AFBF Releases New Report: Super Committee Deficit Mandate Could Be Reduced by Over 30% with Federal Estate Tax Repeal

by Dick Patten - No Comments
Posted on October 18th, 2011 3:13 pm

Congress’ new Joint Select Committee on Deficit Reduction has been tasked with slashing a minimum of $1.2 trillion from the projected federal budget deficit over the next decade and pressure is already mounting for the so-called “super-committee” to include higher estate taxes as part of its plan. 

But a new report released today by the American Family Business Foundation (AFBF) shows that repealing the federal estate tax would do more to reduce the deficit than increasing the tax, generating enough new revenue to cover just over 30% of the $1.2 trillion in deficit reduction required by 2021. The study was conducted by tax policy expert Stephen J. Entin, the president of the Institute for Research on the Economics of Taxation, and a former deputy undersecretary of the Treasury. 

Entin’s analysis examined the revenue-generating potential of various estate tax exemptions and rates.

Support for higher estate taxes in the name of increasing government revenues or reducing deficits is based on the unrealistic theory that every dollar not collected by the Treasury is a dollar lost – what economists dub “static” loss, Entin explained.

In the real economy, however, that same dollar, if not claimed by government, is often invested in new equipment, employees, or technology intended to increase a company’s revenue. As companies grow, they produce more revenue for government as well. It is this “dynamic” activity that Entin reviews in his AFBF report, “Estate Taxes, Deficits, and Budget Implications”.

“This dynamic method demonstrates that the estate tax reduction would significantly lower, not raise, the federal deficit, and shows that the potential gains in GDP are substantial,” said Entin. 

When compared to the various estate tax rate and exemption combinations being recommended by members of Congress, Entin calculates that repeal is by far the best policy option.  Across a 10-year budget window – 2012 to 2021 – he finds that repeal of the federal estate tax would:

•cover 30.18% of the $1.2 trillion in deficit reduction required of the Super Committee by 2021;

•reduce the total budget deficit by 5.19% over the period and by 11.49% in 2021;

•lead to a 2.26% increase in GDP ($538 billion) by 2021, for a cumulative gain of nearly $3 trillion over the period, compared to what would have happened under current law;

•increase federal revenues over the 10-year period by about $362 billion (compared to current estate tax law); by 2021 the annual gain would be about $88 billion per year.

The chart below shows the positive impacts of Federal Estate Tax repeal:

According to AFBF President Dick Patten, “Elimination of the estate tax is as close as one gets to a free lunch in economics. It is time to take advantage of it.”

Tags: afbf, death tax, entin, estate tax, super committee

Capital Taxes and Government Revenue

The Estate Tax and lessons from the post FDR economy
by Palmer Schoening - No Comments
Posted on April 13th, 2010 1:50 pm

As Steve Entin shows in his study Economic Impact of the Estate Tax: Effects of Various Possible Reform Options, large capital taxes hinder productivity and business expansion, resulting in less economic activity and a smaller tax base. In the case of the estate tax, Steve Entin shows that the government loses nearly $2 in revenue for nearly every $1 taken in.

Source: http://www.nodeathtax.org/uploads/view/829/deathtaxfpcafbf.pdf

Dr. Burt Folsom, under whom I studied at Hillsdale College, writing with his wife Anita, notes an important historical example of this phenomenon in yesterday’s Wall Street Journal.

On Truman’s failed attempt to push forward FDR’s New Deal revival vision for America:

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“Instead, Congress reduced taxes. Income tax rates were cut across the board. FDR's top marginal rate, 94% on all income over $200,000, was cut to 86.45%. The lowest rate was cut to 19% from 23%, and with a change in the amount of income exempt from taxation an estimated 12 million Americans were eliminated from the tax rolls entirely.”

“Corporate tax rates were trimmed and FDR's ‘excess profits’ tax was repealed, which meant that top marginal corporate tax rates effectively went to 38% from 90% after 1945.”

"Georgia Sen. Walter George, chairman of the Senate Finance Committee, defended the Revenue Act of 1945 with arguments that today we would call ‘supply-side economics.’ If the tax bill "has the effect which it is hoped it will have,’ George said, ‘it will so stimulate the expansion of business as to bring in a greater total revenue.’”

“He was prophetic. By the late 1940s, a revived economy was generating more annual federal revenue than the U.S. had received during the war years, when tax rates were higher. Price controls from the war were also eliminated by the end of 1946. The U.S. began running budget surpluses.”

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Both the economic data, based on dynamic models of the economy, and historical evidence suggests that punitively high taxes on productivity must result in less revenue for the federal government. Congress would be wise to take a serious look at both the examples set by history and the latest economic research on the topic, much of which has been commissioned by the American Family Business Foundation.

Tags: burt folsom, death tax, entin, estate tax, fdr, new deal, revenue