Told Ya: The Death Tax Repeal Will Raise Revenues; Plus a Liberal Argument for Repeal

Over a year ago, I did a post on repealing the death tax about what I believed would result from it:

Most importantly, at least as attempts at total repeal have been legislated in the past (this could change), capital gains taxes will be still be assessed when property is eventually sold by heirs, based on the ORIGINAL buyer’s ORIGINAL cost.

….. There is a fair chance that the freer flow of capital to its best use will generate more in capital gains taxes over time, as property changes hands more frequently, than the take of the one-time vulturous hit of the estate tax. Even if it doesn’t, wealth creation over time will probably be greater, as property is more likely to be put to its highest use when it makes sense to do so, not forced onto the market when a person happens to die.

So it’s clear, at least to me, that proponents packaging estate/death tax repeal as a permanent tax dodge are exaggerating its benefits, and that opponents shouldn’t fret so much about supposedly massive losses of revenue to the government as the parents of Baby-Boomers, and the Boomers themselves, pass on. But after cutting through the hype of supporters and the manufactured dread of opponents, I don’t think there’s any doubt that permanent estate/death tax repeal is an idea whose time has come.

A Monday subscription-only editorial in The Wall Street Journal vindicated this instinct:

The bill to repeal the estate tax would change this to require that the current 15% capital gains tax be paid on the full increase in the asset price from the time it was originally purchased. As a policy matter, this seems a fair trade: The 15% capital gains rate is substantially lower than the nearly 50% current death tax rate, and the government would get a share of the gain of heretofore sheltered assets. Joint Tax estimators have calculated that changing this capital gains treatment of inherited assets would raise $50 billion to $60 billion a year, assuming no behavioral changes.

….. But JCT refuses to take any account of the potential economy-wide benefits of repeal: more reinvestment in family businesses, more money spent on creating jobs than on buying life insurance to pay death taxes, and a higher savings rate. Many studies have found that these positive effects could be large and would mean much smaller revenue losses from getting rid of the tax.

So it appears that death tax repeal will raise more revenue and reallocate assets within the economy more rationally.

What’s not to like? So why does anyone have a problem with death tax repeal?

Oh, it’s immoral for families to hoard all that wealth. Forbes’ Rich Karlgaard refers us to an editorial, from the ultraliberal Seattle Post-Intelligencer of all places, for a refutation (HT “S.O.B.er” Andy’s Angle). You might not like the class envy argument, but you’ll like the result (bolds are mine):

We understand that the Democratic base believes deeply that businessmen and women ought to be taxed. We think so, too. Tax their incomes for the federal treasury. Tax their spending. Tax their property at a rate that reasonably can be paid — 1 percent a year on buildings and land is all right. But a tax of 55 percent when someone dies is not reasonable. It is like being broken into and looted. Death is bad enough without amplification.

This is why the American people always tell pollsters the death tax is the most unfair one. It is not because people don’t understand their economic interests. We think they have a good sense of their interests, but they also have a sense of morality. They denounce the death tax because it piles calamity upon grief, and they do not see why anyone would want to do that.

In our highly partisan world, the death tax has given Republican candidates a perennial bogeyman with which to raise funds from owners of family businesses. Why the Democrats donate this issue to the opposition we cannot fathom. But because the Republicans are against this tax, the Democrats find themselves having to be for it. This stand gets them nothing.

Now you can see that there’s no reason that death tax repeal shouldn’t pass unanimously.