Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Tuesday, September 7, 2010

Pointing Out Fallacies in Pro-Estate Tax Arguments

Estate Tax A Forbes columnist recently listed seven reasons why the return of the estate tax is undesirable:


  1. It is foolish to argue that the government needs revenue now more than ever because by that logic, forms of taxation could multiply without end.
  2. The government’s spending will not remain static when additional revenue is available. Instead, the government will increase its expenditures to take advantage of the additional revenue.
  3. The estate tax causes people to change their behavior, which is an undesirable quality for a tax.
  4. Effects of the estate tax kick in before death when planning devices create a private gain and a social loss.
  5. The argument that the estate tax breaks up concentrations of wealth fails to take into account that an estate is taxed the same regardless of the number of beneficiaries.
  6. The argument that the government will use the money to improve welfare more than a private individual would is highly improbable and immeasurable.
  7. The estate tax has a disruptive effect on small businesses.

See Richard Epstein, Let the Estate Tax Die a Merciful Death, Forbes, Sept. 2, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.


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Wow. Many of these 'reasons' are false, and none are given as reasons to extend the estate tax.
1. No one argues that the gov especially needs revenue now as a reason for an estate tax. Many argue that the transfer tax is a small but key part of a revenue plan, including income, payroll, corporate, and excise taxes.
2. Spending has little to do with revenue. Congress (under GOP control) passed an unfunded Medicare drug benefit costing over 500B over 10 years while running a massive federal budget deficit. The Iraq and Afghan wars have been unfunded by tax revenue. In contrast, the federal budget was in balance for three years, 1999-2001, without a marked increase in spending.
3. There is little evidence that the estate tax has an undesirable impact on behavior since the major effect is to encourage charitable giving. (Without the estate tax many charities fear that charitable bequests would drop terribly, and the wealthy give LESS to charity as a percentage of wealth and income then the middle class and poor.)
4. this comment is rather opaque. The impact of estate planning is a tax on those unwilling to plan. Refining the estate tax law would move the effect closer to equal treatment.
5. Yes, the estate tax does not take into account the impact of multiple beneficiaries, but that can be resolved by converting it into an inheritance tax – taxing the recipient in the same manner. No reason to massively change the system otherwise. Some states and other countries have done the same. On the transfer of large wealth the difference has very little impact since all recipients would be taxed at the highest marginal rate.
6. Again, since it is well known that the rich actually give a smaller percentage of income and wealth to charity than others, and they largely benefit universities and cultural institutions, instead of the poor or the public good (through the funding of what economists call, well, ‘public goods’), it is the duty of the government to do so. So yes, the government would achieve these results while the wealth left with the wealthy would benefit – the wealthy.
7. There is very little evidence of the estate tax disrupting small business, since various provision of the estate tax permit payment of the estate over 15 years at very low interest rates, and the effective rate – after applying various discounts permitted under the law, are relatively low – about 20 to 25 percent. (About the impact of a taxable sale at capital gains rates.)

Posted by: Stuart | Sep 7, 2010 2:44:13 PM

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