Is The Demise Of Estate Tax Inevitable?

While the estate tax lives on despite long and protracted efforts to eliminate it, there is some optimism that its days may be numbered.

“The estate tax has a history as long and controversial as the income tax,” according to a recent opinion piece in The New York Times by Kenneth F. Scheve Jr. and David Stasavage. “Its first modern version appeared in the federal tax code in 1916, three years after the ratification of the 16th Amendment, which authorized the federal income tax. Advocates of the estate tax see it as a crucial tool for raising revenue and a buffer against the sharp, nearly inexorable rise in inequality over the past four decades. Opponents, who call the levy ‘the death tax,’ say it penalizes savers, harms growth and interferes with parents’ ability to pass on their wealth to their children. With income inequality at levels not seen since the 1920s, and low economic mobility, some liberals hope that in the coming years our lawmakers will face intense political pressures to maintain, and even raise, taxes on inherited wealth. In this view, economic realities are building a compelling case for a more progressive tax system.

“But judging from the experience of other wealthy countries, the opposite may be true. As inequality has risen in the developed world, many governments have been dismantling — not increasing — estate taxes. Countries from Austria to Canada to Sweden have abolished estate taxes outright.”

Scheve is a professor of political science at Stanford University. Stasavage, a professor of politics at New York University, is the author of “States of Credit: Size, Power, and the Development of European Polities.”

In their opinion piece, the two men argue that one of the main reasons estate taxes came into existence was to pay for a country’s defense at a time when military might was dependent on the number of men and women in uniform.

“The question for supporters of the federal estate tax, and for proponents of progressive taxation more generally, is how the downward trend in estate taxation might be stopped,” the article stated.” As the United States shifts to fighting wars with precision weapons and a relatively small volunteer Army, the argument that taxation of the rich is necessary in wartime to ensure equal sacrifice will no longer be convincing. How can one ask the wealthy to sacrifice for war when much of the rest of the population isn’t really sacrificing either?

“We believe that the future of the federal estate tax will instead depend on its advocates’ showing that it is needed to ensure shared sacrifice of a new kind in an era of more limited wars. The same can be said for progressive taxation in general. Advocates of progressive taxation cannot assume that rising inequality will create irresistible pressure for higher taxes on inherited wealth. They will need to construct a compelling narrative of shared sacrifice, but shared sacrifice for what?”