May 18, 2006
The federal estate tax - or death tax - could be called the little tax that does big damage. How is it a little tax? Well, as noted in the table below, estate and gift tax revenues account for a rather small share of total federal revenues, and of course, an even tinier share of GDP. Estate Tax (Death Tax):
Revenue and Revenue as a Share of Federal Revenues and as a Share of GDP
(Select Years) | Select Years | Estate & Gift Taxes (millions of dollars) | Share of Fed. Receipts | Share of GDP | 1940 | 353 | 5.4% | 0.4% | 1950 | 698 | 1.8% | 0.3% | 1960 | 1,606 | 1.7% | 0.3% | 1970 | 3,644 | 1.9% | 0.4% | 1980 | 6,389 | 1.2% | 0.2% | 1990 | 11,500 | 1.1% | 0.2% | 2000 | 29,010 | 1.4% | 0.3% | 2001 | 28,400 | 1.4% | 0.3% | 2002 | 26,507 | 1.4% | 0.3% | 2003 | 21,959 | 1.2% | 0.2% | 2004 | 24,831 | 1.3% | 0.2% | 2005 | 24,764 | 1.1% | 0.2% |
Data Source: The Budget for Fiscal Year 2007, Historical Tables So, in recent years, the tax has ranged between 1.1% and 1.4% of total federal revenues, and between 0.2% and 0.3% of GDP. There can be a couple of obvious reactions to these numbers in light of the current debate over permanently eliminating the death tax. One response notes that since estate and gift taxes account for such a small share of federal revenues, then elimination of the estate tax should not substantively impact the federal budget. A second response might be that since estate and gift taxes equal such a small share of GDP, it should not have a big economic impact, so why not just leave it in place? But again, recall that this is the little tax with a big impact. In reality, the death tax not only accounts for a small share of total federal revenues, but various studies have found that it actually brings in a lot less revenue or even could be a net revenue loser once all the costs of the tax are factored into the equation. Those costs also indicate that the death tax's economic impact reaches well beyond what might be indicated by its 0.2% share of GDP. What are these various costs? Broadly, the death tax provides disincentives for investment and entrepreneurial activity; sucks capital away from businesses; causes the dissolution of some businesses; inflicts formidable compliance costs; and generates extensive tax avoidance measures. All of these are distinct negatives for the economy. So, while the death tax might seem little, the economic negatives from this levy are considerable. Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council
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