On April 4, an ad sponsored by a group of black millionaires appeared in the New York Times supporting repeal of the estate tax. "The estate tax is unfair double taxation since taxpayers are taxed twice -- once when the money is earned and again when you die," the ad points out.

Actually, this understates the point, tax specialists report. In reality, for most people, the estate tax is a triple tax -- and for many a fourth level of taxation.

Consider:

• A person works to earn wages -- on which taxes are paid.

• From part of what is left, he buys stock in a company -- and when that company makes a profit, it is taxed by the federal government at rates of up to 35 percent.

• When the remaining profits are paid to shareholders, they must pay taxes again on exactly the same profits that were already taxed once.

• If that stock has appreciated in value and the shareholder sells it, he must pay taxes on his capital gains.

Thus, the capital gains tax is really a third layer of taxation on profits that are already subject to two layers of taxation.

Now suppose this much-taxed taxpayer builds up an investment portfolio worth $1 million and then dies.

• Although $675,000 of the estate is exempt from taxation, the remainder is taxed at about a 39 percent rate -- meaning a tax liability of $125,000 on assets that have already been taxed three times.

• The problem with the estate tax is that the rates are very high -- starting at 37 percent on the first taxable dollar and rising to 60 percent on estates of more than $10 million, although it does fall to 55 percent on estates of more than $17 million.

Coming on top of all the other taxes, the effect is to significantly reduce the stock of capital -- which is the ultimate source of jobs and wages for all workers.

Source: Bruce Bartlett (National Center for Policy Analysis), "Bifurcated Estate Tax Perceptions," Washington Times, April 6, 2001.

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