NCPA - National Center for Policy Analysis

Plenty Of Reasons To Scuttle The Death Tax

July 14, 2000

The House of Representatives has already voted overwhelmingly to phase out the estate and gift tax and the Senate is on the verge of doing so. President Clinton says he intends to veto the legislation, however.

Prominent economists fault the tax on a number of grounds.

  • It is an unfair tax on income that has already been taxed.
  • It discourages work and savings.
  • It is complex and imposes high compliance costs.

Moreover, from a revenue standpoint it is self-defeating. Because of its incentive effects, it probably reduces personal income tax revenue by more than the estate tax itself collects -- resulting in a net decrease in total federal tax revenue. Here are a few of the reasons why:

  • The tax induces wealthy individuals to make large charitable gifts to tax-exempt organizations, both before death and as charitable bequests -- thus reducing income tax revenues.
  • A gift of appreciated stock or other assets also avoids the capital gains tax -- further increasing the revenue loss caused by the estate tax.
  • The rules encourage individuals to give some of their assets to children and grandchildren -- which shifts the income on these assets from the top 39.6 percent marginal tax rate to lower brackets.

So Clinton's objection to repeal on the grounds of revenue loss is indefensible. Estate and gift tax revenue in 1998 was just $23 billion -- only about 1 percent of total federal tax revenues. That $23 billion is virtually nothing compared to the projected 10-year budget surplus of $4.2 trillion.

Source: Martin Feldstein (Harvard), "Kill the Death Tax Now...," Wall treet Journal, July 14, 2000.


Browse more articles on Tax and Spending Issues