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Estate and Gift Taxes and Incentives for Inter Vivos Giving in the United States

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  • James Poterba

Abstract

This paper describes the current estate and gift tax rules that apply to intergenerational transfers in the United States. It summarizes the incentives for inter vivos giving as a strategy for reducing estate tax liability. It shows that the current level of intergenerational transfers is much lower than the level that would be implied by simple models of dynastic utility maximization. Moreover, it demonstrates that even among elderly households with net worth in excess of $2.5 million, roughly four times the net worth at which the estate tax takes effect, only about forty-five percent take advantage of the opportunity for tax-free inter vivos giving. Cross-sectional regressions using the 1995 Survey of Consumer Finances suggest that transfers rise with household net worth, possibly reflecting the impact of progressive estate taxes. In addition, households with a preponderance of their net worth in illiquid forms, such as a private business, are less likely to make transfers than their equally wealthy counterparts with more liquid wealth. Households with substantial unrealized capital gains, for whom the benefits of capital asset basis step-up at death are greatest, are less likely to make large inter vivos transfers than similarly wealthy households with higher basis assets. Nevertheless, the aggregate flow of intergenerational transfers is much smaller than the level that would result if all households that were likely to face the estate tax attempted to transfer resources through inter vivos gifts.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6842.

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Date of creation: Dec 1998
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Publication status: published as Poterba, James. “Estate and Gift Taxes and Incentives for Inter Vivos Giving in the United States,” Journal of Public Economics 79 (January 2001), 237-264.
Handle: RePEc:nbr:nberwo:6842

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  8. 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.
  9. John Laitner & F. Thomas Juster, 1993. "New evidence on altruism: a study of TIAA-CREF retirees," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 86, Federal Reserve Bank of Minneapolis.
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  12. Kuehlwein, Michael, 1994. "The non-equalization of true gift and estate tax rates," Journal of Public Economics, Elsevier, Elsevier, vol. 53(2), pages 319-323, February.
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Cited by:
  1. Douglas Holtz-Eakin & Donald Marples, 2001. "Distortion Costs of Taxing Wealth Accumulation: Income Versus Estate Taxes," NBER Working Papers 8261, National Bureau of Economic Research, Inc.
  2. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 743-768.
  3. Laura de Pablos Escobar, 2009. "Alternativas a la supresión del Impuesto sobre el Patrimonio," Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales 09-06, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
  4. Mauro Baranzini, 2005. "Modigliani's life-cycle theory of savings fifty years later," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 58(233-234), pages 109-172.
  5. Mauro Baranzini, 2005. "Modigliani's life-cycle theory of savings fifty years later," BNL Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 58(233-234), pages 109-172.
  6. Giacomo Pasini & Rob Alessie & Viola Angelini, 2011. "Is it true love? Altruism versus exchange in time and money transfers," Working Papers 2011_27, Department of Economics, University of Venice "Ca' Foscari".
  7. Douglas Holtz-Eakin & John W. R. Phillips & Harvey S. Rosen, 2001. "Estate Taxes, Life Insurance, And Small Business," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 52-63, February.
  8. 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.
  9. McGarry, Kathleen, 2001. "The cost of equality: unequal bequests and tax avoidance," Journal of Public Economics, Elsevier, Elsevier, vol. 79(1), pages 179-204, January.
  10. William G. Gale & Joel B. Slemrod, 2001. "Rethinking the Estate and Gift Tax: Overview," NBER Working Papers 8205, National Bureau of Economic Research, Inc.
  11. Joulfaian, David, 2005. "Choosing between gifts and bequests: How taxes affect the timing of wealth transfers," Journal of Public Economics, Elsevier, Elsevier, vol. 89(11-12), pages 2069-2091, December.
  12. Jonathan S. Feinstein & Chih-Chin Ho, 2000. "Elderly Asset Management and Health: An Empirical Analysis," NBER Working Papers 7814, National Bureau of Economic Research, Inc.

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