Taxing Estates
I think if I read another snatch of writing where a progressive puzzles over why the estate tax is unpopular, I’m going to shoot myself. More informative, I think, would be self-examination. Why are liberals eager to tax estates. My own effort to think this problem over has actually made me less eager.
The estate tax is basically a wealth tax with a highly progressive rate structure. But instead of taking a tiny share of very wealthy households’ wealth on an annual basis, it takes 0% of a given household’s wealth on the vast majority of years and then a healthy chunk during whatever year the head of the household happens to die. There’s no particular economic reason to structure a wealth tax this way. It was done, I assume, for some pragmatic reason of implementation and enforcement or else because it was “estate tax” was more politically sellable than “wealth tax.” So that’s fine, but it’s not like the merits of this policy are some kind of holy writ handed down on tablets.
Now that’s not to say the case for estate tax cuts is strong. A debt-financed temporary estate tax cut is lousy stimulus. A fully offset temporary estate tax cut would almost certainly reduce aggregate demand. And a debt-financed permanent estate tax cut doesn’t boost long-term growth by boosting savings and investment—100 percent of the revenue loss is offset by increased bargaining. This is all just transferring wealth to rich people. So the case for a lower estate tax would have to be the case that nobody is making—permanent estate tax reduction fully offset by some kind of tax hike or spending cut. And you’d have to evaluate any such proposal on the merits depending on what it is.
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