Friday, December 4, 2009

Whither the Estate Tax

The esstate tax is currently scheduled to disappear entirely in 2010 and then return in 2011 at a rate above that currently in place.   The incentive created by this policy is to keep your rich but ailing grandmother alive for another month; then, make sure her docs pull the cord before midnight on December 31st, 2011.

The right fix to this idiocy, of course, is to eliminate the estate tax: it punishes savings, creates windfalls for estate lawyers and accountants, and raises little revenue.

This is not going to happen, however:

The House approved Thursday a measure making the current estate tax rate permanent, overcoming the objections of an unusual coalition of liberal and conservative critics.

The bill passed, 225 to 200, with 26 Democrats joining all Republicans present to vote no. It would make permanent the current estate tax rate of 45 percent, with an exemption of $3.5 million per individual.

15 comments:

Jon said...

I realize that you're ideologically bound to take this stance, but it's one of the few places where you are clearly wrong. A society where 100% of wealth is passed on is a dead society. Whether the government is the entity that should receive the funds is a valid question, but I think it's crucial that people in our society earn their wealth for the most part.

dirtyurl said...

The notion of earning anything is irrelevant. There is nothing that prevents people with estates worth over $3.5M from avoiding the tax through estate lawyers and accountants, hence the windfall to them. Grandma will just begin the transfers earlier to avoid the tax, or she will do infinitely many less economically prudent things than she would if she could pass her wealth on to her heirs with no costly shenanigans. It causes distortions in optimal individual behavior, and that's what is important.

As with most tax policy in the US, estate taxes are another form of naive social engineering.

Or the dead are an interest group with limited clout.

Jon said...

The "distortions in optimal individual behavior" comes from an entrenched upper class, not estate taxes!!

"The parent who leaves his son enormous wealth," wrote steel magnate Andrew Carnegie a century ago, "generally deadens the talents and energies of the son, and leads him to lead a less useful and less worthy life than he otherwise would."

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