The year was 2011. Arabella Kushner, daughter to Ivanka and Jared, was born; Wall Street was “occupied;” Steve Jobs passed away; and Congress faced a debt-ceiling crisis while their bi-partisan Super Committee  debated the estate tax’s future.  

The year is 2017. Healthcare dominates the news, but tax reform is still the hot topic. The under-reported Congressional vote on the debt ceiling will creep up on us mid-October. It is déjà vu all over again, as we deliberate like we did in 2011. Should the estate tax be an important part of the current fiscal debate?

What does history say?
The year was 1916. Kirk Douglas was born; a young Babe Ruth pitched for the Boston Red Sox; World War I was underway; and Congress enacted the modern estate tax to fund the war effort .  Since that time, estate tax rates and exemption levels have adjusted 32 times. The modern estate tax was never intended to be a permanent tax or fund a broad array of government programs . Intended or not, today’s estate tax has not faded into history but, instead, has become a crucial factor in the federal government’s budgetary process. 

Argument against the estate tax’s Importance
Some argue the estate tax is insignificant to US debt, as the tax should generate only one percent of total revenues over the next decade - hardly a solution for budget woes. In fact, only one in 487 estates is projected to pay estate tax in 2017 . Further, as the nation’s deficit has increased over time, the estate-tax rate and exemption have become more taxpayer friendly. Some believe its repeal will significantly improve American families’ financial situations , while others believe a full repeal would increase net federal revenues via a “common sense” trickledown effect of increased wage tax revenue derived from a larger work force .  

Argument in favor of the estate tax’s importance
Proponents recognizing the estate tax’s significance believe the above statistics are based on historical data and do not account for the significant change in the US social-economic landscape. Representing the most financially successful generation in US history, one in every four Americans is a baby boomer, increasing the number of estates subject to the estate tax over the next 20 years. Though a one percent generated revenue seems small, it is still a significant revenue source at an estimated $269 billion over a decade . Cutting the tax leaves an additional gap in funding government programs, forcing the government to borrow more and impacting the debt ceiling . The estate tax is relatively cheap to administer, but it is the most effective way to control the negative impact of concentrated family wealth . 
 

The fiscal debacle  
Regardless of personal financial, political, or moral views on the estate tax, there is potential for policy indecision that directly creates ambiguity for individuals and businesses. In 2011, the Super Committee was charged with working out a long-term deficit reduction plan, which assumed the continuation of the estate tax laws in the projected revenue calculations. The committee was terminated after failing to do so .   

The current Trump administration has indicated a desire to eliminate the estate tax altogether. Healthcare reform delays, health care’s direct impact on tax reform, continuing partisan rifts, and the dwindling timeframe for Congress to take action may result in another time-crunched debt-ceiling debate and stalemate later this year. The decision to do nothing in 2011 perpetuated uncertainty around taxes, debt, and spending cuts and increased political party conflict – all of which continue today. The conflict weakens the economy, and if repeated again, it could lead to a new recession .   

We should begin asking ourselves whether the deficit, debt ceiling, and estate tax should be partisan issues. Should Congress recognize that priority outweighs agenda? The deficit and estate tax are issues that need long-term solutions. Since the estate tax affects federal revenue, it seems reasonable that estate tax and deficit decisions should be linked. The sooner long-term, fixed budgetary and tax solutions are set, the better it is for individuals and businesses to be able to properly plan for the future.  

References:

The Congressional Joint Select Committee on Deficit Reduction created the “Super Committee” consisting of 6 Republican and 6 Democratic representatives from Congress authorized by The Budget Control Act of 2011 .

Enacted under the Revenue Act of 1916.

The Stamp Tax of 1797 helped fund the war with France and was repealed in 1802.  The Revenue Act of 1862 helped fund the American Civil War but was repealed in 1870.  The War Revenue Act of 1898 raised revenue for the Spanish-American War but was repealed in 1902.

Internal Revenue Service, Statistics of Income Division. “SOI Tax Stats - Estate Tax Year of Death Tables.” 

Congressional Budget Office, “An Update to the Budget and Economic Outlook: 2016 to 2026,” August 23, 2016, https://www.cbo.gov/publication/51908.

See, http://fortune.com/2017/04/27/trump-tax-plan-estate-tax/.

Stephen J. Entin, “A Score of the Death Tax Repeal Permanency Act,” President and Executive Director of the Institute for Research on the Economics of Taxation , A Study Published by the American Family Business Foundation, April 5, 2011, The Death Tax Repeal Permanency Act.

Joint Committee on Taxation, JCX-68-15, https://www.jct.gov/publications.html?func=startdown&id=4761.

 See Aviva Aron-Dine, “Estate Tax Repeal Would Decrease National Saving,” Center on Budget and Policy Priorities, June 8, 2006, http://www.cbpp.org/cms/?fa=view&id=352.

See Joel Friedman and Ruth Carlitz, “Cost of Estate Tax Compliance Does Not Approach the Total Level of Estate Tax Revenue,” Center on Budget and Policy Priorities, revised June 9, 2006, http://www.cbpp.org/cms/?fa=view&id=389. And Lily Batchelder, “Reform Options for the Estate Tax System: Targeting Unearned Income,” testimony before the U.S. Senate Committee on Finance, March 12, 2008.  Also see “What Should Society Expect From Heirs? A Proposal For A Comprehensive Inheritance Tax,” New York University School of Law and Economics Research Paper No. 08-42, October 2008, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1274466.

 Section 401 of the Budget Control Act of 2011, 2 U.S.C. § 900 note

See, https://www.theatlantic.com/politics/archive/2012/07/the-not-so-happy-anniversary-of-the-debt-ceiling-crisis/260458/