Revenue and Incentive Effects of Basis Step-Up at Death: Lessons from the 2010 'Voluntary' Estate Tax Regime

摘要

The information on the unrealized gains and losses on assets that were included in the estates of decedents who passed away in 2010 provides useful information for estimating the potential revenue cost of basis step-up. To translate this information into a revenue estimate, it must be augmented as in OTA (2014) with data on the value of unrealized gains on assets held by decedents who were not required to file estate tax returns, because their estates were valued at less than $5 million, but who could still take advantage of basis step-up. There are two limitations in using the Form 8939 data from 2010 for either revenue estimates or effective tax rate calculations. The first arises from the voluntary nature of the estate tax for 2010 decedents. If executors decided whether to elect the carryover basis regime or the estate tax-cum-basis step-up regime based on the expected tax liability under the two regimes, then the observed Forms 8939 represent a selected sample from the set of all estates. Gordon, Joulfaian, and Poterba (2015) present evidence that the projected differential in tax liability between the two tax regimes helped predict whether an executor would file an estate tax return or take advantage of the carryover basis regime. The selection would lead to estates for which the value of basis step-up was smallest filing Form 8939. It is difficult to determine how the reported Form 8939 data should be adjusted to take account of this selection phenomenon. It nevertheless seems likely that the UGR on Form 8939 filings is an underestimate of the ratio for the entire decedent population, thus underestimating the revenue loss from basis step-up. While our analysis focuses on net gains, some decedents hold assets with substantial losses. Basis step-up erases these losses and potentially increases the capital gains tax liability of the beneficiaries of these decedents. The second limitation concerns the general-izability of the asset gain and loss positions for 2010. The voluntary estate tax regime occurred two years after the onset of the recent financial crisis. Asset values in some categories, such as real estate and corporate stock, may have been lower in 2010 than in more typical years.