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.