Saturday, September 24, 2016

Estate taxes are highly distortive of economic activity

See Stephen J. Entin on raising estate taxes from Marginal Revolution.
"The transfer [estate] taxes are highly distortive of economic activity. In fact, they probably do the most damage to output and income per dollar of revenue raised of all the taxes in the U.S. tax system. There are two reasons. First, they are an additional layer of tax on saving and investment, activities that are highly sensitive to taxation and very likely to shrink in response to the tax. Second, the transfer taxes are levied at very high, steeply graduated marginal tax rates on a very narrow tax base. The high rates discourage saving and investment at the margin, while the average tax rate and tax revenues are held down by the credit. A tax that has a large differential between its average and marginal tax rates does far more damage per dollar of revenue raised than a flatter rate tax on a broader base.
Here is the full study and pdf."

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