As the presidential campaign enters its final stages, the political rhetoric is gradually giving way to concrete policy proposals. One such proposal that has drawn a fair amount of attention is Hillary Clinton’s stated desire to increase the top estate tax rate from its current level of 40% up to 65%. The graduated schedule that she now suggests was first introduced by Clinton’s democratic primary opponent Bernie Sanders, and it has already spurred a considerable amount of debate.

The main talking points in the current estate tax debate echo those raised four years ago during the “fiscal cliff” negotiations, when major changes to the estate tax schedule last took place. At that time, though, the policy debates—and ultimate tax law changes—surrounded not the rates so much as the exemption amounts for individuals and married couples.

For politicians, the estate tax represents a particularly easy target for debate (and for political posturing). Since its inception a century ago, the tax has always impacted relatively few people, so changes in the law are fairly easy to sell to the majority of the population. And in our increasingly populist environment, the redistributive implications of increasing the rate are also appealing to a disillusioned populace still largely suspicious of the so-called “one-percenters.”

Ultimately, though, the estate tax is a fairly silly target for the outsized amount of attention it attracts. Its impact on actual tax revenues is hopelessly minimal, while the potentially distortive effects—not to mention the potential costs of compliance—are significant. I’ll present a brief overview of the potential costs and benefits of increasing the estate tax rate (or of having one at all), and I’ll also consider a few potential alternatives.

It’s a red herring

Given the amount of time and effort spent debating the estate tax, you’d think that it impacts a large number of Americans and raises a significant amount of tax revenue. Neither, it turns out, is the case.

According to a 2015 report from Congress’s Joint Committee on Taxation, of the 2.6 million Americans who died in 2013, fewer than 5,000 ended up owing any federal estate tax—that’s a rate of about 0.19%, meaning that even most one-percenters don’t end up owing any tax when they die. Between a high exemption amount and a complicated trust landscape that makes estate tax avoidance fairly simple, it’s just not that important a tax for most Americans.

As you’d expect, then, the amount of tax revenue actually raised by estate taxes is fairly low. The previously cited Joint Committee study reported that revenues from estate and gift taxes totaled just $19.3 billion in 2014, comprising 0.6% of total tax receipts. In the post-World War II years, that figure has never risen above 2.6%, which occurred in fiscal 1972. Even the Clinton campaign concedes that while her estate tax proposal may sound somewhat extreme on the surface, its projected impact on the federal budget is small—just $75 billion over a decade, a virtual rounding error in what is currently a $3 trillion annual budget (in percentage terms, about 0.25%).

So, why the hysterics? For one, increasing the rate to Clinton’s proposed level would install the United States as the new leader in the estate tax game, with the highest top rate in the world. This makes for easy “highest taxes in the world” headlines, even though we’ve already established that such a statement is largely irrelevant.

estate-tax-nations

Of the 35 OECD nations, we already boast the 4th-highest top rate (15 OECD countries have no estate tax at all), and the Clinton proposal would vault us past Japan into the #1 position.

Of course, simply comparing a “top tax rate” doesn’t do much to determine an overall tax burden, since it’s really the exemption amounts and thresholds that should be considered, but still, most Americans hate the very notion of being mentioned among (or atop) lists of nations with high tax burdens.

But there are also questions regarding the efficiency of the tax, and whether it distorts economic activity in a manner that outstrips its usefulness as a revenue-raising mechanism. Indeed, those sorts of concerns are exactly why nearly half of OECD nations have no estate tax at all.

It’s an inefficient tax

Those who argue in favor of abolishing the estate tax entirely (which, remember, would have a fairly minor impact on total tax receipts) rely largely on matters of compliance costs and economic inefficiency, not to mention basic fairness. There are numerous arguments against the estate tax, which generally fall into three main categories.

High Compliance Costs

Compliance costs include all of the activities that an individual may engage in to either file, pay or otherwise avoid a tax. With estate taxes, unbelievable amounts of time and effort are spent (and legal fees incurred) in order to design financial plans that minimize the ultimate tax bite. Trusts are established, investments are shifted around from one vehicle into another, and executors and probate courts are forced to spend significant time thinking about and responding to what we’ve already determined is a very small line item in the federal budget.

Essentially, the compliance cost argument claims that all of this is just one big waste of time, and that time would be better spent doing just about anything else. And indeed, opponents of the estate tax have suggested that compliance costs may essentially negate any positive tax revenues, making the estate tax effectively a net loser.

Distorts Investment Incentives

Perhaps even more importantly, the estate tax forces wealthy individuals to do things that could harm economic growth and capital formation. Because the estate tax is levied based on the aggregate value of an estate (all assets, including illiquid assets like real estate or small business investment interests), those who expect to owe the tax have to reserve enough cash liquidity to allow their heirs to actually pay the tax bill. For many individuals, generating (or preserving) that cash liquidity can be a difficult proposition, and at the very least it means that some money that would otherwise be invested in some form of business capital formation instead lies idle.

This sort of dynamic is particularly troublesome for owners of farms or other capital-intensive businesses. If, for example, a decedent’s estate consists entirely of an income-generating farm that is valued at a level high enough to incur a tax, then the heirs may have no choice but to sell a portion of the business in order to cover the tax bill. In some businesses, arranging a sale of assets could be highly problematic, depending on the nature of the business in question.

True, the distortive impacts are likely minimal in aggregate, due to our already established fact that most Americans do not end up owing any estate tax to begin with. But when considering the entire universe of potential levers by which to increase tax revenue, it’s generally best to choose those that have few or no economically distortive effects. The estate tax does not qualify in that regard.

Multiple Levels of Taxation

Finally, there’s a largely academic issue of general tax “fairness.” In general, there’s a hesitancy among most tax scholars to embrace policies that tax the same earned dollar multiple times. In the case of the estate tax, though, the current U.S. tax code allows for the potential for one earned dollar to be taxed four separate times.

Consider the following scenario: 1) the dollar is earned and incurs an income tax; 2) the (after-tax) dollar is then invested in a public corporation, where all profits are subject to corporate income tax; 3) dividends or capital gains income are then taxed to the shareholder after they are paid; 4) the dollar incurs an estate tax upon the earner’s death.

Sure, it’s something of a tortured path of logic as we follow the almighty dollar through its useful life (eventually, all dollars that are earned are later spent in some form or fashion, and then “taxed again” to the person who subsequently receives it as income… it’s just a matter of who pays that next tax bill), but issues of perceived tax fairness still persist. If I spend every dollar that I ever earn, I’m only taxed once, but if I’m prudent and save and invest money (to help businesses grow), I’m taxed and taxed and taxed on that dollar until the day I die, and then some.

Again, it’s somewhat tortured logic, and all for a tax that almost nobody will ever actually pay, but opponents of the estate tax at least have some justification for their negative feelings about the equity and “fairness” of the tax.

There Are Better Alternatives

All told, when considering our needlessly complex tax code, our attention is simply better spent elsewhere, where much more revenue can be raised in a more equitable (and economically efficient) fashion.

For one, we could simply get rid of the “step-up” in basis that currently occurs at an individual’s death (which, as it happens, is also a component of the Clinton tax plan). The justification for the existing “step-up” policy is somewhat hard to pin down, and eliminating the step-up would likely have a much broader impact than changes in the estate tax rate (if only because it would impact all individuals with investments, not just the ultra-rich).

Alternatively, we could take a look at the taxation of dividends, most of which currently qualify for preferential tax rates as long-term capital gains. For 50 years (1954-2003), dividends were taxed at ordinary income rates, and economic growth (and capital formation) did not seem to suffer as a result. Restoring the old method of dividend taxation would seem to be equitable (why is interest on corporate bonds taxed differently from dividends paid to shareholders?), and again, small changes could reap much larger revenue benefits than targeting the estate tax.

Finally, closing certain loopholes in investment taxation (carried interest, 1256 contracts, to name just two) would be simple to enact, and would also impact relatively few people (making such recommendations politically popular, like the Clinton estate tax proposal).

Of course, some of us would argue that we shouldn’t be looking to raise taxes in the first place, but if we’re going to propose tax increases (and spend time debating them), then we should at least be talking about the right taxes. Please, let’s stop talking so much about the estate tax (maybe I should follow my own advice?); it really is a big waste of our time, in multiple regards. Put me down in favor of abolishing it entirely, and turning our tax attention elsewhere.