David Logan puts it starkly:
Simply put, the federal estate tax does nobody any good.
Why?
Estate taxes are generally levied for two reasons: To break up concentrations of dynastic wealth and to raise significant tax revenues. The seminal 1987 NBER paper by B. Douglas Bernheim, Does the Estate Tax Raise Revenue?, suggests that the estate tax accomplishes neither of these goals.
In fact, according to Mr. Logan, the net effect of the estate tax may be to reduce revenue.
Anybody working in the financial world quickly realizes there is a much more powerful force to break up dynastic wealth than the estate tax. They’re called “beneficiaries.”
To the extent the estate tax does any good, it’s does so through the basis-step up at death — solving the need to dig through ancient or lost records to determine tax basis. Still, that goal could be accomplished by other means at much lower marginal rates.
Tags: David Logan, estate tax, Tax Policy Blog
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Maybe it’s about time that we admitted the truth. The estate tax is a white collar jobs program designed to transfer wealth from the upper class to the upper middle class. Planning about the GST tax beats washing their private jets.
Seriously though a simple substitute would be to repeals or limit the income tax exclusion for gifts and inheritance with estates, trusts and donors having a withholding requirement. That would at least put it in the same system. Although I would miss defective grantor trusts.