The arguments set forth in this Bloomberg article for keeping the death tax are weak (compare this other recent Bloomberg article pointing out the role inheritance plays in keeping whites richer than blacks), but the article comes close to making an important point so I’ll finish the job. While it’s ridiculous to think government will do a better job of spending the money than heirs, it is true that heirs will typically waste a good part of their inheritance if not the whole thing. So I think a better argument for keeping some level of death tax around is that it forces families to undertake serious planning about when and how heirs are to receive money. If government would encourage that kind of careful planning, yet avoid collecting much in actual tax (kind of like what we have now), that may be the optimal regime.
Wouldn’t it be nice if families just did that on their own?
First, as economists like the University of Minnesota’s Fatih Guvenen have pointed out, there’s reason to think wealth taxes like the estate tax can make a nation more productive. Wealth often gets passed on to heirs who squander it on bad investments. They invest in companies or real estate with poor prospects. They speculate foolishly in the markets and lose their money. Or they park their wealth in low-earning bonds, keeping it from being invested in projects that will expand the economy.
