Fiscal Insanity: How the Death Tax Actually Reduces Tax Revenues


The death tax is an economic and financial disaster, not only for the nation as a whole, but also for the federal government.  In fact, if you owned the federal government, and you got to keep all of the revenue that federal taxes bring in, you would eliminate the death tax.  This is because the death tax costs far more in reduced economic growth than it is worth as a source of tax revenues.

Based upon the latest* long-term projections by the Congressional Budget Office (CBO), the present value (PV)** of America’s real GDP (RGDP) is $7,908 trillion.  The CBO expects a long-term federal “tax take” of 18.5%, which makes the PV of real federal revenues $1,463 trillion.  Of this, only $6 trillion, or less than one half of one percent, is accounted for by the death tax.

Unfortunately, while the death tax adds 0.076 percentage points to the federal tax take, it depresses economic growth by forcing the liquidation of existing assets, and by discouraging investment in new assets.  A conservative estimate (discussed below) is that eliminating the death tax would increase RGDP growth by 0.1 percentage points.
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