ARGUMENTS FOR DEATH TAXATION???

Reduces the Inequality of Wealth and Income?

In Alan Blinder's (a President Clinton appointee) book 'Toward an Economic Theory of Income Distribution', he concludes a "radical reform of inheritance policies can accomplish comparatively little income redistribution" and one of his findings was that only 2% of income inequality was attributable to the unequel distribution of inherited wealth.

Joseph Stiglitz, who served as Chairman of President Clinton's Council of Economic Advisers, found that the estate tax may ultimately cause an increase in income inequality (Journal of Political Economy).

Death Taxes penalize work and saving and encourages large-scale consumption by the very rich.  If an individual knows that they will be unable to pass on their wealth, then they may choose to simply produce less wealth or to consume their wealth; Professor Edward J. McCaffery, USC - Liberal Democrat.

Deduction for Charitable Bequests Encourages Giving to Nonprofit Organizations?

Because charitable donations are also deductible for income tax purposes, the tax system as a whole is much friendlier to gifts during life than to gifts made at death.

Total charitable bequests increased in real terms by nearly 23% in the first five years following the last major reduction in the death tax rate (1982-1986).

Over 1992-1995, more than four out of five estates (82%) did not take advantage of the charitable deduction.

Revenue Raised Warrants the Existence of Death Tax?

Alicia Munnell, a former member of President Clinton's Council of Economic Advisers, estimates that the costs of complying with estate tax laws are roughly the same magnitude as the revenue raised, or about $23 billion in 1998.

In this century, the stock of capital in the economy has been reduced by approximately $497 billion due to the death tax and the death tax only raised $585 billion. 

The distortionary effects of the death tax result in losses under the income tax that are roughly the same size as the death tax revenue.

(Joint Economic Committe Report, December 1998)

A Brief History of Federal Estate, Gift and Generation-Skipping Tax

 
The current federal estate tax has been in effect since 1916. The original legislation provided a $50,000 exemption with marginal tax rates ranging from 1% to 10%, for estates over $10 million. In 1924, concerned about the erosion of the base for estate taxes through lifetime gifts, Congress enacted the first gift tax with rates from 1% to 25%.  This gift tax was repealed two years later, but was reinstated in 1932.  Donors were allowed a $50,000 exemption and a $5,000 annual exclusion per donee.  During the years 1943-1976, the basic provisions of the federal estate and gift tax laws remained substantially unchanged.  The law allowed a $60,000 Estate tax exemption with tax rates ranging from 3% to 77%.  The gift tax exemption was fixed at $30,000 with an annual exclusion of $3,000 per donee.  During this period, the gift tax rates were lower than the estate tax rates, making gifts more attractive.
 
With the Tax Reform Act (TRA) of 1976, the structure of the federal estate and gift tax laws changed considerably.  This Act unified estate and gift taxes with a single rate structure.  TRA provided for a maximum tax rate of 70%. With the Economic Recovery Tax Act of 1981 (ETRA), the estate and gift tax was substantially changed with a graduated increase in the equivalent exemption to $600,000 in 1987.  The marginal tax rate was decreased from 70% to 55%, all limits on the marital deduction were removed, and the annual gift tax exclusion was raised to $10,000.  
 
With the Deficit Reduction Act of 1984, the Tax Reform Act of 1986, and the Omnibus Budget Reconciliation Acts of 1987, 1990 and 1993, various changes were made in Estate and Gift tax laws.  The 1986 Tax Act also instituted the current generation-skipping tax on transfer to grandchildren and more remote descendants.  With the Taxpayer Relief Act of 1997, Congress provided for an increase in uneven increments in the unified credit to an equivalent of a $1 million exemption by the year 2006.  It also allowed for a special exclusion for qualified family owned business and other provisions.  Currently the top Estate and Gift tax rate is 47%, with a rate of 37% on assets in excess of $650,000 (the current equivalent exemption).  A martial deduction is allowed on all assets passed from one spouse to another.  There is a $11,000 per year, per donee annual exclusion from gift taxes and a $1 million generation-skipping lifetime exemption allowed with an effective rate assessed of 80% on money transfers to grandchildren after use of the $1 million exemption.

Under the 2001 Tax Act, the rate of Estate Tax and Generation-Skipping Tax is reduced to 45% by 2009 and the lifetime exemption increases to $3.5M then both are repealed in 2010 only to "come back" in 2011 at a 50% rate with a $1M exception.

The gift tax is reduced to 35% with a $3.5M exception but not repealed.
 

 THE FUTURE

 "The Death Tax has created perverse incentives that encourage parents to spend their savings now, rather than pass them on to their children later.  As the National Commission on Economic Growth noted in its report:   'It makes little sense and is patently unfair to impose extra taxes on people who choose to pass their assets on to their children and grandchildren instead of spending them lavishly on themselves.  Families faced with these confiscatory taxes often find themselves forced to sell off farms or businesses, destroying jobs in the process.'  The Death Tax is devastating."

 CONCLUSION

"The estate tax is simply unfair.  It tells every American that no matter how hard you work or how wisely you manage your affairs, in the end the Federal Government is going to step in and take it away.  The estate tax is double and, in some cases triple taxation, it punishes hard work and savings, and it fails to raise the revenues that could possibly justify the damage it causes.  It has been destroying businesses and ruining lives for four generations. Let us not make this mistake with our children.  End the Death Tax now."