NCPA - National Center for Policy Analysis


April 3, 2009

Will the prolonging of the federal estate tax really help American recover from recession and reduce our growing deficits?  In order to assess the pros and cons of the estate tax, we should focus on its impact on those who bequeath wealth, not those who receive it, says Arthur Laffer, co-author of "The End of Prosperity: How Higher Taxes Will Doom the Economy -- If We Let It Happen."

Advocates argue that the estate tax will reduce the concentrations of wealth in a few families, but there is little evidence to suggest that the tax has much, if any, impact on the distribution of wealth.  In fact, studies find that it significantly reduces the size of estates and, as an added consequence, reduces the nation's capital stock and income, says Laffer:

  • The costs of sheltering estates are actually as high as the total tax revenues collected from the estate tax.
  • Less than half of the estates that must go through the burden of complying with the paperwork and reporting requirements of the tax actually pay even a nickel of the tax.
  • The largest estates that actually do pay taxes generally pay lower marginal tax rates than smaller estates because of tax shelters.
  • This makes the estate tax one of the least efficient taxes; the total monies collected in any one year account for only about 1 percent of federal tax receipts.

Furthermore, the Joint Tax Committee estimates that from 2011-2015, the revenue losses from eliminating the estate tax would be $281 billion, while the additional capital gains tax receipts from repeal of the step-up basis would be $293 billion.

For all of these reasons, the estate tax needs to go, along with the step-up basis at death of capital gains, says Laffer.

Source: Arthur B. Laffer, "Spend It in Vegas or Die Paying Taxes," Wall Street Journal, April 2, 2009.

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