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Economic Issues Surrounding the Estate and Gift Tax: A Brief Summary, Date: January 29, 2003 1 (January 29, 2003)

handle is hein.tera/crstax0130 and id is 1 raw text is: Order Code RS20609 Updated January 29, 2003 CRS Report for Congress Received through the CRS Web 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 106th Congress, but were vetoed by the President. President Bush had 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.' The entire bill is to sunset on 2010, but there are proposals to make the change permanent. 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 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 ofH.R. 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 ** The Library of Congress

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