But, that estimate ignores increased tax revenues that, in the absence of the death tax, would flow from other sources. The cost basis of inherited assets would no longer be “stepped up” to their current value. That would lead directly to higher capital gains tax revenues when inherited assets are sold. In addition, those subject to the death tax are encouraged to consume, rather than invest. The reduction in capital reduces the overall tax base subject to the income tax by decreasing economic activity and wages.
According to a study by former Deputy Assistant Secretary for Economic Policy at the Department of the Treasury, Steven Entin, once these other sources of tax revenues are taken into account, repeal of the death tax would produce a net increase of $89 billion in tax revenues over that same 10-year period.