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

41 Pages Posted: 26 Jul 2000 Last revised: 5 Mar 2010

See all articles by James M. Poterba

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: July 2000

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.

Suggested Citation

Poterba, James M. and Weisbenner, Scott J., The Distributional Burden of Taxing Estates and Unrealized Capital Gains at the Time of Death (July 2000). NBER Working Paper No. w7811. Available at SSRN: https://ssrn.com/abstract=237133

James M. Poterba (Contact Author)

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Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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