The Corner

‘Night of the Living Death Tax’

The Wall Street Journal’s Review and Outlook explains how Obama’s first budget resurrects the death tax sooner than you think:

The President’s budget calls for the largest increase in the death tax in U.S. history in 2010.

The announcement of this tax increase is buried in footnote 1 on page 127 of the President’s budget. That note reads: “The estate tax is maintained at its 2009 parameters.” This means the death tax won’t fall to zero next year as scheduled under current law, but estates will be taxed instead at up to 45%, with an exemption level of $3.5 million (or $7 million for a couple). Better not plan on dying next year after all.

The Journal reminds us of the rationale behind the pursuit of the estate tax: “Liberals counter that the estate tax is ‘fair’ because it is only paid by the richest 2% of American families.” 

Is it supposed to make it okay? No. Economics teaches us that people who make the choice during the course of their lives of saving some of their income rather than consuming it all are more likely to become wealthy. These guys are great benefactors to society because their capital increases productivity and is the fuel for growth. In other words, the estate tax penalizes savers and investors who attain wealth, while rewarding wealth dissipation through private and government consumption.

It means that the big losers from estate tax return will be average workers who otherwise would have gained from a larger capital stock and entrepreneurs’ greater job creation efforts.

For some interesting discussions back in 2006 about the death tax see Greg Mankiw’s blog here. In particular, read this post about the moralistic aspect of death tax debates here.

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