Some believe that the inheritance tax is a major reason for the disparity between the haves’ and the have-nots’.  The Republican congress in 2001 passed legislation that began to phase out the estate tax. During the Clinton administration the government took ½ of all estates over $1 million, and the present administration intends to reinstate the estate tax. The Senate voted for taking over 1/3 of the value of all estates, but the House apparently thinks that is not enough and has not acted on the bill.

The effect of the estate tax is to reduce the capital formation available for investment in productivity that will create jobs.  The Heritage Foundation estimates that the new tax will rob the economy of $11 billion per year in GDP, cost an average of 145,000 jobs, and reduce payrolls by $8 billion annually.  The accompanying loss in tax revenue from income will be greater then the revenue expected from the estate tax.

According to the Huffington Post,  a 50% tax would take $1 trillion out of the economy over the next 15 years. Proponents of the tax feel that those who have benefited should give something back. A noble cause to be sure, but not a voluntary one, so only Congress can boast.

If Congress takes no action,  then for one year between 2010 and 2011 would be a great time to die, especially if you intend to leave an estate of more than $1 million, since there will be no estate tax.  Of course for years lawyers have drafted inter vivos  trusts,  marital deduction trusts, and other more boutique-off-shore instruments provided for in, and some not in, the IRS code. It’s a zero-sum chess game. One more reason for not passing the flat-tax, there would be no thrill of the hunt for tax evasion.