Wednesday, June 15, 2016
Tax Foundation: Modeling the Estate Tax Proposals of 2016, by Alan Cole:
- Several lawmakers and presidential candidates in 2016 have proposed changes to the federal estate tax. These changes are a worthwhile case study in economic modeling of tax proposals.
- The estate tax’s marginal rate greatly exceeds its average rate, which makes its disincentives to save relatively strong for the small amount of revenue collected.
- The estate tax’s base includes most capital goods, encouraging the reallocation of economic production from capital goods to consumption goods, reducing productivity.
- Donald Trump proposed eliminating the estate tax, which would remove distortionary incentives from the tax code and increase economic output.
- Hillary Clinton proposed reducing the estate tax’s exemption and slightly increasing its rate, from 40 percent to 45 percent, which would increase the distortionary incentives of the tax, reducing economic output, but also increase the revenues from the tax.
- Bernie Sanders proposed reducing the estate tax’s exemption and substantially increasing rates, to a graduated system with a top rate of 65 percent. This would substantially increase the distortionary incentives of the tax, greatly reducing economic output.