NCPA - National Center for Policy Analysis

Looking at The Death Tax as Government Revenues Lost

June 21, 2002

One factor cited by Senators in voting down repeal of the death tax last week was its impact on government revenues. Some of them expressed concern over the projected budget cost of more than $50 billion a year -- even though cost concerns didn't stop them when they passed the farm bill.

But some budget analysts say the death tax encourages behavior among the wealthy elderly which results in less -- not more -- federal revenues. In addition to encouraging estate planning, the tax reduces revenues by hurting the economy.

  • Many wealthy individuals begin distributing assets long before they die to younger family members of lesser income in lower tax brackets.
  • They may also establish various trusts aimed at keeping their money out of the hands of the federal tax collectors -- or give money to charities.
  • B. Douglas Bernheim of Stanford University has written that the reduction in income tax revenue just from assets transferred before death may exceed the revenues raised by the estate tax.
  • Further, the tax weakens incentives to save and invest -- with economists Gary and Aldona Robbins estimating that elimination of it would boost gross domestic product enough that, within 10 years, federal tax revenues would be higher than if the tax had been retained.

If these researchers are even half right, the death tax brings in nothing. If they are both fully correct, the tax will not bring in the projected $50 billion a year after 2010 -- it will lose $50 billion a year.

Source: Stephen J. Entin (Institute for Research on the Economics of Taxation), "Why the Death Tax Lives," Wall Street Journal, June 19, 2002.


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