NCPA - National Center for Policy Analysis

Taxing Death

November 6, 1995

The federal estate tax raises less than 1 percent of the government's revenue and more than 99 percent of estates are so small that they fall below the current $600,000 exemption.

Yet, a study of the tax's economic effects found that had it been abolished in 1971, by 1991 U.S. Gross Domestic Product would have been nearly 1 percentage point higher and 228,000 more people would have been employed.

The reasons this relatively small revenue source has such a large economic effect are the economic inefficiencies caused by estate planning to avoid it and the high marginal rates of the tax itself (which encourages consumption and discourages saving).

  • The top rate is 55 percent, plus a five percent surcharge on estates between $10 million and about $20 million.
  • In 1989, more than a fifth of estate tax revenues came from the 250 people who left more than $20 million, although their estates were only 1
  • More than half the estates subject to the tax were between $600,000 and $1 million, but they supplied just five percent of estate tax receipts- although they had nearly a quarter of the wealth declared.

The revenue generated by the tax is outweighed by the harm caused to the economy; so why do we have it? One theory offered by the Public Choice school of economics is "negative utility interdependence," which is their technical term for sheer envy.

Source: Peter Brimelow, "The Cookie Monster," Forbes, November 6, 1995.


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