The Federal Estate Tax: History, Law, and Economics
Posted: 2 Apr 2010 Last revised: 27 Jul 2018
Date Written: February 1, 2018
Abstract
This manuscript traces the evolution of the estate tax since its enactment. It provides a brief legislative history and description of the structure and features of the tax through 2016. Next it reviews the fiscal contribution of each of the estate and gift taxes through the turbulent recent years. In addition, it provides trends on the number of individuals and households touched by the tax as reflected by the number of returns filed over time through 2016. Furthermore, it also provides a comprehensive review of the behavioral effects of the tax. Estate and gift taxes may have considerable implications for economic behavior. The latter include the effects on saving, labor supply, charitable giving, migration, capital gains realizations, and timing of transfers among others.
The estate tax is the only wealth tax levied by the Federal government. It was enacted in 1916, and its scope was expanded to encompass gifts as well. It evolved over the years into the current Unified Transfer Tax which consists of the estate, gift, and generation skipping transfers taxes. The major features of the tax in effect in 2018 reflect a maximum tax rate of 40 percent and an exemption of $11,180,000 (indexed $10,000,000 to 2011), with a full exemption for spousal and charitable bequests. The tax provides for a deduction for state death taxes, which replaces the more generous pre-2002 credit for such taxes.
Keywords: Estate Tax, Gift Tax, History, Behavioral Effects
JEL Classification: H24, H31
Suggested Citation: Suggested Citation
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