Elimination of the estate tax (which opponents call the "death tax," heaping woe upon misery) had become a popular topic by the time Congress passed, and the President signed, the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16). Surprisingly so, since according to the latest figures available from the United States Census Bureau’s website (Issued February, 2001, "Household Net Worth and Asset Ownership Household Economic Studies - 1995 figures" the median net worth of households earning in the top quartile of all households is merely $125,337. (That is the net worth of entire households which are in the top income-producing quartile of all Americans as of 1995.) Using the same statistical web page, if you look at the median net worth of the top quartile income-earners of those in the highest net worth age bracket (those over 75 years of age), the number is $466,850. Today, estate taxes hit only those with net worth in excess of $1,000,000. That number is already due to be increased to $1,500,000 next year, and that number is per person (not per household). Apparently, folks would rather pay more taxes now than wait until they die for Uncle Sam to collect.

I present below my rebuttal of arguments for the outright repeal of estate taxes.

1. ARGUMENT: Estate tax rates, which range from 37% to 55%, are substantially higher than other tax rates - the lowest estate tax rate is almost as high as the highest income tax rate of 39.6%.
   
   REBUTTAL:  Average Americans pay income tax annually; they never pay estate tax because of the Unified Credit.  Those who have sufficient wealth to pay estate tax pay it only once, while most other forms of tax are paid annually (or more often). If the rate is too high, you can lower it or increase the credit without throwing out the tax. If your state has property tax, would you dare make the argument that "you already collected that tax last year?"  If you think the current income tax rates are too high, is it logical to argue that the income tax must therefore be eliminated?
   
   
2. ARGUMENT: The estate tax is imposed on earnings and assets that have already been subject to income, social security, and other taxes at the federal and state level. 
   
   REBUTTAL: All taxes are pretty much the same on this score. The same could be said of the income tax (the company that paid the income to you was already taxed on it's income), the property tax (which is paid with earnings that were subject to the income tax), the sales tax (also paid with earnings subject to income tax), and so forth. This isn't the question at all. The first question is what tax is the most efficient (easy to collect and hard to evade) and fair (a philosophical question) - and the second question is whether there just one tax that can do it all. If there isn't just one tax that best meets these criteria, then we must create a "tax cocktail" to achieve our goals. In light of this, does the proposed "tax cocktail" meet our objectives better than any single tax could? The primary objective of taxation must be to raise revenue for government, and any consideration of that objective requires consideration of how much revenue is needed and for what programs - considerations well beyond the scope of the present analysis.
   
   
3. ARGUMENT: Under the current tax system, it is cheaper to sell the family-owned business before death rather than pass the business to one's heirs. No growing business can remain competitive in a tax regime that imposes rates as high as 55% upon the death of the founder/owner. Over 70% of family businesses and farms do not survive through the first generation, and 87% do not make it to the third. Small business has long been recognized as the backbone of America's economy - employing almost 60% of the workforce and creating about two-thirds of the new jobs in the U.S. since the 1970's. Our tax laws should encourage rather than discourage the perpetuation of these businesses. 
   
   REBUTTAL: There have always been provisions in the estate tax law to "give a break" to farmers and small businesses. You can always sell your farm or business to your intended beneficiaries, if what you argue is true (and, indeed, that is just one of many current planning techniques). There is far more going on with the survival of the family farm and the family business than estate taxes. Many times the children are not interested in the family business, or the business has grown old and has lost it's vision or mission, or technology has left the old shop in the dust. Microsoft isn't going to die with Bill Gates. There's a point where these "family" farms and businesses become conglomerates. If a million dollars is too little to exempt, then increase the exemption. You don't need to throw out the estate tax.
   
   
4. ARGUMENT: The estate tax costs jobs. Potential employment is lost when business owners decide not to expand or open another store because of the ever looming death tax, and current employment is destroyed when businesses are liquidated to pay estate taxes. If estate and gift taxes are eliminated in 1999, 275,000 jobs would be created between 1999 and 2010. (IPI Policy Report #150) 
   
   REBUTTAL: This isn't realistic. The estate tax is "ever looming" because, unlike other forms of property tax, it's only collected once. Rational business people will plan for that eventuality. They can actually keep their money as long as they live and do with it as they please. Wouldn't you prefer that to other forms of property tax, income tax, or sales tax?  Folks who would close shop because they will be subject to estate tax are no more rational than those who would close shop because building more and more income results in more and more income tax.  These are the same folks who would "cut off their nose to spite their face" or who would "throw the baby out with the bathwater."
   
   
5. ARGUMENT: With Americans living longer, we need to encourage individuals/families to save and invest in order to plan for their future. However, the estate tax creates a disincentive to save, and instead, encourages consumption. The more assets one has at death, the more he/she may have to pay to the federal government.
   
   REBUTTAL: In my experience, most folks take care of themselves first. They save for their retirement, not for their grandchildren. They can find many, many reasons not to do estate planning.  If passing wealth to children and to grandchildren were such a powerful motivation, wouldn't you think these folks would be making a beeline to their estate planner?  Ask any estate planner - this just doesn't happen for a majority of clients.
   
   The issue of "incentives" is more "gut" than it is science. My "gut" says that when a person is dirt poor, the incentive is to put food on the table. When a person is an "average American," the incentive is to be financially secure and (to a greater or lesser extent) to acquire material goods and services ("live the good life"). As we reach the realm of the truly wealthy, there is absolutely no concern whatsoever with the things that the "average American" is working to achieve. The incentives here are very much different, and they are far more dependent upon relative status and financial achievement.  Money no longer brings food or security but power and prestige.  Therefore, so long as the measure of the tax is the same for all who are wealthy, there is little if any effect on incentives. We may argue the point where the "average" ends and the "wealthy" begins, but there is such a point. The "wealthy" never have a concern that they will run out of food or not be able to "live the good life." In fact, many have found that the ultimate joy of being wealthy is giving that wealth away, and philanthropy has always been protected from estate tax. Philanthropy has made these people wealthier than they ever dreamed possible, and the tax code actually encourages this.  What an incentive!
   
   
6. ARGUMENT: The estate tax, which was intended to break up large concentrations of wealth and promote economic opportunity, has instead become a barrier to economic growth and job creation. This "disincentive to growth" effect of the estate tax is equivalent to doubling income tax rates. (Tax Foundation)
   
   REBUTTAL: This is the same argument as #5, with a twist. The twist is actually a very good argument to keep the estate tax - the original intention of it being just as valid today as it was eighty years ago. Our economy has had its ups and its downs, but overall it has been very good - all WITH estate tax.
   
   
7. ARGUMENT: The estate tax has a negative impact on current business decisions. Critical resources are diverted away from investing in people and growth, and spent on attorneys, accountants and insurance. It is estimated that family-owned businesses spent approximately $33,138 over 6.5 years on attorneys, accountants and financial experts to assist in estate planning. (Gallup Poll, 1995)
   
   REBUTTAL: Taxation can be made simpler. That includes income tax as well as estate tax. It is a goal that should be kept in sight no matter which tax is under consideration. You don't argue that the income tax must be repealed because there are abominations such as passive activity loss limitations or alternative minimum tax.  Complexities are due to "loopholes" and resulting attempts to "close the loopholes." Simplicity and fairness are not typically thought to coincide. (I will not argue that point.)  If there is a tax loophole there will be a client who will hire a tax professional to take advantage of it. That's true for every tax.
   
   
8. ARGUMENT:  The estate tax amounts to only 1% of total federal revenues while costing the government and taxpayers approximately the same amount collected for enforcement and compliance. (Joint Economic Committee Report, 1998)
   
   REBUTTAL: Wait a second! First you argue that this tax is a horrible disincentive, it encourages consumption over savings, it is causing people to shut down family farms and businesses, and it's got a rate that is way too high. Now you argue that it's nothing - a mere pittance? What sense does that make? Indeed, we are on the very verge of trillions of dollars of wealth passing hands. Now certainly is not the time to give an unexpected windfall to wealthy taxpayers who have had, and have known about and planned for, an estate tax for over eighty years.  Take those estate tax dollars that have already been budgeted by the wealthy and use them for legitimate government purposes instead of other tax dollars.