CEA Chairman N. Gregory Mankiw Makes the Case for Estate Tax Repeal

American Council for Capital Formation
December 2003

(PDF)

As you know, President Bush won repeal of the estate tax as part of the 2001 tax cut. Repeal does not take full effect until 2010 and is then scheduled to sunset at the end of that year, along with the rest of the 2001 tax cut. The President has consistently advocated making repeal permanent. This proposal won majority support in both houses of Congress last year, but failed to win the necessary 60 votes in the Senate. The future of the estate tax is likely to be a major topic of debate during the next few years.

The debate about the estate tax illustrates some general economic principles that are relevant to many areas of tax policy. I will focus on two in particular. The first is the distributional impact of taxes—who wins and who loses. The second concerns the effects of tax changes on government revenue. I believe that, along both dimensions, public discussion and official analysis of the estate tax are often fundamentally flawed.

Many of the problems arise from a fact about which all economists agree—taxes affect how people behave. These behavioral responses have implications for how the burden of the tax is distributed and for the revenue effects of a tax change. These implications, however, are often ignored.

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