Congress should act now to make the repeal of the estate tax permanent. President Bush has been consistent in his support of its abolition. As a presidential candidate, he called for the elimination of the estate tax. In his first State of the Union, he stood firm and called on Congress to make all of the tax cuts that were passed as part of his budget plan permanent. And on Tuesday he renewed his call for its permanent elimination.

Nearly 80 percent of the American people support the end of the "death tax." There's overwhelming popular belief that it's wrong to impose taxes at one's death on the same money that was taxed while living. Moreover, the death tax raises only a small percentage of revenue for the federal government, but the benefits of its elimination are enormous. It would free up capital to reinvest in companies that will induce needed economic growth.

In 2000, Congress gave Bush a 100 percent phaseout of the tax over 10 years. This might be considered a huge victory. However, the "death tax" was one of the items slated for a sunset provision after 10 years. Having the death tax disappear after 10 years, only to reappear in the 11th at the 2000 rate, does nothing to help the small businesses that are hardest-hit by the tax.

Congress has created an absurd economic policy that preserves only the family businesses in which the proprietor (and loved one) happens to die in the right year. Even these families or the economy won't realize the benefit of a permanent elimination, because the need for expensive estate planning to meet the challenges of a reinstituted death tax remains--in the event that their loved one died in the wrong year. Without a certain elimination of the tax, it is almost impossible to set up a planning structure that will assure owners that they can pass their business to their children intact.

Taxed Alive, Taxed Dead

At the heart of the debate is an argument over social policy. Should families be encouraged to work and save to give a better life to their children and grandchildren or should the government be the primary recipient of a lifetime of effort? Should any American pay taxes on earning and then pay them again after they die? Should a grieving family be forced to visit the undertaker and the Internal Revenue Service at the same time?

Not surprisingly, the vast majority of Americans have been in favor of death tax elimination. Contrary to media reports, the ultrarich seldom pay the death tax. They almost universally hire lawyers and accountants to create complicated financial structures such as foundations that allow them to avoid the tax while retaining control of their assets over several generations.

Meanwhile, small-business and farm owners risk losing everything to pay their death tax bill. Congress should heed the president's call to make the repeal permanent for four fundamental and sound public policy reasons: First, relatively small estates (under $10 million) whose capital is most likely tied up in working assets such as property and equipment pay over 67 percent of the estate tax. People in this range are more likely trying to grow their businesses than to hoard money. The death tax forces the businesses contained in these estates to make tough choices like liquidating part or all of their business resulting in lost jobs and productivity.

Second, studies indicate that charitable giving will not be adversely affected by a death tax repeal, as death tax proponents contend. Economist David Joulfaian, in several reports for the National Bureau of Economic Research and the Brookings Institute, wrote that the very wealthy give much less to charity than the less wealthy and most of their giving comes from their estates. That suggests that the elimination of the death tax will result in the well-heeled contributing even more while they are still alive while maintaining the same level of lifetime contributions.

Moreover, it indicates that philanthropy from the modestly rich would increase if they did not have to spend so much money and time preparing to pay death taxes. Third, most of the wealthy earn their wealth, so there is no need to be consumed with the idea of perpetuating a financial oligarchy.

Bruce Bartlett, senior fellow at the National Center for Policy Analysis and former Treasury official, cites that 80 percent of millionaires acquire their wealth in a single generation. He goes on to note that among the top 5 percent of households ranked by wealth, only 8 percent of their wealth came from inheritances. Bartlett also found amazing mobility, where poor people became richer and the rich became poorer. Over 10 years, 60 percent of families in the bottom 10 percent of wealth distribution had moved up, some all the way to the top 10 percent. At the same time, almost half of those in the top 10 percent had fallen from that tier.

Good for Growth

Finally, there is no credible evidence that repealing the death tax would even result in a loss of revenue to the government. A study by George Mason University professor Richard Wagner shows the opposite: that eliminating the death tax would, in fact, have a substantial impact on lowering the cost of capital. Wagner concluded that within eight years of repeal the gross domestic product would be $80 billion larger and would create 250,000 new tax-paying jobs, offsetting any tax revenue losses. Businesses may spend as much as $125,000 each in attorneys' fees, insurance premiums and other expenses for an estate plan.

Economist Douglas Holtz-Eakin found that the estate tax has an enormous negative effect on entrepreneurs that causes them to cut back on labor, investment and risk-taking. The estate tax may not even net the federal government any revenue, because, according to economist B. Douglas Bernheim, the lost income-tax revenue from new jobs would likely completely compensate for all of the revenue derived from the estate tax.

The Hulshof-Ryan bill currently before Congress--H.R. 2316 by Reps. Kenny Hulshof, R-Mo., and Paul Ryan, R-Wis.--would give the hard-working men and women business owners the peace of mind they deserve by making the elimination of the death tax permanent. Congress should send it to the president.

Newt Gingrich is a senior fellow at AEI.