In fact, if well-crafted, the existence of an estate tax could boost economic activity
It’s hard to add much to the cacophony of opinions out there on Republican Presidential hopeful Gov. Tim Pawlenty’s economic policy speech on Tuesday. To sum it up, he calls for setting a 5% economic growth target, which he says can be achieved by much, much lower taxes. Although he made a number of controversial assertions in the speech, perhaps none was as implausible as the claim that eliminating the estate tax would boost economic growth.
Here’s the key sentence from Pawlenty’s speech that provides a part of his prescription for higher growth. I have included my inner monologue in parentheses from when I read it:
In addition, we should eliminate all together the capital gains tax (Okay, I can see that.), interest income tax (Hm, this might help.), dividends tax (Right, okay, sure.) and the death tax (Wait, what? You lost me.).
If you want to spur investment, then it you could argue that it makes sense to eliminate the first three taxes that he mentions. Investors will have a greater incentive to put their money at risk if the taxes they face on their gains are lower. That’s what those first three tax cuts would accomplish, with varying degrees of success.
But the death/estate tax isn’t an investment tax at all. It’s a tax on dead people. When you die, the inheritance that you leave to your relatives or friends may be subject to taxes.
Does Taxing Inheritance Harm Growth? – Daniel Indiviglio – Business – The Atlantic