There are a couple of arguments made by the right against the estate tax including :
1. Why bother to collect the tax since not that much revenue is produced by it in the first place?
Because the primary purpose of the estate tax is to prevent income/property hoarding, not the collection of revenue. Avoidance techniques all have one thing in common : the divestment of property away from wealthy individuals to other individuals or charities. The relatively low "take" from the estate tax is a testament to its success, not its failure.
2. There are just too many taxes what with income taxes, property taxes, etc. Why have to pay an additional "death tax?"
There is a common misconception that a person who inherits pays federal income tax on his inheritance. Not only is that not so, but the person who inherits frequently receives more than his benefactor. Here's an example : Tom's Uncle Bill bought property 15 years before he died for $0.5 million (his basis). The property then appreciated to the $1 million level before Uncle Bill departed this earth, leaving the property to Tom. Had Uncle Bill sold the property before he died, he'd have paid a capital gains tax. But lucky Tom doesn't because he gets a "stepped up basis" to the $1 million it was worth when his uncle died. Since uncle's $1 million estate is exempt from estate taxation, Tom can sell the property he inherited completely tax free--free not only of estate tax but free of the capital gains tax as well.
Many older people who own appreciated assets would like to sell them and reinvest in higher yielding assets or ones with greater appreciation potential. They refrain from doing so because they want their heirs to take their property tax free. As a result the treasury loses the revenue and the elder citizen is denied the investments he or she prefers.
Here's what I propose :
1. A lifetime per person exemption of $1,650,000 for gift and estate tax and generation skipping with a raised basis for heirs on that $1.65 million as well as for all assets that pass through the estate. Portability of exemption to spouse would not be allowed.
2. Tax on taxable estates between the $1.65 million exemption and $5 million would be equal to the capital gains tax the decedent would have paid had he sold his assets the day he died (or sold them on the traditional six-months-after-death alternate date.) If no capital gains would have been owed, then there's no estate tax whatsoever on that first five million of taxable estate, but the heirs would have "earned" their stepped-up basis for anything over the $1.65 million exemption. Most estates will fall into this category, but If the taxable estate is greater than $5 million then capital gains tax is figured on the entire estate and prorated for the $1.65-$5 million category.
3. For estates over $5 million I propose a graduated schedule of increasing tax brackets starting with a 22% rate for the $5 million to $11 million bracket, a 27% rate for an $11 million to $18 million bracket, and increasing thereafter by an additional 5% rate of taxation as the taxable estate increases. A top rate of 77% would apply to that portion of any estate that exceeds $150 million.
4. Capping the marital deduction at $30 million. (Tax is not uncommonly avoided when an elderly tycoon marries a "sweet young thing" -- who lives to 95.)
5. Use of installment payments spread over five years when taxing assets not easily marketable such as farms, small businesses, and closely held stock. A fixed 2% annual interest rate would apply.