Eliminating the federal estate tax in 1999 would cause the economy to grow faster than the baseline, mainly due to a more rapid expansion of the U.S. stock of capital. The economy would have created almost 275,000 more jobs than in the baseline. One major protest against eliminating the estate tax will undoubtedly be the loss of revenue to the federal Treasury. However, there are several reasons why this argument doesn't hold water. First, estate taxes are a minor source of federal revenue.
Tax compliance adds nothing to output and diverts resources away from productive activities that do.
Third, doing away with estate taxes would produce positive economic growth effects large enough to offset most of the static revenue loss. In other words, higher growth would offset 78 percent of the static revenue loss over the first ten years. By 2010, the dynamic revenue gain from eliminating the estate tax would be enough to offset the annual static revenue loss completely. Bang for the Buck Reducing estate taxes would generate sizable economic gains with little revenue loss. Longer run, the relative gains from the faster rate of capital formation would be even higher.