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CIVIL DEBATE, DONE RIGHT

April 27, 2005

Economists Max Sawicky and Tyler Cowen manage to shed light on the policy issues of estate tax repeal in a (free) discussion on the Wall Street Journal site. Somehow they disagree without casting doubt on each other's morals or intelligence.

Sawicky (pro-estate tax):

The best practical reason to tax transfers of wealth, either as gifts or at death, is to backstop the individual income tax. If the value of financial assets, business firms, housing, life-insurance policies or farms appreciates, such growth in value is income. In principle, it belongs in the tax base of a fair, comprehensive income tax. Under the existing U.S. income tax, income of these types as accrued isn't taxed, partly for good administrative reasons, and partly for bad political reasons.

Cowen (pro-repeal)

1. It isn't clear that the estate tax raises much, if any, revenue. The very rich engage in tax-avoidance strategies. The apparent revenue raised is often offset by a lower intake from income and capital gains taxes. Furthermore, it has been estimated that the costs of implementing tax-avoidance strategies are roughly equal to the (gross) revenue raised.

2. The estate tax doesn't do much for equality. In fact it increases consumption inequality -- presumably the relevant measure -- by encouraging the rich to spend more money before they die. Joseph Stiglitz and Alan Blinder have raised this concern.

3. Estate taxes add yet another layer of taxation on savings and investment. Imagine that you must first pay taxes on earned income.

Hat tip: A Taxing Blog

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