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Congressional Committee Blasts Estate Tax

The United States Congress’ Joint Economic Committee issued its study on “The Economics of the Estate Tax” in December 1998. Relying in part on research by Craig Aronoff and John Ward, their associates at Kennesaw State and Loyola Chicago universities, and the Arthur Andersen/Mass Mutual American Family Business Survey ‘97, Senior Economist Dan Miller minced no words in the report’s conclusion:

“The detrimental effects of the estate tax are grossly disproportionate to the modest amount of federal revenue it raises (if it raises any net revenue at all). Estate taxes result in a large amount of wasted economic activity. Over its lifetime, the presence of the estate tax has cost the economy roughly one-half a trillion dollars in capital stock. Moreover, the estate tax destabilizes family businesses at one of their most vulnerable points the succession from one generation to the next. The enormous liquidity demands of the estate tax have contributed to the break-up of thousands of small businesses as well as the destruction of environmentally sensitive land. In generating these outcomes, the estate tax has violated the basic principles of a good tax system — simplicity, fairness and efficiency.

“If the estate tax generated sufficiently large benefits, then an argument could be made to justify its existence. However, all the evidence indicates that the estate tax has no redeeming qualities. There is no theoretical or empirical basis to suggest that the estate tax promotes fairness or reduces inequality. In addition, research indicates that the deduction for charitable bequests stimulates little or no additional giving. Even the $23 billion in revenue it raises is illusory, since estate tax avoidance activities likely generate equally large revenue losses under the income tax.

“The estate tax is an unfortunate feature of the current federal tax system. The estate tax’s punitive tax rates are not only the highest of all federal taxes (reaching nearly 80 percent), but are imposed at the most inappropriate of times — the death of a loved one. As if mourning such a loss were not enough, the federal government worsens the pain by seeking to confiscate upwards of one-half of all the decedent’s accomplishments and successes.

“This final injurious grievance simply strengthens the conclusion that the estate tax generates costs to taxpayers, the economy and the environment that far exceed any potential benefits that it might arguably produce. The balance of evidence reviewed here suggests that this nation’s forefathers followed the correct policy: in the absence of a national emergency, there is no compelling reason to warrant the permanent imposition of the estate tax. Death and taxes may indeed be inevitable, but these twin hardships need not always converge with consequences as burdensome and destructive as those of the estate tax.”

Copies of the complete report are available from Joint Economic Committee, G-01 Dirks Senate Office Building, Washington, DC 20510. Phone 202-224-5171. Internet address is: http://www.house.gov.JEC.

 

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