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Does the Estate Tax Raise Revenue?

In: Tax Policy and the Economy, Volume 1

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  • B. Douglas Bernheim

Abstract

Proponents of transfer taxation argue that levies on gifts and estates serve the dual purposes of breaking up large concentrations of private wealth, while raising significant revenues. A number of commentators have recently questioned the first of these purported advantages, on the grounds that a variety of available estate planning techniques allow wealthy individuals to pass on vast resources essentially tax free. Most techniques entail the use of intra vivos transfers, and are particularly effective when these transfers are made as early in life as possible. In this paper, I argue that the use of these same estate planning techniques also largely neutralize the second objective of transfer taxation by depressing income tax revenues. This effect is reinforced by the tendency for estate taxation to encourage charitable bequests. Although it is difficult to quantify the indirect revenue effects with a high degree of precision, I find that, prior to the Tax Reform Act of 1986, these effects could easily have offset all revenues collected through the estate tax. The recent Tax Reform Act only partially vitiates this conclusions.

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This chapter was published in:

  • Lawrence H. Summers, 1987. "Tax Policy and the Economy, Volume 1," NBER Books, National Bureau of Economic Research, Inc, number summ87-1, Ekim.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10931.

    Handle: RePEc:nbr:nberch:10931

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    1. Laurence J. Kotlikoff & Lawrence H. Summers, 1980. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc.
    2. Stiglitz, Joseph E., 1983. "Some aspects of the taxation of capital gains," Journal of Public Economics, Elsevier, vol. 21(2), pages 257-294, July.
    3. Clotfelter, Charles T., 1985. "Federal Tax Policy and Charitable Giving," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226110486, March.
    4. Boskin, Michael J., 1976. "Estate taxation and charitable bequests," Journal of Public Economics, Elsevier, vol. 5(1-2), pages 27-56.
    5. Charles T. Clotfelter, 1985. "Federal Tax Policy and Charitable Giving," NBER Books, National Bureau of Economic Research, Inc, number clot85-1, Ekim.
    6. James M. Poterba & Lawrence H. Summers, 1984. "The Economic Effects of Dividend Taxation," Working papers 343, Massachusetts Institute of Technology (MIT), Department of Economics.
    7. King, Mervyn A. & Fullerton, Don, 2010. "The Taxation of Income from Capital," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226436319, March.
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    Cited by:
    1. James Poterba, 1997. "The Estate Tax and After-Tax Investment Returns," NBER Working Papers 6337, National Bureau of Economic Research, Inc.
    2. Joulfaian, David, 2005. "Choosing between gifts and bequests: How taxes affect the timing of wealth transfers," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2069-2091, December.
    3. Don Fullerton, 1990. "Tax Policy Toward Art Museums," NBER Working Papers 3379, National Bureau of Economic Research, Inc.
    4. Thomas A. Barthold & Takatoshi Ito, 1991. "Bequest Taxes and Accumulation of Household Wealth: U.S. - Japan Comparison," NBER Working Papers 3692, National Bureau of Economic Research, Inc.
    5. W. G. Gale & J. K. Scholz, . "Intergenerational transfers and the accumulation of wealth," Institute for Research on Poverty Discussion Papers 1019-93, University of Wisconsin Institute for Research on Poverty.
    6. Louis Kaplow, 2000. "A Framework for Assessing Estate and Gift Taxation," NBER Working Papers 7775, National Bureau of Economic Research, Inc.
    7. Douglas Holtz-Eakin & John W. Phillips & Harvey S. Rosen, 1999. "Estate Taxes, Life Insurance, and Small Business," NBER Working Papers 7360, National Bureau of Economic Research, Inc.
    8. William G. Gale & Joel B. Slemrod, 2001. "Policy Watch: Death Watch for the Estate Tax?," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 205-218, Winter.
    9. William G. Gale & Joel B. Slemrod, 2001. "Rethinking the Estate and Gift Tax: Overview," NBER Working Papers 8205, National Bureau of Economic Research, Inc.
    10. Ana Paula Ribeiro & Miguel Viegas, 2011. "Welfare-improving Government Behaviour and Inequality-Inspection using a Heterogeneous-agents Model," EcoMod2011 3014, EcoMod.
    11. James M. Poterba & Scott Weisbenner, 2000. "The Distributional Burden of Taxing Estates and Unrealized Capital Gains at the Time of Death," NBER Working Papers 7811, National Bureau of Economic Research, Inc.
    12. James Poterba, 1998. "Estate and Gift Taxes and Incentives for Inter Vivos Giving in the United States," NBER Working Papers 6842, National Bureau of Economic Research, Inc.
    13. Auten, Gerald & Joulfaian, David, 2001. "Bequest taxes and capital gains realizations," Journal of Public Economics, Elsevier, vol. 81(2), pages 213-229, August.
    14. David Joulfaian, 2005. "Estate Taxes and Charitable Bequests: Evidence from Two Tax Regimes," Public Economics, EconWPA 0505004, EconWPA.
    15. Poterba, James, 2001. "Estate and gift taxes and incentives for inter vivos giving in the US," Journal of Public Economics, Elsevier, vol. 79(1), pages 237-264, January.

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