Taxes remind me of the Woody Allen joke about the guy who complains to a friend that his brother thinks he’s a chicken. When asked why he doesn’t take his brother to a psychiatrist, the guy says he would, “but we need the eggs.” Taxes have a negative effect on the growth of the economy, but we need the money to do all the things we expect government to do. Some people complain, and perhaps rightly, that government tries to do too much, but what they really mean is that government tries to do too much for other people. Again, political candidates often discuss the fairness of taxes- a fair tax being one that neither the candidate nor his contributors have to pay. Is the federal estate tax a fair tax? The answer is clearly yes, no or maybe. What does seem clear is that the federal estate tax is a less painful tax than others, being imposed on fairly high levels of wealth. It couldn’t really be argued that it restricts anyone’s basic lifestyle, unless the basics include a home on the Riviera. Again, it sometimes, but not often, taxes again assets that have already been subject to income tax- the dreaded double taxation scenario. But actually, we are already subject to repeated tax on the same income earned: federal, state and local taxes, sales taxes, Social Security taxes, real estate taxes; so that doesn’t make the estate tax unique. If there’s a justification needed for the federal estate tax, it’s this: it produces a large amount of tax revenue, which we need, from people who suffer the least from paying it. But what level of federal estate tax contains both elements of fairness and adequate revenue? See the next post for a suggestion.