In my post on Tuesday morning, I quoted from a recent interview in which Rudolph Giuliani made some cryptic and misleading comments about the estate tax, which he of course insisted on calling the "death tax" -- a phrase that was focus-group tested to be as unappealing as possible to average voters, even though over 98% of all people's deaths do not result in any estate tax liability. (In fact, even "estate tax" is an inaccurate description of the tax. For a person's estate to be liable for the tax, a person must die with an exceptionally large estate that the decedent did not reduce through gifts to charities, etc. But the title "tax on exceptionally large estates of uncharitable decedents" wouldn't fit on the forms, I guess.)
Because it was not the focus of my Tuesday post, I merely noted parenthetically that "there is no 'death tax,' and the estate tax is not a double tax." The notion of double taxation has become such a key talking point for so many conservative politicians, though, that it's important to revisit a few simple points that are too often overlooked when the term "double taxation" is invoked:
-- Double taxation is a technical concept. It means imposing tax more than once on the same "base." A tax base is the economic activity or other objective concept used to determine tax liability, such as property, income, consumption, wealth, miles driven on a highway, population, etc.
-- The estate tax is not a double tax. The usual argument is that incomes are taxed, after which prudent savers deposit after-tax dollars in the bank and accumulate estates, at which point the estate is taxed. Even if this were true (and it almost never is, since that is not how sufficiently large estates come into being), that is still not a double tax. The tax base for the income tax is annual income. The tax base for the estate tax is undistributed wealth held at death. (One easy test is this: Can I earn income and not pay the estate tax? If so, then it's not a double tax.) That some of the wealth held at death might have been accumulated by saving from income doesn't mean that there is double taxation.
-- One could argue that this technical argument is beside the point. If a person saves their money and their estate pays taxes on the accumulated estate, that "feels" like double taxation, in Stephen Colbert's think-from-the-gut style of logic. If you want to be truthy about it, though, then everything is double taxation. Follow a dollar of income long enough, and it will be used in different transactions that qualify for different tax bases. I earn income in a year, some of which (depending on exemptions, etc.) is subject to the federal income tax, some to state and local taxes, FICA/Medicare, sales and excise taxes, etc. If everything is double taxation, though, then what is unique about the estate tax that makes its type of truthy-double-taxation especially bad? Why not repeal sales taxes for being double taxation? If you really want to have nothing but an annual income tax, let's talk about what that would require. Our current mixture of taxes on different bases might start to look pretty good.
-- There is nothing good or bad about double taxation. I'm hardly the first person to say that I'd rather pay tax on the same base at 10% twice than 50% once. Sometimes, we might choose to impose a tax twice to reduce cheating, since it's less likely that a person can evade paying taxes twice than once. The administrative costs have to be weighed against the taxes collected, along with respect for the law, etc. The point, though, is that "it's a double tax" -- even if a true statement -- tells us nothing about efficiency or fairness.
I once wrote up a slightly longer version of this argument in a FindLaw column. There is plenty out there written by other tax scholars as well. I don't expect the term "double taxation" to go away, because it is simply too juicy rhetorically. Even by our loose political standards, though, this particular bit of rhetoric is uniquely meaningless.