Thursday, March 27, 2014
Paul L. Caron (Pepperdine) & James R. Repetti (Boston College), Revitalizing the Estate Tax: Five Easy Pieces, 142 Tax Notes 1231 (Mar. 17, 2014) (Symposium on Tax Reform in a Time of Crisis):
In a previous article, we argued that contrary to the state of the law over 35 years ago — when George Cooper wrote his seminal article on the estate tax (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.’’ (The Estate Tax Non-Gap: Why Repeal a Voluntary Tax?, 20 Stan. L. & Pol’y Rev. 153 (2009)) In another article, we documented the dramatic increase in income and wealth inequality over the past 30 years and the accompanying adverse social consequences and long-term negative effect on economic growth. (Occupy the Tax Code: Using the Estate Tax to Reduce Inequality and Spur Economic Growth, 40 Pepp. L. Rev. 1255 (2013)) 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 that inherited wealth. In this article, we advance five estate and gift tax reform proposals that would generate needed revenue, reduce inequality, and contribute to economic growth: (1) disallow minority discounts when the transferred asset or business is controlled by family before and after the transfer; (2) maintain parity between the unified credit exemption amounts for the estate and gift taxes; (3) reduce the wealth transfer tax exemptions to $3.5 million, increase the maximum tax rate to 45 percent, and limit the generation-skipping transfer tax (GSST) exemption period to 50 years; (4) restrict the ability for 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).