Estate Tax and Impact On Economy

In a recent paper written it estimated that the estate tax could have consequences for the economy as a whole. The paper written by Dr. Doug Holtz- Eakin shows that the keeping the estate tax will cost jobs. Some of the major findings show that if the estate tax were to come back in 2011 (no estate tax for 2010 so far) a modest rate of only 2% would cost 24,000 jobs. A rate of 45% would be a loss of around 1.1 million jobs. It is important to consider that these are only estimations and use models to predict behavior. I would agree that bringing back the estate tax will decrease future economic growth. Consider this: If you are rich you only have a few things to do with your money. The first would be to spend it. A survey from Moody’s Analytics found that the top 5% of income earners were responsible for 37% of consumer outlays (consumer spending, interest payments, and transfer payments). From 2007-2009 the top estate tax rate was 45%. Clearly, it is cheaper to spend that money then have to pay taxes on it. Although, one could argue heirs would rather get 45% of something rather than 100% of nothing. The second option is to give the money away. Giving money away has a tax rate of 0%. Lastly, rich people can invest and or save their money. I think the common idea of rich people is to imagine Scrooge McDuck (yes, the one from Duck Tales). Scrooge McDuck likes to jump in his pile of coins, counts his coins, and generally doesn’t like paying for anything. People seem to think that the rich just sit around count their money, have luxurious, and led extravagant lifestyles. However, in order to stay rich, the rich have to continue earning money. Remember money is a finite resource. MC Hammer once had $30 million. So how do people earn money? People have to invest in people, resources, and equipment. By their nature rich people don’t usually sit around and waste their time (unless they inherit their fortune). The vast majority of rich people made the money on their own and did not inherit it. So when there is an estate tax the government confiscates that money that could have been used more wisely. Someone should ask “What has government done for me lately?”