The Flurry on Estate Tax in the US

money.jpgIt is not often that I venture across the pond to dig into to the domestic quarrels of US economists and politicians but with the recent (and in fact ongoing) flurry on the estate tax I am compelled to report. Firstly let us quickly re-coup what the estate tax in fact is. In a well known paper/article from 2002 (For Richer) Paul Krugman talks, among other things, about the estate tax and his overview is indeed interesting ...

"The estate tax is, overwhelmingly, a tax on the wealthy. In 1999, only the top 2 percent of estates paid any
tax at all, and half the estate tax was paid by only 3,300 estates, 0.16 percent of the total, with a minimum value of $5
million and an average value of $17 million. A quarter of the tax was paid by just 467 estates worth more than $20 million.
Tales of family farms and businesses broken up to pay the estate tax are basically rural legends; hardly any real examples have been found, despite diligent searching."

So should this tax be repealed ? 

In terms of the recent flurry in the news and blogosphere Greg Mankiw has all the relevant info and links. I particularly like Krugman's response to the suggestion of repealing the tax as quoted by Mark Thoma.

"Paul Krugman asks how congress can justify eliminating or substantially reducing the estate tax after arguing it had to cut essential social services such as health insurance for children to trim the deficit in a bill signed in February."

As you will see by following Mankiw's links there is disagreement amongst econbloggers about whether the estate tax should be repealed. Mankiw himself invokes fairness to argue for repeal; I do not see his point here but then again he is talking about two brothers with 10 million nest eggs each. There is a different perspective on this and although it might not be true and thus cover the whole debate, it is important in my opinion.

Consequently, let us finish off with Krugman and 'For Richer'.

"There is an economic argument for repealing the estate tax, but it’s hard to believe that many people take it seriously.
More significant for members of Congress, surely, is the question of who would benefit from repeal: while those who
will actually benefit from estate tax repeal are few in number, they have a lot of money and control even more (corporate
C.E.O.’s can now count on leaving taxable estates behind). That is, they are the sort of people who command the attention
of politicians in search of campaign funds."