Re-Examining the Possibility of an Inheritance Tax

David Joulfaian (U.S. Department of the Treasury) recently published his article entitled Replacing the Estate Tax with an Inheritance Tax: A Re-Examination, 63 Tax L. Rev. 209 (2009).  This article addresses Lily Batchelder’s article as well as James Hines’ article.  The conclusion is below:

The structure of the current estate tax reflects a number of historical developments and political compromises. A fluid narrow tax base and high tax rates, as well as a complex code, are its salient features. The proposed change would introduce a number of complexities in defining the tax base as well as the ability to identify, locate, and expand the number of taxpayers. Hines discusses many of these. More importantly, the proposed inheritance tax would not replace the estate tax. Its starting point is the division of bequests reported on the estate tax return. It merely shifts the statutory incidence of the tax to the heirs while leaving in place all the existing complexities of deriving the size of the estate to be divided among the heirs. Unless the shortcomings of the current estate tax are addressed, the proposed inheritance tax falls far short from a meaningful contribution to reforming the tax system.