I enjoyed reading all the comments. As the discussion makes clear, the issue of estate taxation raises many interesting questions that would take more than one posting to cover at all adequately. Let me try to respond to some of the points raised.
As some of you indicated, and others denied, the estate tax is not necessary to get a circulation of the very rich since wealthy families did regress over time even before the estate tax became important. Although many of the descendants of John D. Rockefeller are still quite rich, as a family they have fallen greatly in wealth compared to the Gates’ and other much newer wealthy families.
There is nothing intrinsically regressive about consumption taxes. There can be various rebates, exemptions, and credits that would make the overall system progressive in the usual meaning of that term: that the average tax rate rises with level of consumption, or that marginal rates rise at some consumption levels and do not fall at any others. My preferred way to make a consumption tax progressive is via exemptions. The most efficient way to implement a progressive consumption tax along these lines is to allow all savings to be deducted from income, and then tax the residual (which is consumption), with an exemption at the lower end that should be quite generous.
The NYTimes article that referred to my 1987 Presidential address to the American Economic Association badly misstated what I said. I did not claim that children’s income was not much related to the income of their parents. In fact I assumed for the sake of discussion that about 40% of the parents’ income advantage was passed on to children. Note that grandchildren would then only have about 16% of the advantages of their grandparents. It is true that some recent work claims the fraction passed on might be as high as 50% rather than 40%, but that is controversial, as Dean Lillard of Cornell and others have argued. I also stand by my claim that there is no credible evidence that the degree of intergenerational mobility has fallen during the past few decades.
If consumption were taxed, the basis would automatically be “stepped up” since that true basis would determine consumption spending. Even if one does not like a consumption tax, surely an inheritance tax is much better from any equity standard than the estate tax. I agree that the value of the inheritance for tax purposes should be based on the market value of inheritances, not the purchase price.
I do not believe that if the Federal estate tax were eliminated, it would simply be replaced by much higher estate taxes by the states. For it is easy for many rich persons to change their state of residence by moving to states with lower estate taxes. That is certainly a lot easier than changing country of residence, and a considerable number of the very rich even do that.