Death Tax

October 12, 1999

Over the last few months, much has been said about the economic effects of the death tax. The federal gift and estate tax often forces families with farms or small businesses to sell simply to pay the tax. The economic effect on entrepreneurs is often devastating.

But now economist Edward McCaffery has also done a service to the country by pointing out the moral problems with the death tax. McCaffery is a professor of law at the University of Southern California and details his concerns in a paper entitled "Grave Robbers: The Moral Case Against the Death Tax."

He says that the death tax "rewards a die-broke ethic, whereby the wealthy spend down their wealth on lavish consumption, and discourages economically and socially beneficial intergenerational saving." It also "features the highest rates of any major American tax" and "is one of the highest in the world."

To illustrate its impact, McCaffery uses a hypothetical case of three daughters who at age 21 are given equal amounts by their wealthy parents. One squanders her gift in youth, while the second spends it through her lifetime. The third, who invests the sum and lives prudently, turns $1 million into $500 million over the course of her life. But when she dies, only the government reaps the benefits, pocketing $300 million of her savings. The two spendthrift daughters never pay a cent in gift and estate taxes.

McCaffery proposes true tax reform by moving toward a progressive consumption tax which would tax spending, not work or savings, far better than the current tax code. McCaffery has a point. The current tax code penalizes work, savings, and thrift. The case against the death tax is not only economic, it's moral as well.

I'm Kerby Anderson of Probe Ministries, and that's my opinion.