Tuesday, February 11, 2014
Paul L. Caron (Pepperdine) presents Revitalizing the Estate Tax: Five Easy Pieces, 142 Tax Notes ___ (2014) (with James R. Repetti (Boston College)) at Pepperdine today as part of its Faculty Workshop Series:
In The Estate Tax Non-Gap, Why Repeal a Voluntary Tax?, 20 Stan. L. & Pol'y Rev. 153 (2009), we argued that, contrary to the state of the law over thirty-five years ago when George Cooper wrote his seminal article, A Voluntary Tax? New Perspectives on Sophisticated Estate Tax Avoidance, 77 Colum. L. Rev. 161 (1977), taxpayers today generally “can reduce the value of assets subject to transfer tax in many instances only if they are willing to assume the risk that the reduction may be economically real and reduce the actual value of assets transferred to heirs or, alternatively, in narrow situations if they are willing to incur some tax risk.” In Occupy the Tax Code: Using the Estate Tax to Reduce Inequality and Spur Economic Growth, 40 Pepp. L. Rev. 1255 (2013), we documented the dramatic increase in income and wealth inequality over the past thirty years and the accompanying adverse social consequences and long-term negative impact on economic growth. We argued that tax policy historically has played an important role in reducing inequality and that the estate tax is a particularly apt reform vehicle in light of the role of inherited assets among the very rich and the adverse economic effects of such inherited wealth. In this article, we advance five estate and gift tax reform proposals that will generate needed revenue, reduce inequality, and contribute to economic growth: (1) disallow minority discounts where the transferred asset or business is controlled by family before and after the transfer; (2) maintain parity between the unified credit exemption amount for the estate tax and gift tax; (3) reduce the wealth transfer tax exemptions to $3.5 million, increase the maximum tax rate to 45 percent, and limit the GST exemption period to 50 years; (4) restrict the ability of gifts made in trust to qualify for the gift tax annual exclusion; and (5) impose a lifetime cap on the amount that can be contributed to a Grantor-Retained Annuity Trust (“GRAT”).