Argument: Estate tax deters individuals from investing money
- Debate: Estate tax in the United States - con argument.
The Heritage Foundation: The estate tax obligation can assume a disproportionate role in planning, possibly overshadowing more fundamental decisions regarding an individual's assets. Pending estate taxes could, for example, become an artificial disincentive to further investment in an otherwise viable business or encourage an individual to engage in investment-reducing alternatives such as liquidation, downsizing, divestiture, or retirement. This could be especially true when an estate's value is close to surpassing the exemption equivalent amount. Ageing farmers or small businesses owners may conclude, in light of the estate tax, that ongoing investment risks and marginal rates of return are less favorable to the above alternatives that reduce risk and preserve capital. They may shift resources, liquidate assets, and use tax avoidance techniques such as insurance policies, gift transfers, trusts, and tax free investments. On a basic level, such decisions are suboptimal for wealth generation, and thus suboptimal for general economic well-being as it reduces the potential wealth of these individuals and their decedents to spend or further invest in the economy.