By Ryan Ellis
In case you haven’t heard, the federal estate, gift and generation-skipping transfer tax (collectively known as the “death tax”) turned 100 this month.
The death tax is liable on estates above a “standard deduction” of about $5.4 million ($10.8 million if a surviving spouse passes). The top death tax rate is 40%. Both the inflation-adjusted exemption and the tax rate are very high by global standards.
After 100 years, it’s fair to evaluate the effectiveness of any public policy. The simple truth is that the death tax should be repealed and replaced with something that does the job better.
Below are the top five reasons to repeal and replace the death tax:
The death tax collects almost no money. This is probably a surprise to most people when they hear it, but the death tax is a paltry, rounding error source of federal tax revenue. According to the latest tax baseline from the Congressional Budget Office (CBO), the death tax will collect just $20 billion in FY 2016. That compares to the $3.376 trillion the total federal tax system will collect.
Do the math, and you’ll see that’s about six-tenths of 1% of all federal revenues. By comparison, federal excise taxes collect $97 billion, customs duties collect $36 billion and even “miscellaneous fees and fines” collect $61 billion. The death tax is a nuisance, not a policy.
Furthermore, the death tax is a declining source of revenue, as seen in the chart below by the Tax Foundation:
The death tax is a dead weight loss on the economy. The Tax Foundation has a real world simulator to gauge the effects of changes to tax policy. For such a little tax, the death tax has a huge economic bite. When death tax repeal is run through it, the findings are astonishing:
• The economy would be $137 billion bigger
• Every man, woman, and child would be on average $400 richer
• 139,000 jobs would be created
• Federal tax revenues would actually grow by $8 billion per year as the faster economic growth not only makes up for the old death tax revenue, but yields even more in federal tax revenues
Read more here.