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![handle is hein.taxfoundation/iretbyln0112 and id is 1 raw text is: April 12, 1993 No. 112
Clinton's Proposed Estate Tax Rate Increase:
A Deadly Budget Gimmick
President Clinton proposes a permanent increase in
the top tax rates of the combined estate and gift tax to
55% from the current level of 50% on lifetime
transfers of more than $2,000,000. This proposal is
part of his program to raise taxes on the rich.
A unified transfer tax is imposed on an
individual's cumulative lifetime gifts and bequests.
The tax is imposed at graduated
rates, with brackets and marginal
rates ranging from 18% to 50%. A
unified tax credit offsets the President
graduated tax on transfers of up to made a n,
$600,000. The next $150,000 of increasing
unified transfers is taxed at 37%, formation...
with larger amounts taxed at the [estate
increasing rates up to 50%. The tax would
top rate of 50% currently applies to formation
that portion of lifetime transfers
that exceeds $2,500,000. The
benefits of the graduated rate
structure and the unified credit are taken back by an
add-on 5% tax on amounts between $10,000,000 and
$18,340,000. Generation-skipping transfers pay a 50%
tax rate.
Prior to 1993, the marginal tax rate was 53% on
that portion of an estate between $2,500,000 and
$3,000,000, and 55% on amounts over $3,000,000.
The reduction in the top unified transfer rates to 50%
in 1993 was a long-delayed implementation of a rate
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IRET
Byline
Institute for
Research on the
Economics of
Taxation
cut first enacted in the Economic Recovery Tax Act of
1981, which provided for gradual reduction of the top
income and estate tax rates to a maximum of 50% by
1985. Subsequent tax bills relating to deficit reduction
repeatedly postponed the decrease in the top transfer
tax rate.
Clinton would restore the previous two brackets
and the higher rates, and recapture the benefits of the
unified credit and any rate below 55% with a 5% add-
on tax on the portion of an estate between $10,000,000
and $21,040,000. Generation-skipping transfers would
pay a 55% tax rate.
President Clinton has made a major issue of
increasing U.S. capital formation, technological
prowess, productivity, and high-value-added jobs. He
has even acknowledged the need for increased private
investment to help bring this about. The transfer tax,
however, imposes powerful tax disincentives for
private saving and capital formation. Furthermore, it
is a form of double taxation of capital that boosts the
tax disincentives to very high levels. Raising the
transfer tax would reduce capital
formation below the levels that
would otherwise occur. Increasing
!inton has the transfer tax would, therefore,
r issue of cause productivity, wages and
.S. capital employment to suffer, injuring the
t] Raising entire population.
ift] transfer The transfer tax increase is yet
ruce capital another instance in which Clinton
indulges in a symbolic fairness
gesture with the substantive result
of injury to his stated growth
objective. Correcting the tax bias against saving in the
current tax code to improve the climate for capital
formation would involve, among other changes, the
complete elimination of the transfer tax.
Every dollar making up an estate has been
previously taxed, or will be taxed, under some
provision of the income tax code. Generally, income
is taxed when first earned. If it is used for
consumption, it is generally free of further federal
IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the
public about policies that will promote economic growth and efficient operation of the free market economy.
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