Monday, June 05, 2006

Estate Tax

The estate tax is back in the news/blog-o-sphere this week. One of the best things I have read on this topic is this paper by William Gale and Joel Slemrod. It is a highly illuminating discussion of 10 standard claims in the debate:

1) The estate tax imposes economic burdens (depends on how you model the bequests).
2) The economic burdens are bourne only by the rich (depends on if costs bourne by donors, heirs, or economy in form of lower K-L ratios and lower real wages).
3) Because it is a tax on the rich, it should be retained at all costs (while it is the most progressive tax available, this depends on weighing costs and benefits which ultimately requires value judgments).
4) The estate tax reduces savings (lots of rhetoric, but few facts on this topic)
5) The estate tax imposes undue burdens on family owned business and farms (no farm has gone out of business because of estate tax, most family owned business and farms not subject to the tax, and if this is a problem for those very few that are it is easily to adjust the tax to avoid these issues)
6) The estate tax is easy to avoid and evade, especially by the wealthiest families (this one is tough to summarize, but it doesn't look like this is true).
7) The cost of administering the tax are roughly equal to the revenue raised (doesn't appear to be true).
8) The estate tax raises charitable contributions (seems likely).
9) The estate tax is a death tax, and death should not be a taxable event (clearly just rhetoric -- they pretty much claim this is just stupid).
10) The wealth in estates has already been taxed once and sometimes more than that (semi-true, but so what? And much of wealth taxed has not been taxed previously.)

That is a very dirty summary. If you think you will ever discuss this issue, I recommend reading the whole thing.

Update -- Tony V nicely summarizes the current debate among economists over at Econball. As usual, people aren't debating the same issue. One group opposes repealing the specifics of the estate tax proposal because it raises the defict, while cutting social programs. The other group supports the repeal because they argue it is economically inefficient. I agree with Tony V, I would be happy to repeal the estate tax if it were replaced with some other revenue neutral, highly progressive tax. Given that is not the current debate, I am strongly opposed to the current bill.

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