The Economic Consequences Of Repealing The Estate Tax Law

The federal estate tax has been a part of our tax structure since the founding of the country. It is the federal government’s only tax on accumulated transfers of wealth. From its inception in 1916, it has been applied only to very large estates. The transfer of wealth can take place during the individual’s life (gift) or at the time of death (estate).  Both types of transfer are combined and taxed according to the Taxpayer Relief Act of 1976. The Taxpayer Relief Act of 1976 was an important legislation affecting the structure of both the federal estate and gift taxes. In this Act, a unified system of taxation was established which treats both transfers of wealth, either during the life of the owner (gift) or at his or her death (estate) uniformly. The recent legislation of 2001 made drastic changes to the tax rates and the level of exemptions of the 1976 federal estate tax. According to this legislation, the maximum estate tax rate will drop gradually during the period of 2002-2010. Beginning in 2002, the maximum unified tax rate is reduced from 55% to 50%. This drop will reach to 45% by the year 2007 and will remain unchanged till 2009. The limit of exemption for a taxable transfer of wealth will increase from $1,000,000 to $1,500,000 by the year 2004, to $2,000,000 by 2006, to $3,500,000 by 2009, and to infinity by 2010 (estate tax will be repealed).  This original version of federal estate tax will come back in 2011, unless the Congress decides differently and changes the law. Like other social, economic, and tax issues, the transfer of wealth tax (estate and gift) is subject to debate and disagreements. The opponents of the estate tax support their views by referring to the immorality aspect of the tax and its undesired economic consequences. The supporters of the estate tax present their arguments on the basis of fairness and the ability of the tax to encourage charitable contributions. In addition, they believe that the economic consequences of repealing the estate tax would ripple through our economy and reduce federal revenues. Consequently, it could bring inequity and unfair distribution of wealth among the citizens and eventually could culminate in high difference in the class level of citizens. In our view, the federal estate tax is a tax worth fighting to keep and attempting to improve. If it were repealed, the burden of taxes would be felt more by those who have no wealth and had paid their income taxes on their earned income once before. Consequently, the lawmakers should keep the federal estate tax and fixing it by adjusting the amount of exemptions and the tax rates to reasonable, effective, and fair levels.

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The Estate Tax Drag on Family Businesses

Family Business Review ◽

10.1111/j.1741-6248.1996.00233.x ◽

1996 ◽

Vol 9 (3) ◽

pp. 233-252 ◽

Cited By ~ 3

Author(s):

J.D. Foster ◽

Patrick Fleenor

Keyword(s):

Simulation Model ◽

Entrepreneurial Activity ◽

Wealth Accumulation ◽

Tax Rates ◽

Corporate Tax ◽

Estate Tax ◽

Tax Rate ◽

Estate Taxes ◽

The Individual ◽

Disincentive Effect

This essay considers estate taxes and their effect upon entrepreneurial activity and family business. After a brief history of estate taxes, estate compositions and tax burdens are addressed. Finally, a simulation model is used to quantify the disincentive effect of estate taxation upon wealth accumulation. The simulation model suggests that estate taxes have the same disincentive effect as would a 67% individual tax rate or a 67.85% corporate tax rate. Thus, it would be necessary to roughly double the individual and corporate tax rates to reduce bequests to the level under the current estate tax regime.

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Income Taxes, Compensating Differentials, and Occupational Choice: How Taxes Distort the Wage-Amenity Decision

American Economic Journal Economic Policy ◽

10.1257/pol.4.1.224 ◽

2012 ◽

Vol 4 (1) ◽

pp. 224-247 ◽

Cited By ~ 13

Author(s):

David Powell ◽

Hui Shan

Keyword(s):

Occupational Choice ◽

Income Taxes ◽

Compensating Differentials ◽

Tax Rates ◽

Occupational Choices ◽

Tax Rate ◽

Welfare Impacts ◽

Percent Increase

The link between taxes and occupational choices is central for understanding the welfare impacts of income taxes. Just as taxes distort the labor-leisure decision, they may also distort the wage-amenity decision. Yet, there have been few studies on the full response along this margin. When tax rates increase, workers favor jobs with lower wages and more amenities. We introduce a two-step methodology which uses compensating differentials to characterize the tax elasticity of occupational choice. We estimate a significant compensated elasticity of 0.03, implying that a 10 percent increase in the net-of-tax rate causes workers to change to a 0.3 percent higher wage job. (JEL H24, H31, J22, J24, J31)

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Reforming the individual income tax in Spain

SERIEs ◽

10.1007/s13209-020-00224-2 ◽

2020 ◽

Vol 11 (4) ◽

pp. 369-406 ◽

Cited By ~ 1

Author(s):

Nezih Guner ◽

Javier López-Segovia ◽

Roberto Ramos

Keyword(s):

Labor Supply ◽

Income Taxes ◽

Tax Revenue ◽

Labor Income ◽

Marginal Tax Rate ◽

Tax Rate ◽

Percentage Points ◽

The Mean ◽

The Government ◽

The Individual

AbstractCan the Spanish government generate more tax revenue by making personal income taxes more progressive? To answer this question, we build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply. Individuals face progressive taxes on labor and capital incomes and proportional taxes that capture social security, corporate income, and consumption taxes. Our answer is yes, but not much. A reform that increases labor income taxes for individuals who earn more than the mean labor income and reduces taxes for those who earn less than the mean labor income generates a small additional revenue. The revenue from labor income taxes is maximized at an effective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy. The increase in revenue from labor income taxes is only 0.82%, while the total tax revenue declines by 1.55%. The higher progressivity is associated with lower aggregate labor supply and capital. As a result, the government collects higher taxes from a smaller economy. The total tax revenue is higher if marginal taxes are raised only for the top earners. The increase, however, must be substantial and cover a large segment of top earners. The rise in tax collection from a 3 percentage points increase on the top 1% is just 0.09%. A 10 percentage points increase on the top 10% of earners (those who earn more than €41,699) raises total tax revenue by 2.81%.

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The Influence of Corporate Income Taxes on Investment Location: Evidence from Corporate Headquarters Relocations

Management Science ◽

10.1287/mnsc.2020.3906 ◽

2021 ◽

Author(s):

Travis Chow ◽

Sterling Huang ◽

Kenneth J. Klassen ◽

Jeffrey Ng

Keyword(s):

Income Tax ◽

Strong Support ◽

The State ◽

Economic Consequences ◽

Corporate Income Tax ◽

Tax Rates ◽

Tax Rate ◽

Percentage Point Increase ◽

Point Increase ◽

State Income

This study examines the effects of jurisdictions’ corporate taxes and other policies on firms’ headquarters (HQ) location decisions. Using changes in state corporate income tax rates across time and states as the setting, we find that a one-percentage-point increase in the HQ state corporate income tax rate increases the likelihood of firms relocating their HQ out of the state by 16.8%, and an equivalent decrease in the HQ state rate decreases the likelihood of HQ relocations by 9.1%. Exploiting the unique tax policy features within the state apportionment system lends strong support to the interpretation that taxation drives this effect. Our analyses also demonstrate that state income tax features affect the destination of the HQ move. We contribute to the literature on corporate decision making by showing how state income taxation affects a real corporate decision that has significant economic consequences for the company and the state. This paper was accepted by Brian Bushee, accounting.

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PENGARUH SOSIALISASI PERPAJAKAN, TARIF PAJAK, SANKSI PERPAJAKAN, DAN KESADARAN PERPAJAKAN TERHADAP KEPATUHAN PELAPORAN SPT TAHUNAN WAJIB PAJAK ORANG PRIBADI (Studi Empiris Pada KPP Pratama Jayapura)

JURNAL AKUNTANSI DAN KEUANGAN DAERAH ◽

10.52062/jakd.v14i1.1446 ◽

2020 ◽

Vol 14 (1) ◽

Author(s):

Marisa Setiawati Muhamad ◽

Meinarni Asnawi ◽

Bill J.C Pangayow

Keyword(s):

Sampling Technique ◽

Partial Least Square ◽

Least Square ◽

Tax Rates ◽

Tax Rate ◽

Test Tool ◽

Annual Reporting ◽

Convenience Sampling ◽

The Individual ◽

Tax Reporting

This study aims to analyze the influence of taxation socialization, tax rates, tax sanctions, and tax awareness on tax reporting compliance Annual taxpayer person. Study at KPP Pratama Jayapura. Data collection in this study is to use questionnaires to individual taxpayers in KPP Pratama Jayapura. The sampling technique used in this research is convenience sampling. Data analysis techniques using Partial Least Square (PLS) using Smart PLS 3.0 software. Based on the results ofanalysis by using PLS test tool shows that there is influence between taxation on taxation awareness. There is an influence between taxation socialization, tax rate and tax awareness on tax reporting compliance annual taxpayer personal person. While the tax sanction does not affect the taxpayer annual reporting of the individual taxpayers. Tax awareness may interfere with the socialization of annual taxpayer's annual reporting compliance

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Effects of Unitary vs. Nonunitary State Income Taxes on Interstate Resource Allocation: Some Analytical and Simulation Results

Journal of the American Taxation Association ◽

10.2308/jata.2001.23.1.39 ◽

2001 ◽

Vol 23 (1) ◽

pp. 39-60 ◽

Cited By ~ 5

Author(s):

Michael G. Williams ◽

Charles W. Swenson ◽

Terry L. Lease

Keyword(s):

State Government ◽

Income Taxes ◽

Tax Credits ◽

Tax Revenue ◽

Tax Rates ◽

Tax Rate ◽

Unitary State ◽

State Tax ◽

State Income ◽

Tax Structures

This study examines the optimal location choice decisions of a two-state firm in response to changing state corporate income tax rates and tax structures. Because the firm can engineer its tax liability by manipulating between-state location of sales, property, and payroll, changes in relative state tax rates should result in the firm making such location changes. Results of a model firm simulation, examining various combinations of state tax rates and unitary vs. nonunitary tax structures, found that the firm would make interstate resource changes to minimize company-wide state income taxes. Important findings of the study are that tax rate changes in nonunitary states may cause little or no change in resources used in that state. Indeed, in one scenario, the resulting resource flows from a tax increase are favorable to the nonunitary state, making a tax increase a win-win situation for the state government (higher tax revenue and more economic activity). In contrast, changes in unitary state tax rates can result in significant resource changes in both the unitary state and in other states. The finding that tax rate cuts are ineffective in nonunitary states implies that these states may be more successful in attracting investment by changes affecting apportionment factors (tax credits for new capital, or new jobs) or by use of nontax incentives.

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Investment Performance Comparison Between Roth And Traditional Individual Retirement Accounts

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v17i1.2064 ◽

2011 ◽

Vol 17 (1) ◽

Author(s):

George W. Kutner ◽

Lloyd D. Doney ◽

James P. Trebby

Keyword(s):

Return On Investment ◽

Performance Comparison ◽

Rate Of Return ◽

Tax Rates ◽

Font Size ◽

Investment Performance ◽

Tax Rate ◽

Individual Retirement Accounts ◽

Retirement Accounts ◽

The Relationship

With the recent introduction of the Roth Individual Retirement Account (IRA) along with a significantly improved Traditional IRA, there has been considerable interest in comparing the performance of these investment vehicles.  Some confusion regarding these comparisons has evolved.  In this paper we show that this confusion may be attributed to scale and tax differences between the two investment vehicles.  We adjust for these differences by focusing on the after-tax rate-of-return on investment for each IRA vehicle.  We find that performance depends crucially on the relationship between an individual’s tax rates at the time of investment and at the time of withdrawal.

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Optimal Tax Deferral Choices In The Presence Of Changing Tax Regimes

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v23i1.1404 ◽

2011 ◽

Vol 23 (1) ◽

Author(s):

Terrance Jalbert ◽

Eric Rask ◽

Mercedes Jalbert

Keyword(s):

Return On Investment ◽

Rate Of Return ◽

Tax Rates ◽

Font Size ◽

Comprehensive Understanding ◽

Rate Estimate ◽

Tax Rate ◽

Optimal Tax ◽

Tax Regimes

In this paper the attractiveness of tax-deferred and non-deferred investments in periods of changing tax regimes are examined.  Specifically the desirability of deferring taxes given one’s current tax rate, estimate of future tax rates, number of years until retirement, and the expected rate of return on investment is explored.  Under some combinations of tax rates and investment horizons, tax deferral is found to be undesirable while in others it is found to be desirable.  Using the formulas and tables developed here, an individual can identify the rate of return on investment at which he is indifferent between deferring and not deferring, rates at which tax deferral is preferred and rates at which tax deferral is inferior.  In addition, the sensitivity of the decision to the timing of future tax rate changes is explored.  This research provides investors a more comprehensive understanding of the factors that determine optimal tax deferral choices and will permit investors to make better tax deferral decisions.

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Estimating Dynamic Income Responses to Tax Reform

The B E Journal of Economic Analysis & Policy ◽

10.2202/1935-1682.2891 ◽

2011 ◽

Vol 11 (1) ◽

Cited By ~ 9

Author(s):

Bertil Holmlund ◽

Martin Söderström

Keyword(s):

Tax Reform ◽

Income Taxes ◽

Tax Rates ◽

Marginal Tax Rate ◽

Tax Rate ◽

Long Run ◽

Large Panel ◽

Short Run ◽

Tax Changes ◽

Tax Payers

Abstract We study income responses to income tax changes by using a large panel of Swedish tax payers over the period 1991–2002. Changes in statutory tax rates as well as changes in tax bracket thresholds provide exogenous variations in tax rates that can be used to identify income responses. We estimate dynamic income models which allow us to distinguish between short-run and long-run effects in a straightforward fashion. For men, the estimates of the long-run elasticity of income with respect to the net-of-tax rate hover in a range between 0.10 and 0.30. The estimates for women are statistically insignificant. We simulate the fiscal consequences of a tax reform that reduces the top marginal tax rate by five percentage points. Such a reform may have negligible effects on tax revenues when the interactions between income taxes and other taxes are taken into account.

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Tax Rates and Tax Collections: The Basic Analytics of Khaldun-Laffer Curves

Public Finance Quarterly ◽

10.1177/109114218100900403 ◽

1981 ◽

Vol 9 (4) ◽

pp. 415-430 ◽

Cited By ~ 2

Author(s):

Roy D. Adams

Keyword(s):

Theoretical Analysis ◽

Supply And Demand ◽

Income Taxes ◽

Rate Change ◽

Tax Rates ◽

Tax Rate ◽

Demand Functions ◽

Different Types ◽

The Subject ◽

Empirical Issue

This article describes the relation between tax rates and tax collections for three different types of taxes: unit excises, ad valorem excises, and general income taxes. The tax rate-tax collections relationship is currently the subject of widespread discussion, but the determinants of the shape of the function have not been clearly specified. This article presents mathematical and graphical expositions of the linkage between supply and demand for taxed commodities and the tax rate-tax collections relationship. The tax collections function will often, but not always, be shaped as it is commonly drawn; its shape is uniquely determined by the underlying supply and demand functions in the taxed market. Whether a tax rate change will increase or reduce tax collections is always an empirical issue which depends on the values of items identified by the theoretical analysis in this article.

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