A Few Misleading Arguments for Repealing the Estate Tax

We Angrybears have been accused of mischaracterizing data by someone who fails to cite any specific example. But this fellow did provide a couple of links to op-eds that seem to be calling for the repeal of the estate tax. Let’s review both. First up is Ron Paul:

Fortunately, estate taxes no longer devour 60% of some individuals’ wealth when they die. Congress passed legislation in 2001 that reduced estate tax rates and increased the amount of assets exempt from the tax. Yet Congress has been unable to abolish the estate tax altogether, and, due to a political compromise the old rates will be back in effect come 2011 unless Congress acts first. The estate tax raises very little money. In fact, even at its height the estate tax accounted for only a little more than 1% of federal revenues. A congressional Joint Economic committee report estimates that Americans spend as much avoiding estate taxes – paying attorneys and accountants – as they do paying estate taxes. A study by a Stanford professor concluded that “True revenues associated with estate taxation may well have been near zero, or even negative.”

The estate tax never devoured 60% of someone’s wealth. Even assuming one did not play games with the valuations of one’s asset, the highest marginal rate before 2001 was only 55%. The average tax rate depended on the value of the estate given the tax rate scheduled, which was kindly provided by the Citizens for Tax Justice.

The Stanford professor happens to be Douglas Bernheim who wrote Does the Estate Tax Raise Revenues with the conclusion being:

Although it is very difficult to estimate these effects precisely, in recent years true estate tax revenues may well have been negative.

Next up is Lew Rockwell

Left-liberals hate the idea, but the prosperity of everyone in a market economy depends in good part on the rich. The capital they have earned and saved generates investments and creates jobs. Their savings keep interest rates low. Their actions are philanthropic in every sense. In their professions, they help everyone prosper. In their charity, they help the poor, and allow the arts and education to thrive.

I’m a liberal and I don’t hate either the idea of prosperity or market economies. I realize that increasing savings and investment is key to increasing opportunities for workers, but I reject the notion that we need to shift the burden of taxation onto the working poor in order to promote long-term growth. Lew Rockwell and Ron Paul are not economists and I find their selective use of quotes from economists they don’t even bother to name not exactly an enlightening way to discuss the pros and cons of tax policy.

Footnote: Given the suggestion that Ron Paul wants tax cuts for everyone, I could (perhaps should as I did in the comments section) bring up the long-run government budget constraint, but then Mark Thoma has put my point quite nicely:

What I am suggesting is that we think hard about who pays for the tax cuts – should it be a tax shift to reduce distortions or should it be cuts to programs – because it’s very clear tax cuts won’t pay for themselves.