insurance policies, and certain exchanges of securities in corporate organizations, reorganizations, and mergers. Still another opportunity is probably the most common: the deferral of recognition of the fully reinvested gain on owner-occupied homes.
One of the most significant deferral opportunities is available through the transfer of assets either by gift or at death. Property transferred by gift is subject to federal gift taxation, but no income tax is assessed on the accrued gain. The donee receives the property subject to the donor's basis with an adjustment for gift taxes paid, and if the donee chooses to sell the property, capital gains taxes are collected on the entire appreciation from the date the donor acquired it. Property transferred by bequest is subject to the federal estate tax, but again the appreciation goes untaxed under the income tax. Further, the donee accepts as the basis the value of the property as of the time of bequest, meaning that any appreciation accrued during the donor's lifetime is never subject to capital gains tax. The deferral of taxation through gift or bequest is considered a major problem by some tax experts, because appreciating property can change hands between generations without capital gains tax, thus increasing the concentration of wealth. Further, property owners may keep assets that are economically inferior to available alternatives because the present value of the tax savings at death will exceed the yield differential between the assets, capitalized and discounted over the owner's expected lifetime.
Realizations of capital gains are extremely volatile over time, as is shown in table 12. Several offsetting factors are at work. When assets appreciate and gains accrue more rapidly, some taxpayers choose to realize those gains rather than leave them at risk. Taxpayers with accrued losses have incentives to realize them in order to offset gains, and to move them into apparently more profitable assets. When asset prices are stable or falling, there is less appreciation to realize, but stagnant and falling incomes with no gains encourage realizations to maintain consumption levels. Losses are also likely to be realized to maintain consumption, but published statistics generally do not reveal the true extent of loss realizations because of the limitation on loss offsets against ordinary income.
Table 12 indicates that realizations are significantly correlated with the state of the economy and of the stock market. Net gains are significantly positively correlated with both the level of corporate profits and stock