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![handle is hein.taxfoundation/iretcgadv0111 and id is 1 raw text is: oona
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April 30, 2001 No. 114
FAULTY REVENUE SCORING: LIFE
SUPPORT FOR THE DEATH TAX
In new revenue estimates, the Joint Committee
on Taxation (JCT) has sharply increased its estimate
of the tax loss to the federal
rolling back the estate and gift
tax. These revised estimates
have led the House of
Representatives to further
stretch out the repeal process.
The new JCT estimates of the
cost of repeal of the estate and
gift tax are wrong, based on
highly selective behavioral
assumptions leading to
unwarranted concerns that
repeal would increase income
tax avoidance. The JCT
should recognize that a well-
crafted repeal of the death tax
government from
would reduce, not
increase, opportunities for income tax avoidance,
and would increase revenue by promoting saving
and economic growth. The tax should be repealed
sooner, not later.
The change in the JCT's revenue scoring of
estate and gift tax repeal came in response to a
request from Rep. Charles Rangel (D-NY), ranking
member of the House Ways and Means Committee,
to estimate the tax cost of immediately repealing the
estate and gift tax. According to Lindy Paull, the
JCT's Chief of Staff, the new numbers are based on
a more detailed analysis of expected behavioral
responses that takes into account a variety of
specific behavior responses that have been called to
our attention by practitioners and commentators.'
The JCT's chief of staff announced the change
in a letter to John Buckley, Minority Tax Counsel to
the Ways and Means Committee. Mr. Buckley
claims that reducing or repealing the death tax
would provide people with obvious income tax
avoidance techniques. To reflect the income tax
spillover he claims would occur, he says that any
revenue estimate of a proposal that totally repeals
federal estate and gift taxes should show a federal
revenue loss substantially in excess of the revenues
currently collected under the transfer tax system
alone. [emphasis added],2
In its revised numbers, the
JCT accepts Mr. Buckley's
position. After estimating that
the death tax would collect
$410 billion over the ten year
period 2002-2011 under
current law, the JCT then
estimates that immediate repeal
would cost $660 billion, which
is more than 60% larger than
what the tax brings in.3 This
is in spite of a large revenue
raiser that the JCT assumed
death tax repeal: a partial shift
basis to carry-over basis for
would accompany
from stepped-up
inherited assets.
With stepped-up basis, an heir's acquisition cost
of an inherited asset for tax purposes is deemed to
be its value as of the date of the decedent's death
(or as of the date specified by the alternate valuation
option). With carry-over basis, in contrast, if heirs
ever sell inherited assets, they must find the
decedent's basis and use that in capital gains
calculations.4 Current law provides for stepped-up
Institute for
Research on the
Economics of
Taxation
[Tjhe Joint Committee on
Taxation (JCT) has sharpjly
incr-eased its estimate of the tax
loss to the fiederal governent
fr-om r-olling back the estate and
gift tax. These reised estimates
have led the House of
Representatives tofurther stretch
out the repeal process.
IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to inorming the
public about policies that will promote economic growth and efficient operation of the free market economy.
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