Repeal the Estate Tax

Harold Meyerson, op-ed columnist for the Washington Post, is upset about possible repeal of the estate tax.  He writes:

A decades-long campaign by right-wing activists (brilliantly documented by Yale professors Michael Graetz and Ian Shapiro in their book "Death by a Thousand Cuts") has convinced many Americans that the estate tax poses a threat to countless hardworking families. That was always nonsense, and under the estate tax revisions that almost all Democrats support -- raising the threshold for eligibility to $3.5 million for an individual and $7 million for a couple -- it becomes more nonsensical still. Under the $3.5 million exemption, the number of family-owned small businesses required to pay any taxes in the year 2000 would have been just 94, according to a study by the Congressional Budget Office. The number of family farms that would have had to sell any assets to pay that tax would have been 13.

Meyerson is certainly right that raising the threshold to $3.5 million per individual means few estates will be subject to the tax.   But this is just as easily an argument for repeal: why add this complication to the tax system, encourage tax avoidance, and enrich a bunch of estate tax lawyers, all over a handful of estates?

More generally, the estate tax is misguided.  It penalizes savers and rewards spendthrifts, which is the opposite of good tax policy.   And the net revenue it raises is less than it appears and might even be negative. Because those subject to the estate tax transfer their assets to tax exempt vehicles, they avoid both the estate tax and the income tax that would have been assessed on the returns.

Update: By coincidence, Nobel-Prize-winning-economist Ed Prescott has an op-ed in today's Wall Street Journal advocating repeal of the estate tax.   And Greg Mankiw has a post discussing Prescott's analysis.

Comments

[James]

Why not just repeal every tax except for those where the government can prove to have a better claim to the money than the would-be payer? Or if you have to be a consequentialist about it, repeal all taxes except for those where the government would spend the money more wisely than the would-be payer?