NCPA - National Center for Policy Analysis

Economic And Fiscal Benefits Of Estate Tax Repeal

February 14, 2001

The gift and estate tax, also known as the "death tax," is arguably the most counterproductive tax in the entire Internal Revenue Code, says Stephen Moore, president of the Club for Growth.

  • Throughout the past 40 years, the tax has consistently raised only between 1 percent and 2 percent of total federal revenues.
  • In 2000 it raised roughly $22 billion out of just under $2 trillion in total federal tax receipts.
  • And because the death tax slows economic growth and thus reduces other tax receipts, actual net revenues from the tax are well below 1 percent of total receipts.

In a 1995 study, economist Dick Wagner of George Mason University calculated that the death tax might actually cost the federal government more money than it raises. A study in the Seton Hall Law Review indicated that in 1992 the compliance costs were more than half the amount raised.

The U.S. now has the second highest death tax in the world, topped only by that of Japan. Many nations have begun eliminating their death taxes, recognizing them as a powerful disincentive for saving, investment and accumulating wealth. The Joint Economic Committee of Congress estimates the death tax has reduced U.S. wealth creation by $500 billion.

Finally, statistics show the largest and adverse impact is on medium-sized estates.

  • In 1997 two-thirds of all estates that paid the tax had a net worth of less than $10 million.
  • A recent study estimates that two-thirds of the wealth of the nation's richest families goes untaxed.

No wonder Rep. Chris Cox of California has proposed eliminating the tax entirely and immediately.

Source: Stephen Moore, " Repeal the Grave-Robbing Tax," Brief Analysis No. 347, February 14, 2001, NCPA.


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