There's a movement, supported by Republicans, to abolish the estate tax. I disagree.
First of all, I'll start out by conceding that it's bad that our government spends so much money and that we need so many taxes to fund it. But unless we can reduce government spending to zero, we need taxes. So the issue here is whether the estate tax is somehow worse than other taxes.
The general rule is that whenever money is transferred from one party to another, there's a tax. If a hard working middle class person has a problem with his pipes, and he pays money to a hard working plumber to fix the pipes, the plumber has to pay income tax on the money he receives. So if a child of a rich person receives millions of dollars for doing absolutely nothing, why should he pay less tax than the plumber who actually did something useful?
When some working class schmuck wins the lottery, he has to pay taxes on his winnings. Inheriting millions of dollars seems like winning the lottery to me. Why should it be treated differently?
It seems to me that the problem with the estate tax is that too many people avoid paying it. Why are the first few million dollars of an estate exempt from tax? The plumber in the example above has to pay tax on his first dime of income, why should a rich person be exempt from paying tax on millions of dollars?
What are the arguments against the estate tax?
1. Not fair. Well no taxes are fair. Based on the examples above, I don't see why the estate tax is any less fair than other taxes.
2. Double taxation. Because every time money is transferred from one party to another there is usually a tax, multiple taxation is part of our tax system. Why should the working class plumber have to pay tax on the money paid by the homeowner who already paid tax, yet the rich person be exempt from this double taxation?
3. People should be allowed to do what they want with their money. The general rule of taxation is that you can't do what you want without paying tax. Every time you buy something there's a sales tax or a property transfer tax. You even have to pay a yearly tax just for owning property. Whenever you pay someone in exchange for services there's a tax. Once again, I'm in favor of lowering government spending in order to reduce overall taxes, but I don't see a logical reason why rich people should be given an exemption from paying estate taxes when everyone else has to pay taxes.
4. It's a "death tax" and we shouldn't tax death. This is a nonsense marketing word which was made up to make people think the tax is unfair. If the tax were instead called "the windfall without doing any work tax," then no one would be against it.
5. Discourages investment. How is this different than any other tax? It would be better to encourage investment by lowering the capital gains tax on short term gains to the long term capital gains rate. This way regular people could enjoy the tax benefits of investing instead of just super-rich people.