phased in so slowly - about 6 percent per year - that its real value is not very large. In real terms, the $1 million exemption in 2006 will still be substantially less than $600,000 in 1986 dollars. Furthermore, a growing number of academic analyses question the value and efficacy of the estate tax. These studies help to embolden supporters of outright repeal.

The main argument supporting abolition of the estate tax is fairness. Although this tax falls exclusively on the rich (insofar as "rich" can be defined as having $600,000 in assets at death), sophisticated estate planning has made payment of the estate tax essentially voluntary. ²³

• Those who plan ahead and take full advantage of legal tax avoidance techniques can reduce their estate tax liability to zero if they choose. ²⁴
  
• Those who fail to plan may see their estates taxed up to 60 percent. ²⁵
  
• In the view of economists Henry Aaron and Alicia Munnell, estate taxes are not taxes at all, but "penalties imposed on those who neglect to plan ahead or who retain unskilled estate planners." ²⁶

However, owners of small to medium-size businesses evidently are less willing or able to avoid the tax. Thus taxes as a share of gross estates tend to be higher for estates between $2.5 million and $20 million than for larger ones [see Figure II].

Consequently, the estate tax is an extremely weak redistributor of wealth. This has been true for some time. As economist Alan Blinder of Princeton has observed, "estate taxation is not a very powerful weapon in the egalitarian arsenal." ²⁷ Economist Joseph Stiglitz of Stanford has even suggested that the estate tax may actually increase inequality. ²⁸

Economist Douglas Holtz-Eakin of Syracuse argues that the overall efficiency cost of the estate tax is small. ²⁹ However, in another article with economists Harvey Rosen and David Joulfaian, he previously had found the tax to be a significant burden on entrepreneurs. ³⁰ Economist B. Douglas Bernheim of Stanford has argued that common estate planning techniques reduce income tax revenues by more than the estate tax raises. ³¹ In other words, the government raises no net revenue from the estate tax. Another analyst has speculated that the federal government might raise more revenue from taxing the incomes of estate planners than from the estate tax itself. ³²

Other analysts point to the heavy administrative burden of the estate tax, as well as the political impossibility of strengthening it to improve its revenue yield and redistributive purpose. They argue that the relatively small amount of revenue raised by the estate tax could more easily be raised by other means. ³³

Although politically popular, new tax subsidies for higher education have been heavily criticized by economists. Economist Robert Moore argues that current tax treatment of education expenses already approximates the tax treatment of physical capital. He views additional tax incentives for education as tilting the tax code in favor of human capital and against physical capital. ³⁴

Other economists emphasize that the tax credit targets the wrong people. Since it is not refundable, it is not available to the poor who most need education subsidies. Its main effect will be to cut the taxes of families who would have sent their children to college anyway. ³⁵ Thus the credit is unlikely to increase aggregate human capital in the economy by very much. Economist Julie-Anne Cronin estimates an increase in enrollment of just 150,000 students per year. ³⁶

Furthermore, the education credit may engender tuition inflation, especially among two-year colleges. In 1994-95 fully one-third of such colleges charged students less than $1,000 to attend. ³⁷ Raising tuition to the $1,000 credit level will cost them virtually nothing. But they may need to expand facilities if demand increases.

In summary, the new education credit does little to increase the availability of higher education. The most needy do not qualify, and those who qualify are not needy. The benefits may be entirely negated if tuition levels rise in response to the credit.