Policy Analysis of Estate Tax Exemption Reform Related to Conservation of Timber Resources in USA

Author

Akira Kajiwara
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No 96, Discussion Paper Series from  Research Institute for Economics & Business Administration, Kobe University

Abstract: Estate taxes play an important role in the U.S. tax system. Because they are paid only on estates left by the less- than-two percent of decedents with the greatest wealth, these taxes add progressivity to federal and state tax systems. In addition, the estate tax compensates in part for a major gap in the taxation of capital gain income. The gain in the value of assets held until death is not subject to the capital gains tax; the only way such gains are subject to tax at all is through the estate tax. Advocates of proposals to repeal or sharply scale back the estate taxes often refer to the problems families encounter when they inherit small businesses and farms but lack sufficient liquid assets to pay the estate taxes. Claims of the timber farming families that paying estate taxes forces them to destroy environmentally-sensitive management systems in their forest lands should be separated from estate tax reforms because these incentives are only relevant to timber farms, not well coordinated with state and federal management policies, not necessary due to already in place sufficient tax relief for these businesses, and not supported by evidence that the claims regarding cutting to pay estate taxes are in fact true. To fully understand estate tax reform in the US political system, issue networks associated with specific reform attempts can be analyzed. The coalition which formed to promote the bills of the National Family Enterprises Preservation (104 H.R. 1212; 104 S. 867), NFEP 95, provides an excellent example of how an issue network is organized at the local and federal levels. Furthermore, the proposals in the bills also show how an estate tax reform attempt went well beyond the measures needed to preserve small family businesses and farms. The revenue loss to the federal government would rise to $12 billion a year by 2005. If estate taxes are reduced in large-scale ways that extend beyond providing targeted relief to small family-owned businesses and farms, it would provide a windfall to the wealthiest taxpayers in the country. The cost of the estate tax reduction would have to be paid for by increasing the amount by which the budget is cut. Thus, a large estate tax cut benefiting the wealthiest Americans is likely to be paid for through sharp reductions in programs that benefit low- and middle-income households who will never amass estates large enough to be subject to taxation.

Keywords: Taxes; Real estate; Timber (search for similar items in EconPapers)
JEL-codes: H39 H24 (search for similar items in EconPapers)
Date: 1998-07
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Persistent link:http://EconPapers.repec.org/RePEc:kob:dpaper:96

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