The Economics of the Estate
Tax A Joint Economic Committee (JEC) Study, December
1998 (The JEC is one of four Joint Committees of Congress
representing bipartisan representation from the Senate and the House
of Representatives)
Executive Summary
The study
examines the arguments for and against the federal estate tax and
concludes that the tax generates costs to taxpayers, the economy and
the environment that exceed its potential benefits.
This
paper documents the extensive costs associated with the federal
estate tax. Specifically, the report finds:
- The
existence of the estate tax this century has reduced the stock of
capital in the economy by approximately $497 billion, or 3.2
percent.
- The
distortionary incentives in the estate tax result in the
inefficient allocation of resources, discouraging saving and
investment and lowering the after-tax return on investments.
- The
estate tax is extremely punitive, with marginal tax rates ranging
from 37% to nearly 80% in some instances.
- The
estate tax is a leading cause of dissolution for thousands of
family-run businesses. Estate tax planning further diverts
resources available for investment and employment.
- The
estate tax obstructs environmental conservation. The need to pay
large estate tax bills often force family to develop
environmentally sensitive land.
- The
estate tax violates the basic principles of good tax system: it is
complicated, unfair and inefficient.
In addition, a review of the
arguments in favor of the estate tax suggests that the tax produces
no benefits that would justify the large social and economic
costs.
- The
estate tax is a "virtue tax" in the sense that penalizes work,
savings and thrift in favor of large-scale consumption.
- Empirical
and theoretical research indicates that the estate tax is
ineffective at reducing inequality, and may actually increase
inequality of consumption.
- The
enormous compliance costs associated with the estate tax are the
same general magnitude as the tax’s revenue yield, or about $23
billion in 1998.
- The
deduction for charitable bequests stimulates little or no
additional giving.
- The
estate tax raises very little, if any, net revenue for the federal
government. The distortionary effects of the estate tax results in
losses under the income tax that are roughly the same size as
estate tax revenue.
|