Even though North Carolina removed it’s state’ inheritance tax, citizens are still on the hook for the federal estate tax.  A new report from the Tax Foundation shows the U.S. has the 4th highest estate tax…

Washington, DC (Mar 17, 2015)—While other countries continue to cut or eliminate their estate and inheritance taxes, the U.S. maintains the fourth high estate tax rate in the industrialized world at 40 percent. According to a new study from the nonpartisan Tax Foundation, estate and inheritance taxes do not raise enough revenue to justify their administrative, political, and economic costs. Additionally, the report finds that repealing the tax would increase investment, add jobs, and expand the economy.

“The estate tax is losing ground around the world because it fails at the basic characteristics of being a tax,” said Tax Foundation economist Alan Cole. “Its rate is high, causing a substantial drag on growth. Its base is narrow, making it a poor revenue raiser. And lastly, its base is poorly-defined, creating additional economic losses from tax planning. For these reasons, the estate tax fails at effectively achieving revenue generation, the ultimate purpose of tax collection.”

The report’s key findings include:

  • The U.S. has the fourth highest estate or inheritance tax rate in the OECD at 40 percent; only Japan (55 percent), South Korea (50 percent) and France (45 percent) have higher rates. Fifteen OECD countries levy no taxes on property passed to lineal heirs.
  • Because the U.S. estate tax has a high rate and a large exemption, it raises very little revenue and applies to very few households.
  • U.S. estate tax receipts have declined precipitously over the last fifteen years, from $38 billion (2015 dollars) in 2001 to an estimated $20 billion in 2015.
  • As estate taxes become narrow-based and meager revenue sources with high administrative costs, repeal becomes a strong option. Thirteen countries or jurisdictions have repealed their estate or inheritance taxes since 2000.
  • Repeal of the U.S. estate tax would gradually increase the U.S. capital stock by 2.2 percent, boost GDP, create 139,000 jobs, and eventually increase federal revenue.

Of all America’s taxes, the estate tax is perhaps the most contentious. That being said, its repeal in Norway and Sweden, countries usually known for progressive politics, shows that it does not have to be a partisan issue. 

“Their example reveals something important about estate tax repeal,” explains Cole, “which is that interest can be independent of ideology. Even governments that like high revenues for robust social welfare spending find that estate or inheritance taxes are not an effective source.”

Full report: Estate and Inheritance Taxes around the World