The Trick is to Live: Is the Estate Tax Social Security for the Rich?

26 Pages Posted: 14 Sep 2002 Last revised: 29 Oct 2010

See all articles by Wojciech Kopczuk

Wojciech Kopczuk

Columbia University - Graduate School of Arts and Sciences - Department of Economics; Columbia University - School of International & Public Affairs (SIPA); National Bureau of Economic Research (NBER)

Date Written: September 2002

Abstract

Because estate tax liability usually depends on how long one lives, it implicitly provides annuity income. In the absence of annuity markets, lump-sum estate taxation may be used to achieve the first-best solution for individuals with a sufficiently strong bequest motive. Calculations of the annuity embedded in the U.S. estate tax show that people with $10 million of assets may be effectively receiving more than $100,000 a year financed at actuarially fair rates by their tax payments. According to my calibrations, the insurance effect reduces the marginal cost of funds (MCF) for the estate tax by as much as 30% and the resulting MCF is within the range of estimates for the marginal cost of funds for the income tax.

Suggested Citation

Kopczuk, Wojciech, The Trick is to Live: Is the Estate Tax Social Security for the Rich? (September 2002). NBER Working Paper No. w9188, Available at SSRN: https://ssrn.com/abstract=330327

Wojciech Kopczuk (Contact Author)

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

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New York, NY 10027
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Columbia University - School of International & Public Affairs (SIPA)

420 West 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER) ( email )

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