The Case for Abolishing Death Taxes

Policy Backgrounders | Taxes

No. 142
Friday, June 27, 1997
by Bruce R. Bartlett


Introduction

The estate and gift tax is the federal government's least significant revenue source. In fiscal year 1997 it is expected to raise just $17 billion, according to the Office of Management and Budget. With total federal revenues estimated at $1.5 trillion, the tax contributes just 1.1 percent. However, while the tax is insignificant in terms of federal revenue, it is very significant economically. It wastes resources. It discourages work, saving and investment. And it does virtually nothing to equalize the distribution of wealth. For these reasons, it should be abolished.

"Much less of the tax falls on the very rich than is commonly believed."

The federal estate tax was first enacted in 1916 on estates larger than $50,000 (the equivalent of $720,000 today). The top rate was 10 percent. However, the revenue yield from the tax was small because people simply gave away their assets tax-free during their lifetimes. This led to establishment of a gift tax to augment the estate tax in 1924. Since 1976 the estate and gift taxes have been unified into one tax system. Today the tax applies to estates above $600,000. It begins at a rate of 18 percent, going up to 55 percent.1 [See Table I.] This year, just 1.66 percent of adult deaths in the United States are expected to result in taxable estates.2

Table I - Estate and Gift Rate Schedule

Read Article as PDF