The expiration of the estate tax at the beginning of 2011 under prior law was postponed for 2 years in an agreement reached between the Obama administration and Congress at the end of 2010. The top estate tax rate had, however, already undergone a scheduled decrease from 55 percent to 45 percent under legislation enacted during the Bush administration, and starting in 2011 the tax applies to estates with a value for estate tax purposes of over $5 million, raised from $3.5 million by the agreement (Jacobson et al., 2007).
The estate tax, to a great extent successfully relabeled the “death tax” by opponents, will continue to be a matter of political controversy and intensive legislative wrangling as the new expiration date approaches. About half of estate tax revenues come from estates with a taxable value of $10 million or more, and more than a third from estates with a value of $20 million or more (IRS, 2011). As noted previously, CBO estimates that if extended in its current form the estate tax would raise an additional $50 billion annually by 2020, as compared with the $20 billion that the TFAH estimates is needed for public health.
This presents an interesting opportunity. It may be possible to craft a proposal to make the estate tax permanent while increasing the top rate, perhaps back to 55 percent, but to apply the top rate (or conceivably even the tax itself) only to estates with a value of more than $10 million, $20 million, or even $100 million. The revenues yielded could then be dedicated either to the existing Prevention and Public Health Fund or possibly an alternative fund, as discussed below.
There are numerous potential advantages to this proposal. First, it is doubtful at best that making the estate tax permanent would be seriously deleterious to the economy. The estate tax has been in effect for 90 years. To say that the performance of the U.S. economy over that time has followed changes to the estate tax would be a strained interpretation of the data, to put it mildly. In any case, there is certainly reason to believe that the effects of the estate tax on economic productivity are low compared to almost all other taxes. Moreover, from the standpoint of financing the federal government, the estate tax is already in some peril. As a result, it can be argued that an extension or modification of it applicable to very large estates would supplement other government revenues rather than preempt their use, meaning that they could be dedicated to public health without placing an additional burden on the federal government’s fiscal posture.
The estate tax would also be a stable source of revenues. Compared with proposals to recapture and redirect funding from health care to prevention via a trust fund, the proposal is much less complex, and it would not increase health care costs. It has the further advantages of serving as a partial correction to increased income inequality, and of shifting resources from old to young, the opposite of many current federal and other programs that account in part for the financial straits of government.