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Estate Taxes, Life Insurance, and Small Business

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Author Info
Douglas Holtz-Eakin
John Phillips
Harvey Rosen
Abstract

One criticism of the estate tax is that it prevents the owners of family businesses from passing their enterprises onto their children. The problem is that it may be difficult to pay estate taxes without liquidating the business. A natural question is why individuals with such concerns do not purchase enough life insurance to meet their estate tax liabilities. This paper examines whether and how people use life insurance to deal with the estate tax. We find that, other things being the same, business owners purchase more life insurance than other individuals. However, on the margin, their insurance purchases are less responsive to estate tax considerations and they are less likely to have the wherewithal to meet estate tax liabilities out of liquid assets plus insurance.

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File URL: http://www-cpr.maxwell.syr.edu/cprwps/pdf/wp10.pdf
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Publisher Info
Paper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 10.

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Length: 38 pages
Date of creation: Apr 1999
Date of revision:
Handle: RePEc:max:cprwps:10

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Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Bernheim, B Douglas, 1991. "How Strong Are Bequest Motives? Evidence Based on Estimates of the Demand for Life Insurance and Annuities," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 899-927, October. [Downloadable!] (restricted)
    Other versions:
  2. Alan J. Auerbach & Laurence J. Kotlikoff, 1987. "Life Insurance of the Elderly: Adequacy and Determinants," NBER Working Papers 1737, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. B. Douglas Bernheim, 1987. "Does the Estate Tax Raise Revenue?," NBER Chapters, in: Tax Policy and the Economy, Volume 1, pages 113-138 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  4. James P. Smith, 2004. "Wealth Inequality Among Older Americans," Labor and Demography 0403003, EconWPA. [Downloadable!]
  5. James P. Smith, 2004. "Racial and Ethnic Differences in Wealth in the Health and Retirement Study," Labor and Demography 0408011, EconWPA. [Downloadable!]
    Other versions:
  6. 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. [Downloadable!] (restricted)
  7. James M. Poterba & Andrew A. Samwick, 1997. "Household Portfolio Allocation Over the Life Cycle," NBER Working Papers 6185, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. James Poterba, 1997. "The Estate Tax and After-Tax Investment Returns," NBER Working Papers 6337, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jeffrey R. Brown, 1999. "Are the Elderly Really Over-Annuitized? New Evidence on Life Insurance and Bequests," NBER Working Papers 7193, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Brown, Jeffrey, 2000. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Working Paper Series rwp00-007, Harvard University, John F. Kennedy School of Government. [Downloadable!]
    Other versions:
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