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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