Should We Tax the Gratuitous Transfer of Wealth? an Introduction

By Repetti, James R. | Boston College Law Review, January 1, 2016 | Go to article overview

Should We Tax the Gratuitous Transfer of Wealth? an Introduction


Repetti, James R., Boston College Law Review


The role of the estate tax in our system has become increasingly controversial. The first panel in this Symposium addresses some of the important issues pertaining to whether it is desirable to tax gratuitous transfers of wealth.

The estate and gift tax was adopted for two principal reasons. First, it was viewed as a source of revenue. The estate tax accounted for about 1% to 1.5% of federal government revenues during the period 1981 through 2000.1 In 2000, estate and gift tax revenues totaled $29.7 billion, accounting for 1.4% of revenues collected that year.2 In recent years, however, the role of the estate tax as a revenue source has decreased as a result of large increases in exemption amounts. Revenues from the estate and gift tax fell to $20,154,935 in 2014, and accounted for only 0.65% of collected revenues.3

It is interesting to note that had the share of revenues contributed by the estate tax remained at its 2000 level of 1.4%, the estate and gift tax would have generated twice as much revenue in 2014: $42.9 billion.4 President Obama's proposal to increase the estate and gift tax rate to 45% and reduce the estate tax and gift tax exemptions to $3.5 million and $1 million, respectively, in 2016 would increase revenues by over $226 billion during the period 2017 through 2026.5

The second principal reason for the adoption of the estate tax was to curb dynastic wealth. President Theodore Roosevelt proposed an estate tax in 1906 to prevent "the owner of one of these enormous fortunes to hand more than [a] certain amount to any one individual."6 One major concern about dynastic wealth was its impact on democracy. In 1916, the economist Irving Fisher favored the adoption of an estate tax to help curb the "danger of an hereditary plutocracy" to "democratic ideals."7 In 1935, President Franklin D. Roosevelt proposed expanding transfer taxes because he felt that large accumulations of wealth "amount to the perpetuation of great and undesirable concentration of control in a relatively few individuals over the employment and welfare of many, many others."8

Not surprisingly, modern studies confirm that there is reason to worry about the harmful effect concentrations of wealth have on the democratic process. Studies show that large contributors have increased access to elected officials,9 and that policy outcomes of the U.S. federal government are more responsive to high-income voters where opinions of the wealthy and poor diverge.10 The result is that wealth tends to skew the political process. A recent study by two Princeton University political scientists concluded, "When a majority of citizens disagree with economic elites . . . they generally lose."11

Against this background, the three articles in this Symposium panel, which focuses on whether it is desirable to tax the gratuitous transfer of wealth, make significant contributions to the state of knowledge about the es tate tax.12 In his article The One-Hundredth Anniversary of the Federal Estate Tax: It's Time to Renew Our Vows, Paul Caron reviews the data about increases in inequality.13 He notes that the share of wealth held by the top 0.1% rose from 7.1% in 1978 to 22.0% in 2012-a level almost as high as the 24.8% held by that group in 1929.14

One may reasonably ask why we should worry about increased inequality. The short answer is that inequality is associated with significant adverse social consequences. As has been chronicled extensively elsewhere, inequality appears to be associated with significant societal ills and reduced economic growth.15 In the book The Spirit Level: Why Greater Equality Makes Societies Stronger, for example, Richard Wilkinson and Kate Pickett argue that a variety of health and social outcomes (life expectancy, math and literacy, infant mortality, homicides, imprisonment, teenage births, level of trust, obesity, mental illness, drug and alcohol addiction, and social mobility) are worse in countries with greater income inequality. …

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