A “Fair” Estate Tax Isn’t Possible

The United States is unique in many respects.  First, when compared to other industrialized countries, we are relatively low taxed.  However, this characteristic doesn’t carry over to the inheritance tax because many developed nations do not have an estate tax on the books (see Canada, Australia and Sweden).   Those that do have an average tax rate of 15 percent according to the Organization for Economic Cooperation and Development.

Proposals are circulating regarding the elimination of the estate tax in our country.  We have seen this before, when legislation was passed reducing and ultimately eliminating the estate tax in 2010.  However, by 2011 the inheritance tax was resurrected and now imposes a forty percent tax on gross estates over $5.45 million.  So, a person who died in 2010 paid no estate tax and a person who died in 2009 or 2011 is treated dramatically different under the Tax Code.

The inheritance tax is popular because it taxes only the extremely wealthy, but this may not justify its continued use as a way to make the rich pay a fair share.  Moreover, according to some scholars, the  use of the estate tax as a method to tax the wealthiest citizens is patently unfair and violates elementary precepts of economic equity.  For example, according to the Program in Law and Economics at Harvard Law School, horizontal equity is violated when similar people do not share similar tax responsibilities.

Many of my colleagues would need to find other work if the United States were to eliminate or dramatically reduce the inheritance tax rates.  But, as many of us have observed, the time those lawyers spend helping the rich avoid the inheritance tax can easily be placed into the waste category.