Congress will take up debate on the dreaded Death Tax once again in the coming weeks. It will do so because the Death Tax expires for one year starting January 1, 2010. But like the villain in a horror movie, it will rise from the dead with its full power in tact on January 1, 2011. The one-year expiration will likely incite Congressional debate because some would like to keep it from expiring this year all together.

The one year abolition of the tax is the end of a years-long process of reducing the tax that began as part of the 2001 tax cut. The 2001 cut reduced the rate of the Death Tax incrementally from 55 percent to 45 percent this year. During the same time the exemption, or amount of an estate that is not subject to taxation, increased from $1 million to $3.5 million. After a period of winding the tax down, the 2001 tax cut abolished the Death Tax for 2010. Because of the rules governing the cuts, the tax only disappears for one year before it comes back from the dead with a rate and exemption it had before the cuts (55 percent rate and $1 million exemption).

Some argue that Congress should not allow the tax to temporarily expire and should instead extend the Death Tax through 2010 at its current rate and exemption level (45 percent and $3.5 million), or revert to the pre-2001 tax cut level in order to reduce the deficit. This is not a serious argument. In 2007, the Death Tax raised about $25 billion, or 1 percent of all federal tax revenues. Even if it came back to life at its full 55 percent rate and $1 million exemption, the White House Office and Management and Budget (OMB) estimates it will raise $130 billion in total from 2009 through 2014. The Congressional Budget Office (CBO) calculates the cumulative deficit in those years to be $5.6 trillion. Repealing the Death Tax would be a drop in the bucket comparably. Spending, not tax cuts, is the real driver of large deficits. For instance, the $800 billion stimulus bill – just one example of Congressional profligacy – will cost about 6 times what full repeal of the Death Tax would cost.

Such an argument becomes even more dubious when considering the amount of jobs full repeal of the Death Tax could create in comparison to the stimulus’ inability to create any jobs. According to “Changing Views of the Estate Tax: Implications for Legislative Options,” a recent study by former CBO Director Douglas Holtz-Eakin, full repeal of the Death Tax would create 1.5 million new jobs. Those 1.5 million jobs would be almost half of the jobs President Obama claimed the stimulus would (but didn’t) create, and they would be created at a considerably lower cost than the stimulus.

Holtz-Eakin also found that repealing the Death Tax would:

• Increase small business investment capital by more than $1.6 trillion each year;
• Increase the probability of hiring by 8.6 percent;
• Increase payrolls 2.6 percent;
• Expand investment 3 percent; and
• Drop the unemployment rate 0.9 percent.

These findings support Heritage Foundation research that found the Death Tax:

• Discourages savings and investment;
• Undermines job creation and wage growth;
• Prevents economy from achieving investment potential; and
• Contradicts central promise of American life: wealth creation.

Now that Congress has the chance to drive a stake through the heart of this economically damaging tax it should do so. Dispatching the Death Tax once and for all would be a boon to the economy at the very time it desperately needs it and restore the promise of the American Dream that if you work hard and live a virtuous life, you can leave the fruits of your labor to succeeding generations.