The Redistributive Potential of Transfer Taxation

Abstract

The United States imposes substantial federal taxes on estates, gifts, and generation-skipping transfers exceeding high exemption levels (currently US$5.25 million). These transfer taxes are very distortionary compared to other federal taxes, and raise little revenue; their appeal lies in their distributional properties. Gratuitous transfers benefit both those who make the transfers and those who receive them; transfer taxes therefore impose burdens on both donors and recipients, in addition to distorting economic behavior. This article considers a potential reform of replacing federal transfer taxes with greater income taxes on the highest-income earners. Such a reform holds the prospect of raising additional federal tax revenue with improved efficiency and greater measured tax progressivity.

Should Wealth Transfers Be Taxed? Evidence from a Representative German Survey

“…This timing effect is expected to emerge regardless of the motive, though it is likely to be larger when transfers are altruistically motivated. While the literature contains different views on the impact of wealth transfer taxes on capital accumulation (e.g., Cremer and Pestieau 2011;Piketty and Saez 2013), scholars generally agree that these taxes reduce inequality in wealth and income (e.g., Bossmann, Kleiber, and Wälde 2007;Gale and Slemrod 2001;Hines 2013).…”