A Comparative Critique of the U.S. Marital Deduction

Sara Burns (J.D. 2010, Temple), Comment. Expanding the Marital Deduction: An Analysis of International Systems of Transfer Taxation, Their Treatment of the Taxable Unit, and the United States' Inadequate Marital Deduction, 25 Temp. Int'l & Comp. L.J. 247 (2011):

The US' definition of the “taxable unit” should be expanded for purposes of transfer taxation. After reviewing the country's changing economic and social realities, the policies behind the current marital deduction, and the unpersuasive Congressional reasons for limiting the concept of an insulated taxable unit to the heterosexual married couples, it is clear that the U.S. marital deduction is unjustifiably limited.

This Comment began by explaining how the pending sunset of the EGTRRA/2010 Tax Relief Act makes the coming years a perfect opportunity for Congress to reevaluate the American transfer tax system and, most importantly, the concept of the marital deduction. As demonstrated, the systems of transfer taxation used in the United Kingdom and Zurich, Switzerland are sufficiently similar to the American model to justify Congressional reliance on the concepts used by its European counterparts. The United Kingdom offers a step in the right direction by allowing same-sex partners to qualify for its spouse/partner exception.

However, the UK system does not go far enough to insulate other relationships that may not approximate to marriage, such as economically dependent minors or elders, from transfer tax liability. On the other hand, the Canton of Zurich extends its definition of the insulated taxable unit too far by exempting all descendants from transfer tax liability. In doing so, this system fosters the possibility of wealth-concentration in family dynasties, which is an undesirable outcome that the current U.S. system inhibits. Regardless of whether the United States creates an insulated taxable unit that mirrors either of these European models exactly, there is something to be learned from each of them. Both systems utilize a definition of the taxable unit that is more realistic in light of the multitude of interdependent relationships that now exist in society. They are also more consistent with the stated policy objectives that justify the existence of transfer tax exemption. If Congress is to remain true to its own stated policy objectives, it must take this prime opportunity to extend the concept of the transfer taxable unit to more closely resemble economic and social realities.