DEATH AND GIFT TAX

levy imposed on gratuitous transfers of propertythat is, transfers made without compensation in either money or its equivalent. In this respect they differ from sales taxes imposed on transfers made in exchange for something of value, from property taxes and capital levies that are based on the mere ownership or possession of property, and from income taxes levied on earnings. Death in many countries is considered to be a taxable event, one that prompts the imposition of a levy by the state. Death taxes are of two kinds: those imposed on the property left at death are known as estate taxes and those imposed on the acquisition of property from a person who has died are known as inheritance taxes. The two kinds of death taxes are sometimes both used in the same system. Inheritance taxes generally discriminate on the basis of relationship: there may, for example, be larger exemptions or lower rates for spouses and children. Inheritance taxes are in the nature of accessions taxes, a tax on receiving rather than giving. Even the U.S. estate tax, which is primarily a tax on the estate rather than its acquisition, takes some account of who benefits; anything left to a spouse is tax-free up to one-half of the estate, and anything left to charity is entirely exempt. Levies on gratuitous transfers between living persons are known as gift taxes. These may be integrated with death taxes to make a single structure of taxation applicable to gratuitous transfers. Death and gift taxes are closely related in France, Germany, and Sweden. A complete accessions tax would cumulatively combine both inheritance and gifts received. Japan had such a tax in the 195053 period. Death and gift taxes are of greater symbolic than practical significance. Of all taxes, they are among the least productive of revenue in both absolute and percentage terms, and their relative importance has dwindled with the growth of income, sales, and excise taxes. The tax-rate structure alone is misleading, since the many deductions, exemptions, exclusions, and allowances generally reduce the yield drastically. Moreover, most people have no taxable estate whatever and are never subject to the gift tax. Thus, death and gift taxes are generally imposed not for the purpose of generating revenue but for social reasons. They are meant to reduce inequalities in the distribution of wealth and provide an opportunity to break up large estates. Economic benefits may derive from the resulting reduction in the concentration of economic power. Although death and gift taxes do tend to achieve a more equal distribution of wealth, the magnitude of the effect is small in most countries. Additional reading Death and gift taxes are studied in Harold M. Somers, Capital Gains, Death, and Gift Taxation (1965); Carl S. Shoup, Federal Estate and Gift Taxes (1966, reprinted 1980); and George Cooper, A Voluntary Tax?: New Perspectives on Sophisticated Estate Tax Avoidance (1979). Charles E. McLure, Jr.