Don't Repeal the Estate Tax
The movement to abolish the federal estate and gift tax is gaining support.
But getting rid of the estate tax--or the "death tax" as its opponents
label it--is the equivalent of supporting welfare for rich kids at a time
when the distribution of wealth and income is highly skewed.
At the moment, the federal government levies an estate tax at death on
assets greater than $1.35 million for couples, after deductions. The
exemption climbs to $2 million for couples in 2006. The marginal estate tax
rate reaches 55%, although the average tax rate is about 19%. The argument
for repeal is that the tax destroys small businesses and reduces the
incentives for entrepreneurship and savings.
The charges against the estate tax are greatly exaggerated. For one thing,
the estate tax is concentrated among the wealthiest families. Households in
the top 5% of the income distribution bear 91% of estate taxes. It's hard
to see how this highly progressive tax levied on a small fraction of the
wealthiest households has stymied entrepreneurial activity in an economy
based on rapid technological change. Just ask billionaires Bill Gates and
Michael Dell. But the deduction in the estate tax code for charitable
contributions does generate significant sums for philanthropy.
Eliminating the estate tax also violates the notion of equality of
opportunity--a bedrock idea in American social history. High estate taxes
don't prevent parents from educating their children and giving them other
economic advantages. But estate taxes do create an incentive for the
children of the super-wealthy to work and achieve on their own. There is a
strong argument for raising the exemption limits and lowering the estate
tax rate. But repeal would create a permanent American aristocracy, and who
needs that?
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