What about the inheritance tax?

Even the most libertarian portion of my brain recognizes that there must be some taxes for a modern society to function at all.  Given there have to be some sort of taxes, I’ve always thought the inheritance tax was one of the more reasonable ones.  The person from whom the money is taken no longer needs it.  The person to whom the money would otherwise be given has, likely as not, done little or nothing to earn it.  It’s a relatively easy tax to get out of paying; just spend your money or give it to the people you want to have it before you die.  A whole industry has grown up providing ways to protect your money from inheritance taxes through the use of trusts and other devices.  Often, close corporations can be formed to keep the money from being taxed.  Yet, for reasons I don’t quite understand, the inheritance tax is an absolute hot-button item for very many people.  The 60 plus organization alternative to AARP listed killing this tax as one of its top two priorities.  But why?

A few weeks ago, Bookworm suggested that the problem was that the government took the money out of the productive economy by taking it out of the hands of those who would otherwise receive it.  That gave me pause, because I hadn’t thought about it, but it’s only true in the most limited sense.  In truth, the government passes it right back out into the productive economy, it stopping in government hands only long enough to do what taxes do — fund programs and reduce the deficit.

The one change I would make is to make all gifts untaxable, so that a person could dispose of his/her estate before death without having to pay taxes on the transfer.  But, after death, I have trouble seeing a problem with taxing what remains.  At least, I can’t see what other taxes would be preferrable.  What am I missing?  And, if you do oppose the inheritance tax, what tax would you raise to compensate for the reduction in revenue from the permanent elimination of this tax?