So far as I can see, most of the political opposition to the estate tax comes from distaste at making the passing of a loved one a taxable event. Yet simple distaste doesn't cut much mustard in debates on tax policy, so it's usually mentioned in a few quick paragraphs or a footnote. Following quite a bit of reading on the estate tax, however, I'm finding myself more and more frustrated by a common argument of some estate tax proponents.

Imagine that a coalition of Jewish kosher food producers, Bill Clinton's health care gurus and Vegans for World Collective Dieting, ever seeking to improve the nation's diet, managed to get a 6000% tax passed on any burger topped with any kind of cheese. In other words, if our former president wanted a Big Mac, he'd be paying upwards of $25 for a few greasy patties and some processed cheese food. Suppose further that you found out that I--having been struck on the head by something very heavy, one supposes, and lost all my libertarian instincts--was in favor of this Fat Tax. When, incredulous, you asked me why, I told you, "Well, look, this tax doesn't have that much effect: after all, only 150 cheeseburgers were sold last year, and all of those to very rich people!" You'd rightly laugh and point out that (a) this is probably because of the tax itself, (b) relatively poorer people get their scathing from not being able to buy cheeseburgers and (c) I'm probably promoting people evading the tax by buying the burgers and bringing their own cheese.

In the hypothetical above, my facts regarding the purchasers of Whoppers might not be untrue as such. Further, I may be right in my conclusion: due to public fear of BSE, actual consumption of burgers may have dropped such that very few people would eat cheeseburgers at a sixth the price. But on its own, the number I gave you is stunningly irrelevant.

So now look at this paragraph from "Policy Watch: Death Watch for the Estate Tax?" by William G. Gale and Joel B. Slemrod. (Note: My copy comes from JSTOR, not the link given.) I'm not picking on them particularly: this argument is typical of the genre.

The supposed impact of the estate tax on family farms and businesses has taken on a hugely disproportionate role in public policy debates. Estate tax opponents note (correctly) that a large proportion of American businesses never make it to the econd generation, but then go on to assert that the estate tax is the reason why. But only a tiny fraction of small businesses and farms are part of taxable estates. It is implausible that the estate tax has an important impact on the proportion of businesses that make it to the next generation.

(emphasis mine) Here we have the Rich Man's Cheeseburger argument. What Prof. Slemrod is saying may well be true: the estate tax may have little to do with intergenerational transfers of businesses. But the statistic quoted on its own does little to support the argument. Certainly if Slemrod is right, we'd expect to see few businesses as part of taxable estates, because donors or donees sell the assets instead of taking them. But if Slemrod is wrong, it's unlikely that we'd see very many farms or businesses as part of taxable estates either. A high rate of tax will encourage the sale of the business prior to death, so that the owner and operator can take advantage of gift tax exceptions for inter vivos transfers.

Even then, the paragraph misstates the anti-estate tax argument. It may be true that the vast majority of American businesses don't get transferred to the next generation for wholly non-tax reasons: for instance, I have no interest in following in my father's business whatever the price. But the perceived injustice of the estate tax doesn't arise from that aggregate figure. If 90% of all sons march to a different drummer but 10% wish to stand in their father's shoes, the existence of the estate tax will indeed have little effect on the overall proportion of firms being transferred. However, it may very well have a large and preclusive effect on the remaining 10%. To the extent that a family firm is seen by the public as being more than the amounts in its ledgers, proponents then seem to be arguing for a tax on sentimental value.

Or suppose that 80% of small businesses and farms are too small to be hit by the tax, 10% are exceptionally profitable (or shelterable) and thus worth retaining notwithstanding the tax, and yet an intermediate 10% are hit by the tax, and these families are forced to give up their businesses. These 10% still constitute a loss. The same "sentimental value tax" objection as above comes into play.

This is not to say that estate tax proponents are empirically wrong. Yet I've spent a fair amount of time searching Westlaw and Lexis for statistics that suggest they're empirically right, and what I've found is the same general argument: only a small number of businesses end up in taxable estates. That answer is particularly dissatisfying, and if anyone can point me to better information, I'd appreciate it.

(For those wondering, my main objection to the estate tax is a perception of unfairness between those taxed. Most liberal arguments focus on the vertical equity between the very least and very most well-off in society. My sense, however, is that much of the anger at the death tax arises from a perceived unfairness between the extremely wealthy and the moderately well-off (and at risk of enough wealth to eventually hit the tax). There is, for instance, a quite possibly apocryphal (i.e., I can't source it) and yet common among Republicans tale of the death of Rose Kennedy, in which her state of residence was found to be Florida rather than Massachusetts for tax purposes. Because death is both certain and (presumed to be) remote, "tax planning" seems easier, more abusive and more likely.

The estate tax proponents I've read, mostly because they're Rawlsians, pay very little attention to this more narrow form of vertical equity. To an extent, it's the "World to End Tomorrow: Women, Minorities Hit Hardest" blind spot translated into the tax context. So long as it's equitable between the top and bottom 10%, who cares if it's not very equitable at the very top?)