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Economic Issues Surrounding the Estate and Gift Tax: A Brief Summary, Date: June 19, 2001 1 (June 19, 2001)

handle is hein.tera/crstax0129 and id is 1 raw text is: Order Code RS20609 Updated June 19, 2001 Economic Issues Surrounding the Estate and Gift Tax: A Brief Summary Jane G. Gravelle Senior Specialist in Economic Policy Government and Finance Division Summary Supporters of the estate and gift tax argue that it provides progressivity in the federal tax system, provides a backstop to the individual income tax and appropriately targets assets that are bestowed on heirs rather than assets earned through their hard work and effort. However, progressivity can be obtained through the income tax and the estate and gift tax is an imperfect backstop to the income tax. Critics argue that the tax discourages savings, harms small businesses and farms, taxes resources already subject to income taxes, and adds to the complexity of the tax system. Critics also suggest death is an inappropriate time to impose a tax. However, the effect on savings is uncertain, most farms and small businesses do not pay the tax, and complexity could be reduced through reform of the tax. This report will be updated as legislative developments warrant. The estate and gift tax has been the subject of legislative interest for several years, with increases in the exemption enacted in 1997. Proposals to reduce or eliminate the tax were adopted in the 106' Congress, but were vetoed by the President. President Bush has also proposed eliminating the tax and the Ways and Means Committee reported out a bill, H.R. 6 that would phase out the tax. Similar provisions were included in the Senate bill and the final tax cut bill, H.R. 1836, signed by the President on June 7, 2001, although this legislation retained a gift tax with a large exemption.1 The estate and gift tax is a comparatively small source of federal tax revenue, accounting for 1.5% of federal receipts. Estates and gifts to spouses are exempt from tax as are gifts to charity. The first $675,000 of the net estate and gift value is exempt from tax (this exemption rises to $1,000,000 by 2006) and is in addition to an annual gift 1 For a more extensive discussion of estate and gift tax issues see CRS Report RL30600, Estate amd Gift Taxes: Economic Issues. See CRS Report RS20592, Estate Tax Legislation. A Description ofHR. 8 by Nonna A. Noto for a further information on H.R. 8 and other proposals. See also CRS Report 95-416, Federal Estate, Gift, and Generation-Skipping Taxes: A Description of Current Law, by John R. Luckey. Congressional Research Service o0o The Library of Congress CRS Report for Congress Received through the CRS Web

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