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The Distributional Burden of Taxing Estates and Unrealized Capital Gains at the Time of Death

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  • James M. Poterba
  • Scott Weisbenner

Abstract

The 1998 Survey of Consumer Finances provides information on household wealth ownership that can be used to estimate the effect of changing the Unified Estate and Gift Tax Credit on estate tax revenues. The survey also includes data on the prices at which assets were purchased, along with information on their market values. This makes it possible to compare the revenue yield and the distributional consequences of taxing estates with those of taxing unrealized capital gains on assets held by individuals who die. This paper uses data from the Survey of Consumer Finances to estimate the revenue effects of changes in both estate tax provisions and capital gains tax rules. It finds that among those with small estates ($1 million or less), taxing capital gains at death would collect more revenue than the current estate tax from roughly half of the decedents. For those with larger estates, replacing the estate tax with a tax on unrealized gains at death would result in a substantial reduction in total tax payments. The revenue estimates and distributional analyses assume no change in the current capital gains realization behavior of taxpayers, even if the tax law changes. This is an important limitation, and the paper notes several directions for further research that might help to relax this assumption.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7811.

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Date of creation: Jul 2000
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Publication status: published as Gale, William G., James R. Hines, and Joel Slemrod (eds.) Rethinking Estate and Gift Taxation. Brookings Institution, 2001.
Handle: RePEc:nbr:nberwo:7811

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  1. James Poterba, 1997. "The Estate Tax and After-Tax Investment Returns," NBER Working Papers 6337, National Bureau of Economic Research, Inc.
  2. Joel Slemrod & Wojciech Kopczuk, 2000. "The Impact of the Estate Tax on the Wealth Accumulation and Avoidance Behavior of Donors," NBER Working Papers 7960, National Bureau of Economic Research, Inc.
  3. Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, . "New Evidence on the Money's Worth of Individual Annuities," Pension Research Council Working Papers 97-9, Wharton School Pension Research Council, University of Pennsylvania.
  4. Joulfaian, David, 1991. "Charitable Bequests and Estate Taxes," National Tax Journal, National Tax Association, vol. 44(2), pages 169-80, June.
  5. Orazio P. Attanasio & Hilary W. Hoynes, 1995. "Differential Mortality and Wealth Accumulation," NBER Working Papers 5126, National Bureau of Economic Research, Inc.
  6. B. Douglas Bernheim, 1987. "Does the Estate Tax Raise Revenue?," NBER Working Papers 2087, National Bureau of Economic Research, Inc.
  7. 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.
  8. Auten, Gerald & Joulfaian, David, 2001. "Bequest taxes and capital gains realizations," Journal of Public Economics, Elsevier, vol. 81(2), pages 213-229, August.
  9. Kathleen McGarry, 2000. "Inter Vivos Transfers or Bequests? Estate Taxes and the Timing of Parental Giving," NBER Chapters, in: Tax Policy and the Economy, Volume 14, pages 93-122 National Bureau of Economic Research, Inc.
  10. Joulfaian, David, 2000. "Estate Taxes and Charitable Bequests by the Wealthy," National Tax Journal, National Tax Association, vol. 53(n. 3), pages 743-64, September.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Comment on Murphy and Thaler
    by ssumner in The Money Illusion on 2010-11-14 18:38:56
  2. Three Wrongs Don't Make a Right: Thaler on Estate Taxes
    by David Friedman in Ideas on 2010-11-07 16:43:00
  3. [??]???????????
    by himaginary in himaginaryの日記 on 2010-11-21 08:00:00
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Cited by:
  1. 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.
  2. Jeffrey R. Brown & Scott J. Weisbenner, 2002. "Is a Bird in Hand Worth More than a Bird in the Bush? Intergenerational Transfers and Savings Behavior," NBER Working Papers 8753, National Bureau of Economic Research, Inc.
  3. John Laitner, 2001. "Modeling the Macroeconomic Implications of Social Security Reform," Working Papers wp015, University of Michigan, Michigan Retirement Research Center.
  4. John Laitner, 2001. "Wealth Accumulation in the U.S.: Do Inheritances and Bequests Play a Significant Role?," Working Papers wp019, University of Michigan, Michigan Retirement Research Center.

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