With the House Ways and Means Committee voting on repeal of the death tax next week, there is renewed hope that this inappropriate tax will soon kick the bucket. Although descendants of the deceased are most directly hurt by the death tax, everyone else gets hurt economically as well.
Repeal of the death tax would create a small, but significant, economic boost, according to Alan Cole of the Tax Foundation. “Repealing the estate tax in the United States would increase investment, add jobs, and expand the economy,” Cole says. Over the course of a decade, repealing the death tax would create 139,000 jobs. It would also boost the economy by 0.8 percent, or by over $100 billion dollars. Wages would rise by 0.7 percent.
The boost comes from lifting the tax burden on accumulated wealth, which Cole says improves the economy. When accumulated wealth is taxed, the government redistributes it in inefficient ways, and those hit by the tax try to shift their assets into less productive endeavors. As a result, money flows into life insurance policies and government coffers instead of into job-creating capital.
All but very wealthy estates are exempt from the death tax, so it raises little revenue while being expensive to collect. “As estate taxes become narrow-based, meager revenue sources with high administrative costs, repeal becomes a strong option,” Cole writes.
Liberals would lament the loss of $20 billion in tax revenue annually if the death tax were repealed, but the ensuing economic growth would actually create a net gain of $8 billion in tax revenue.
Even if the economic gains were below expectations, it would not be difficult to find a way to pay for repeal of the death tax. The $20 billion of tax revenue generated by the death tax every year is less than 1 percent of all federal spending. Whether that revenue were offset by an increase in another tax or an equivalent amount were cut in spending, it would not be difficult to find a way to keep death tax repeal deficit-neutral. Defense spending could be cut by 3 percent, food stamps could be cut by 25 percent, or nondefense discretionary spending could be cut by 3 percent to make up for the lost death tax revenue.
There’s almost nothing to lose from repeal of the death tax. It wouldn’t necessarily have popular support, just because it falls directly upon so few, but many the argument that taxation upon death isn’t fair is one that can resonate with most of the living.
