Why the Right Wants to Abolish the Estate Tax

Estate tax: Opponents call this a "death tax," but the estate tax doesn't tax death; it taxes only substantial assets left behind by those who died. Because of the high exclusion (currently $2 million) most families will never pay it.

Nevertheless, it is a key target of conservatives; they want to abolish it. If it were abolished, G.W. Bush would be set to inherit hundreds of millions of dollars (at least) from his father's holdings in the Carlyle Group alone, without paying any taxes.

The current law raises the exclusion gradually, from $600,000 to $3.5 million by 2009, but since the reform law will no longer be valid a year after that (meaning the exclusion will go back to $600,000), obviously Congress has to do something to update this tax. Moderates have proposed a modified estate tax with an exclusion of up to $10 million to enable farms and small businesses to pass on their assets untouched.

Economists don't seem to want to point this out, but the estate tax is a "perfect tax" in economic terms. It raises revenue (a lot of revenue) without affecting people's motivation for work or risk-taking. It's difficult to make the case that most people, especially entrepreneurs making decisions on the basis of current risks, will be motivated or deterred by taxes on their estate after they die, because they have visions of dynasty. Admittedly, there may be an odd few who think this way, but the question arises: do dynasties of wealth really belong in a democracy?

What is important from a political point of view is that the tax is a moderate brake on the accumulation of large fortunes by a few families. So, it not only raises significant revenue that would otherwise come out of the pockets of working stiffs, but it also discourages the kind of wealth monopoly the Senators held in fifth century Rome. It is a democratizing tax, which may be why conservatives hate it.

In the case of Rome, the Senatorial class dominated government in the fifth century, as well as the economy and society in part because they never had to pay any kind of inheritance tax--and avoided paying most other taxes as well. Yet, that didn't make the Senators particularly loyal to the system that made their wealth possible. In fact, they connived in the overthrow of the Emperor when the Empire was about to fall. And the "fall" ushered in the Dark Ages that destroyed not only what was left of the Empire in the west, but destroyed the Senatorial class itself.

Why did the wealthy Senators collaborate in the Emperor's overthrow (especially since some of them could have paid off the shortfall out of their own pockets)? Because they didn't want to pay taxes, something that might have happened if the Emperor had been successful in calling in aid from the Emperor of the East; the latter did tax his Senators. To see what happened, go to: Consequences. To know more about why conservatives want to abolish the estate tax, and what happens to societies that don't have such taxes, go to Estate Tax