The estate tax is a disincentive to entrepreneurial activity. Some years ago the Tax Foundation studied the estate tax's effect on entrepreneurial activity, and we found the estate tax's 55 percent rate had roughly the same effect on an entrepreneur's incentive to earn as doubling the top effective marginal income tax rate. Thus, an entrepreneur facing a 31 percent statutory income tax rate behaves as if he is facing an effective 62 percent income tax rate. As that rate rises and additional work yields less after-tax return, entrepreneurs become more likely to retire prematurely. Then they pay no income or payroll taxes on wages and create no new wealth.
Estate planning is phenomenally expensive to taxpayers and the treasury.
Since individuals worried about estate planning are likely to be in the upper-income tax brackets, the value of their estate tax planning deductions is great. Absent the estate tax, these individuals would likely shift the amounts spent on estate planning to non-deductible expenses, or they would save them. Either way, current or future income tax receipts would be higher. Estate tax compliance costs for taxpayers and the IRS diminish its take for the Treasury. Finally, if the estimators produced a truly comprehensive estimate for estate tax repeal, they also would account for the savings to the IRS, which spends millions of dollars each year attempting to collect estate tax revenue.