Although estate and gift taxes raise a small fraction of federal revenues, they have become sources of increasing political controversy. This book is designed to inform the current policy debate and build a conceptual basis for future scholarship. The book contains eleven original studies of estate and gift taxes, along with discussants' comments. The essays provide background and historical information; analyze the optimal taxation of estates and gifts; examine the effects of the tax on charitable contributions, saving behavior, the distribution and level of wealth, tax avoidance and tax evasion; and explore the effects of alternatives to estate taxation.

The United States tax system includes a tax on assets held at death, the estate tax and the gift tax. Among key components of the estate and gift tax are the definition of its taxable base, tax rate and exemption level. A related argument is that the tax reduces the concentration of wealth and its perceived adverse consequences for society. Critics of the estate and gift tax make two major arguments: the estate and gift tax discourages savings and investments, and the tax imposes an undue burden on closely held family businesses. Critics also suggest that the estate and gift tax is flawed as a method of introducing progressivity because there are many methods of avoiding the tax, methods that are more available to very wealthy families. This book provides an explanation of how the tax operates, analyses the arguments for and against the tax and discusses alternative policy options.

Despite the recent downturn in the stock market, the 1990s boom and the shift to defined contribution plans mean that more individuals will have significant wealth upon retirement. How they use that wealth will determine not only their own well-being, but also the living standards of their children, the resources available to philanthropies, and the level of investment capital in the economy. This volume explores the reasons why people save, how they decide to allocate their wealth once they retire, and how givers select their beneficiaries. It also assesses the extent to which the estate tax and annuitization of retirement wealth affects the amount and nature of wealth transfers. Finally, it looks at the impact of wealth transfers––first on the amount of aggregate saving and capital accumulation, and then on the distribution of wealth among households. Several conclusions emerge. First, gifts and bequests are important; they may account for about half of total wealth in America. Second, rich people make most of the wealth transfers. They are thoughtful about how much they pay in taxes and how they dispose of their wealth. They care about philanthropic causes and view their charitable contributions as more than a way to avoid paying estate taxes. Third, most nonrich people probably have some lexicographic preferences about the disposition of their wealth; they want to ensure they have adequate resources to take care of their own needs, and if money is left over, they would like it to go to their children. Fourth, little support has emerged for the pure altruistic model of bequests. Fifth, institutions matter. In the case of the rich, the estate tax probably reduces saving and increases bequests to charity. In the case of the nonrich, the shift to defined contribution plans will at a minimum mean that they have more wealth in their hands when they die, and therefore they will leave larger accidental bequests. It might also increase their interest in lea

Criticisms of the estate tax have often been contradictory and confusing. On the one hand, critics have argued that the transfer tax raises little revenue, is easily avoided, and has no effect on concentrations of wealth. On the other hand, critics have argued that the transfer tax discourages savings and that payments of the estate tax financially burden family businesses. It is difficult to see how a tax that allegedly raises little revenue, is easily avoided, and has no effect on wealth concentration, can at the same time impose a significant burden on savings and businesses. This article reviews the arguments for and against the estate and gift tax. Part II starts by analyzing the objectives for the transfer tax and the extent to which it achieves these objectives. Part II observes that contrary to popular belief, the estate and gift tax contributes a significant amount of revenue when viewed in the context of the individual income tax and corporate income tax. Revenue from the transfer tax is expected to equal $331 billion for the ten-year period 1999 to 2008. To place this in perspective, consider that the estimated 1999 revenue of $27.7 billion from the estate and gift tax equals the entire 1997 individual income tax liability of taxpayers with an adjusted gross income ("AGI") under $15,000 and 36 percent of the 1997 tax liability of taxpayers with an AGI between $15,000 and $30,000. Alternatively, the estimated 1999 revenue from the estate and gift tax equals all the corporate income tax collected in 1996 from corporations with assets under $100 million. Part II also notes that the estate tax helps achieve an important social objective of preventing the concentration of political power in family dynasties by encouraging charitable contributions and reducing the amount of wealth that wealthy families pass to heirs. In addition, the estate tax contributes to the progressivity of the income tax because wealthy individuals report less taxable income from capital. Against this background, Parts III and IV explore the distortive effects of the estate and gift tax. All taxes, other than lump-sum taxes, cause distortions. To place the transfer tax in context, Parts III and IV compare the distortive effects of the transfer tax to our other important taxes ¬- the individual income tax and corporate income tax. The current empirical literature is nearly unanimous in concluding that the corporate income tax harms economic efficiency. The empirical literature about the distortive effects of the individual income tax is much less clear. Although there is little empirical literature analyzing the effect of the estate tax, this article suggests that there are strong arguments that the effects of the estate tax are less harmful to savings and businesses than the individual and corporate income tax. As a result, the article concludes that it is preferable to obtain revenue from the estate and gift tax as compared to the individual income tax or the corporate income tax. The article, therefore, recommends that Congress should retain the estate and gift tax.

A comprehensive and accessible account of the U.S. estate tax, examining its history and evolution, structure and inner workings, and economic consequences. Governments have been levying some form of inheritance tax since the ancient Egyptians did so in the seventh century BC. In the United States, the federal government experimented with various forms of inheritance taxes, settling on an estate tax in 1916 and a gift tax in 1932. Despite this long history, there are few empirical studies of the federal estate tax. This book offers the first comprehensive look at U.S. estate and inheritance taxes, examining their history and evolution, structure and inner workings, and economic consequences. Written by David Joulfaian, a veteran economist at the U.S. Department of the Treasury, the book provides accessible accounts of such topics as changes in tax laws, issues of equity, the fiscal contribution of the estate tax, and its behavioral effects. Joulfaian traces the evolution of U.S. inheritance taxes from 1797 to the present, noting that the estate tax rate and base expanded through 1976, then began to decline. He describes the tax itself, explaining that it currently applies to estates and gifts in excess of $11.18 million, and outlines applicable deductions and credits. He sketches a profile of taxpayers and their beneficiaries; surveys the revenues from estate and gift taxes; and discusses the effect of estate taxation on labor decisions, saving and wealth accumulation, charitable giving, life insurance ownership, and other economic activities. Finally, he addresses criticisms of the estate tax and analyzes its shortcomings. Accompanying tables present a wealth of data gathered by Joulfaian in his research and not available elsewhere.