Experts on the death tax continually are struck by the number of taxpayers who are insufficiently prepared to pay the death tax and by the high correlation of these types of people with those who have not had the benefit of high-priced legal and accounting advice. Indeed, legal avoidance of high death tax liabilities is closely related to the amount of fees taxpayers are able to pay for expensive tax-planning advice. Death taxes undermine savings and investment. Not only do death taxes reduce potential employment opportunities and undermine the promise that hard, honest labor will be rewarded, but they also encourage consumption and undermine savings. In other words, it makes more tax-planning sense to buy vacations in Colorado or a painting by Rubens than to invest in new production equipment or expand a business.
Death taxes are costly to collect.
The economic effects of the disincentive to save and invest are striking, especially in light of the relatively small amount of federal revenue raised by death taxes. The death tax is not even a good value for the government. Federal death taxes probably are the most expensive taxes to pay and collect. Other studies, which subtract disincentives and examine only direct outlays by taxpayers to comply with estate tax law, put the compliance cost at about 31 cents per dollar. The Heritage Foundation is committed to building an America where freedom, opportunity, prosperity and civil society flourish.