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The federal estate tax was adopted in 1916 as a way for the nation, which was preparing to enter a major war, to raise revenue. The tax, assessed on a stock instead of on a flow as most taxes are, amounts to double taxation because the wealth being taxed was previously subject to income taxes. The current top rate is 35% and is scheduled to rise to 55% in 2013. Full repeal of the estate tax is a key plank of Governor Romney’s plan for tax reform.
Various studies have shown that repealing the estate tax would have many benefits. The CBO found that death tax repeal would save taxpayers $516 billion over 10 years. It also would eliminate the incentive for senior citizens to spend frivolously instead of passing down their savings to the next generation. Similarly, repeal would prevent the dissolution of many family businesses.
Moreover, estate tax repeal would have significant growth effects. A report co-authored by former White House economist and CBO director Douglas Holtz-Eakin found that death tax repeal would create 1.5 million jobs by growing the economy. Unemployment would fall by 0.9 percentage points, while investment would increase by 3 percent.
The increase in growth resulting from repealing the estate tax would have positive effects on federal revenue. Republicans on the Joint Economic Committee point out that the revenue currently generated by the estate tax is meager: $7.4 billion in FY 2011 (just 0.30% of federal revenue) and an estimated $11 billion in FY 2012.
Former Treasury Department economist Stephen J. Entin wrote in a 2011 report that repeal would boost annual GDP by 2.25 percent and capital stock by 6.1 percent by the end of 10 years. The effect of this growth would be to generate $548 billion in new revenue over the 10-year baseline, leading to a total increase of $89 billion that could be used to reduce other tax rates and further enhance growth.
Permanent repeal of the estate tax is a policy proposal that has been analyzed with positive results for quite some time. It is time to implement repeal and observe the resulting increase in prosperity.
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