My new paper on shifting from our estate and gift taxes to an inheritance tax—where heirs would pay income and payroll taxes on inheritances they receive above a large lifetime exemption—was just released by @hamiltonproj. Here’s a quick summary. 1/15 hamiltonproject.org/assets/files/B… 
@hamiltonproj Inherited income is currently taxed at less than 1/7 the rate on income from work and savings. This is because heirs don’t have to pay income or payroll taxes on their inheritances. The estate and gift tax is essentially the only tax burdening inherited income. 2/15
@hamiltonproj The rich disproportionately receive large inheritances. Inheritances represent about 40% of all wealth. Among HHs receiving an inheritance, those with economic income >$1M on average inherit $3M, while those with economic income <$50K inherit only $62K. 3/15
@hamiltonproj Intergenerational economic mobility is low in the US compared to other high-income countries. Inheritances are an important driver. By some estimates, they are a more important predictor of a child’s future earnings the child’s education, IQ, and personality *combined*. 4/15
@hamiltonproj The proposal would take a major step toward leveling the playing field between inherited income and income from work by requiring wealthy heirs to pay income and payroll taxes on inheritances they receive above a large lifetime exemption. 5/15
@hamiltonproj The proposal would also repeal the estate and gift taxes, tax accrued gains on gifts and bequests (above an exemption) upon transfer, and substantially reform the rules governing family businesses, personal residences, and transfers through trusts and similar devices. 6/15
@hamiltonproj Relative to current law, @TaxPolicyCenter estimates the proposal would raise $1.4 trillion if the lifetime exemption was $500K, $917 billion if the lifetime exemption was $1M, and $337 billion from 2020-30 if the lifetime exemption was $2.5M. 7/15
@hamiltonproj @TaxPolicyCenter These revenue estimates are probably underestimates because @TaxPolicyCenter was not able to estimate several important revenue raising features of the proposal (see notes). 8/15
@hamiltonproj @TaxPolicyCenter The proposal would only burden those receiving exceptionally large inheritances—the top 0.02%, 0.08%, and 0.18% of households (if the lifetime exemption was $2.5M, $1M, and $500K, respectively), when ranked by inheritance size. 9/15
@hamiltonproj @TaxPolicyCenter The proposal would substantially narrow the gap between the average tax rate on inherited income vs. income from work and savings among all households—and among heirs receiving the very largest inheritances, it would close or reverse that gap. 10/15
@hamiltonproj @TaxPolicyCenter The proposal would also more equitably allocate wealth transfer taxes among heirs because some small inheritances come from relatively large estates, while some heirs receiving massive inheritances get them from a combination of multiple, smaller estates. 11/15
@hamiltonproj @TaxPolicyCenter For example, this chart compares the tax rates on inheritances under an estate and inheritance tax raising the same revenue. Each circle is a form of inheritance. If the two approaches taxed every inheritance at the same rate, all the circles would be on a 45 degree line. 12/15
@hamiltonproj @TaxPolicyCenter Many conservatives I have spoken with think an inheritance tax is better than an estate tax. E.g., @djheakin seems to think so. My new paper also discusses a number of efficiency and simplification benefits from the proposal. 13/15 americanactionforum.org/daily-dish/plu…
@hamiltonproj @TaxPolicyCenter @djheakin Finally, the proposal should increase public support for taxing large inheritances because it would better align the structure of wealth transfer taxes with their actual economic effects—primarily burdening wealthy heirs, not their benefactors. 14/15
@hamiltonproj @TaxPolicyCenter @djheakin Inheritance taxes have been more politically resilient than estate taxes in other countries. They make clearer the inequity of taxing inheritances at low rates, especially when, as I propose, large inheritances are directly included in the heir’s income and payroll tax base.15/15
