Thursday, April 2, 2009

Art Laffer "kills" the Death Tax

In The Wall Street Journal Art Laffer, an economist for the Reagan administration and prominent supply-side economist lays out the case for repealing the death tax.

Indeed, from a societal standpoint, inheritance is an unmitigated good. Passing on to successive generations greater health, wealth and wisdom is what society in general, and America specifically, is all about. Imagine what America would look like today if our forefathers had been selfish and had left us nothing. We have all benefited greatly from a history of intergenerational American generosity. But just being an American is as much an accident of birth as being the child of wealthy parents. If you are an American, it's likely because ancestors of yours chose to become Americans and also chose to have children.

When we generally think of the death tax, it is to prevent the Paris Hilton's of the world from inheriting huge sums of money which will be blown on rhinestone encrusted thongs for an army of show dogs. However, this is not the case.

In its most basic form, it's about as silly an idea as can be imagined that America in the aggregate can increase the standards of living of future generations by taxing individual Americans for passing on higher standards of living to future generations of Americans of their choice. Clearly, taxing estates at death will induce people who wish to leave estates to future generations to leave smaller estates and to find ways to avoid estate taxes. On a conceptual level, it makes no sense to tax estates at death.

Study after study finds that the estate tax significantly reduces the size of estates and, as an added consequence, reduces the nation's capital stock and income. This common sense finding is documented ad nauseam in the 2006 U.S. Joint Economic Committee Report on the Costs and Consequences of the Federal Estate Tax. The Joint Economic Committee estimates that the estate tax has reduced the capital stock by approximately $850 billion because it reduces incentives to save and invest, has excessively high compliance costs, and results in significant economic inefficiencies.

Those crazy market oriented supply-siders, how dare they continue to document facts proving that the death tax isn't about revenue, but retribution.

Today in America you can take your after-tax income and go to Las Vegas and carouse, gamble, drink and smoke, and as far as our government is concerned that's just fine. But if you take that same after-tax income and leave it to your children and grandchildren, the government will tax that after-tax income one additional time at rates up to 55%. I especially like an oft-quoted line from Joseph Stiglitz and David L. Bevan, who wrote in the Greek Economic Review, "Of course, prohibitively high inheritance tax rates generate no revenue; they simply force the individual to consume his income during his lifetime." Hurray for Vegas.

That's it, I got it. The government wants us to spend all of our money during our lifetime as a sop to the SEIU. Of course the idea behind the death tax is to square one for the little guy. If our liberal friends cared about raising revenue, they would eliminate the death tax.

Read the editorial here. Well worth the time.

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