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

  • James M. Poterba
  • Scott Weisbenner

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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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
Note: AG PE
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  1. Joulfaian, David, 1991. "Charitable Bequests and Estate Taxes," National Tax Journal, National Tax Association, vol. 44(2), pages 169-80, June.
  2. Orazio P. Attanasio & Hilary Williamson Hoynes, 2000. "Differential Mortality and Wealth Accumulation," Journal of Human Resources, University of Wisconsin Press, vol. 35(1), pages 1-29.
  3. David Joulfaian, 2000. "Estate Taxes and Charitable Bequests by the Wealthy," NBER Working Papers 7663, National Bureau of Economic Research, Inc.
  4. Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, 1997. "New Evidence on the Money's Worth of Individual Annuities," NBER Working Papers 6002, National Bureau of Economic Research, Inc.
  5. B. Douglas Bernheim, 1986. "Does the Estate Tax Raise Revenue?," NBER Working Papers 2087, National Bureau of Economic Research, Inc.
  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.
  7. James Poterba, 1997. "The Estate Tax and After-Tax Investment Returns," NBER Working Papers 6337, 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. 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.
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