The new Bush plan was kept under wraps so that it could be sprung at the last minute, before opponents had a chance to mount a fight. Those opponents include not only fair-tax advocates like me, but also financially endangered groups such as estate planners, insurance companies, and the states. Rich people who anticipate leaving a large estate often essentially prepay the tax during their lifetime by buying insurance, thus making the estate tax more like an annual wealth tax. And then there are the states. Although governors and state lawmakers have yet to speak out strongly against repeal, states have a big interest in keeping the federal estate tax because they share in its revenues.
Every state gets a piece of the pie.
In New Hampshire, federal estate-tax sharing pays for about 4.5 percent of the state's total budget. In Florida, New York, and Connecticut, it pays for about 2.5 percent. The estate and gift taxes play an important role in protecting the integrity of income taxation. Imagine, for instance, a parent who wants to sell some stock. If the stock were transferred to a child in a low tax bracket, the capital gains tax could be cut considerably.