1150 Seventeenth Street, N.W., Washington, D.C. 20036
2010 may be the best year to die, or at least your heirs may think so. Under current law, the estate tax will be eliminated for those who die next year. But the tax is scheduled to return in full force for those who die in later years. With this
Download Audio as MP3 short-lived repeal only months away, Congress is preparing to take another look at the estate tax. What are the economic effects of the estate tax? Should it be extended, reformed, or abolished?
At this AEI conference, experts will provide a variety of perspectives on these questions. Lily Batchelder, professor of law and public policy at New York University School of Law, will argue that the estate tax promotes fairness and will discuss ways to reform the tax. Kevin A. Hassett, director of economic policy studies at AEI, will discuss the costs imposed on society by the estate tax. Karlyn Bowman, senior fellow at AEI, will chart the nuances of public opinion on this hotly contested issue. AEI resident scholar Alan D. Viard will moderate.
|10:00||Presenters:||Lily Batchelder, New York University School of Law|
|Karlyn Bowman, AEI|
|Kevin A. Hassett, AEI|
||Alan D. Viard, AEI
1150 Seventeenth Street, N.W.
Washington, DC 20036
WASHINGTON, NOVEMBER 10--Washington tax experts are joking that 2010 may be the best year for wealthy Americans to die, at least from the perspective of those who will inherit their estates. Unless Congress takes action, the estate tax is scheduled to disappear next year before returning in full force in 2011. AEI recently convened a panel of experts with widely differing perspectives to weigh the social and economic benefits and costs of the estate tax, consider options for reform, and evaluate current public opinion on the tax.
Lily Batchelder, a professor of law and public policy at the New York University School of Law, argued the estate tax is a necessary tool for addressing wealth inequalities in the United States. "Inheritances," Batchelder explained, "magnify economic disparities and are probably the biggest barrier to intergenerational mobility that we have." Only one percent of people within the United States receive inheritances worth $1 million or more, and, given the low degree of intergenerational mobility in the United States, wealth transfers tend to perpetuate hereditary class structures. "If we want to pursue the American Dream of everyone having an equal chance of making it to the top of the barrel," Batchelder concluded "[the estate tax] is the best thing we can do for them."
Additionally, Batchelder argued the estate tax is necessary to maintain the fairness and progressivity of the tax code because it offsets other provisions that give preferential tax treatment to gifts and bequests, notably the failure to impose income tax on the recipients. "On net," Batchelder explained, the tax system heavily subsidizes "gifts and bequests to the tune of $100 billion." The estate tax, according to Batchelder, is a desirable policy because "the traditional tension that we see in taxation between fairness and efficiency doesn't really exist in this context."
Kevin A. Hassett, director of economic policy studies at AEI, strongly disagreed with Batchelder's assessment of the estate tax as a benign instrument of social justice, arguing instead that it harms productivity, impedes economic growth, and suppresses employment by discouraging capital accumulation. Drawing heavily from a recent paper on the economic effects of the estate tax by economist and former Congressional Budget Office director Douglas Holtz-Eakin and Cameron T. Smith, Hassett contradicted Batchelder's claim that the estate tax is efficient, citing empirical evidence that individuals respond to the estate tax by lowering their net worth substantially.
Hassett argued the estate tax should be evaluated in terms of existing capital tax theory. He showed that the accrual-equivalent rate --that is, the tax rate that would need to be applied each year to reproduce a one-time tax on the total amount of accumulated wealth--is very high for the estate tax, making it one of the harshest forms of capital taxation. Further, Hassett explained the estate tax is harmful for small businesses because "estate funds are poured back into small businesses," which allow them to expand operations and increase employment.
Batchelder and Hassett agreed the current estate tax is needlessly complex. Batchelder suggested that smoothing rates over time and harmonizing the tax treatment of gifts and bequests would drastically improve the current structure. A more radical approach, Batchelder explained, would be to replace the estate tax with an inheritance tax, which would tax inherited wealth based upon the amount received by the heir, rather than the value of the estate. Hassett agreed that if there is going to be a tax on estates, "it should have the form of an inheritance tax."
AEI senior fellow Karlyn Bowman presented a comprehensive picture of current public opinion on estate taxes, explaining that although public knowledge of taxation is generally low, Americans are remarkably consistent in expressing their dislike for the estate tax and frequently rank it as the "least fair tax" in public opinion polls. Many poll respondents criticize the estate tax as a second tax on money that has already been taxed. Bowman reminded panelists that Americans evaluate policies in terms of their underlying values, rather than analyzing all factual information surrounding an issue. According to Bowman, the American belief that success in life is the result of one's own efforts, and the conviction that one "should be able to pass on what you earn to your heirs" is central to the debate over the estate tax.
Lily Batchelder is a professor of law and public policy at the New York University (NYU) School of Law, where she specializes in taxation, specifically income taxation, wealth transfer taxation, tax incentives, and social insurance. Her research centers on the efficient design of tax incentives, the distributional effects of wealth transfer taxes, and the intersections between tax and social policy in addressing economic insecurity, income disparities, and barriers to intergenerational mobility. Ms. Batchelder has been a visiting professor at Harvard Law School, and is currently the codirector of the Furman Academic Program and an affiliated scholar with the Urban-Brookings Tax Policy Center. Before joining NYU in 2005, Ms. Batchelder practiced at Skadden, Arps, Slate, Meagher & Flom, where she focused on transactional and tax policy matters. She has also served as a Wiener Fellow at the Wiener Center on Social Policy at the Kennedy School of Government; director of community affairs and campaign manager for a New York state senator; and client advocate for a small social services organization in Ocean Hill–Brownsville, Brooklyn.
Karlyn Bowman is a senior fellow at AEI. She compiles and analyzes American public opinion using available polling data on a variety of subjects, including the economy, taxes, the state of workers in America, environment and global warming, attitudes about homosexuality and gay marriage, NAFTA and free trade, the war in Iraq, and women’s attitudes. In addition, Ms. Bowman has studied and spoken about the evolution of American politics because of key demographic and geographic changes. She has often lectured on the role of think tanks in the United States, has written the definitive history of AEI, and writes a weekly column for Forbes.com.
Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI. His research areas include the U.S. economy, tax policy, and the stock market. Previously, Mr. Hassett was a senior economist at the Board of Governors of the Federal Reserve System, a professor at Columbia University, and a policy consultant to the Treasury Department during the George H. W. Bush and Clinton administrations. He also served as a top economic adviser to the George W. Bush and John McCain presidential campaigns.
Alan D. Viard is a resident scholar at AEI. Prior to joining AEI, he was a senior economist at the Federal Reserve Bank of Dallas and an assistant professor of economics at Ohio State University. He has also worked for the Treasury Department’s Office of Tax Analysis, the President’s Council of Economic Advisers, and the Joint Committee on Taxation. Mr. Viard has written on a wide variety of tax and budget issues.