This post was originally published on Forbes Sep 15, 2015
As the Jeb Bush tax plan, which calls for the elimination of the estate tax was announced, I did not see anyone remark last week that September 8 was the 100th anniversary of the estate tax . For that I needed Paul Caron's recent article titled The One Hundredth Anniversary of The Federal Estate Tax: It's Time to Renew Our Vows (requires a download). Paul Caron is a law professor at Pepperdine University. He is also with his TaxProfBlog more or less the dean of the tax blogosphere.
The evisceration of the estate tax has thus occurred at a time of acute need for additional federal revenues. Indeed, it is especially ironic that a tax born out of fiscal demands during times of war has withered while the nation confronts radical Islamic terrorism and other threats around the world. As one commentator has observed, “[t]he total lesson of the life of the estate tax is this: a tax must have a revenue raising rationale if it is going to endure the changing moods of national social policies.” In its current state, the estate tax is projected to raise less than $250 billion over the 2016-2025 period.26 Of course, that is not an insignificant sum. But restoring the estate tax’s historic role in the federal tax system would increase that number to $500 billion to $1 trillion. Such a restoration is necessary not only to help reverse the erosion in our revenue base but also to help reverse the lost progressivity in the tax system and the increased concentrations of wealth that have occurred over the past several decades
Professor Caron is the only person of any repute who has attempted to make the actual case for “scandal.” Writing his op-ed in a prosecutorial tone, he lays out facts and a timeline that make what he clearly believes is the strongest possible case for the conservative view about the IRS’s actions adding up to a full-on scandal. He also, however, deliberately uses language that unmistakably says to conservatives, “I’m one of you,” such as his broad claim that the mainstream media is not “curious” enough about the supposed scandal. People who believe in a liberal media conspiracy will sit up and listen.
But the conventional wisdom in California two years ago was that raising taxes on the wealthy would harm the economy and doom any politician who dared touch this third rail. Instead, the public embraced this approach at the ballot box and, after enjoying the fruits of an economic turnaround, appears poised to reward the Governor with a landslide re-election.
For many decades, federal tax policy has played an important role in reducing inequality, although the impact of federal taxes on inequality has waxed and waned depending on the focus of elected officials. We argue that the estate tax is a particularly apt vehicle to reduce inequality because inheritances are a major source of wealth among the rich, and studies suggest that inherited wealth has a more deleterious impact on economic growth than inequality caused by self-made wealth. Although there are loopholes in the estate tax, it is still effective in moderating the amount of wealth that is passed within a family from generation to generation.