This paper addresses the perception of income mobility in Armenia over the pre and post independence years. The findings suggest that those who ranked themselves at the lowest tail of the income distribution prior to independence in1991 perceive to have overwhelmingly moved up in the rankings, with the reverse observed for those who ranked themselves in the upper tail of the distribution. There is some evidence that the least educated perceive to have gained the most. There is further evidence that suggests that individuals rank themselves incorrectly. Based on ranking measured using reported income and self-reported ranking, the overwhelming majority of those who are actually in the top quintile incorrectly rank themselves in the second and third quintiles.

The majority of countries around the world provide tax incentives for business philanthropy. However, little is known about the responsiveness of businesses to this tax treatment. This paper expands on this scant literature by focusing on the Armenian tax system which provides incentives for business philanthropy. The support takes the form of a deduction capped at a fraction of business receipts. This generates a kink beyond which the marginal tax subsidy drops to zero. Using administrative data for the years 2007 through 2017, we find strong evidence of bunching by Armenian firms at the kink, with a sizeable tax elasticity of giving at the intensive margin. The evidence on bunching continues to be strong regardless of whether firms have been audited, and to whether any tax deficiencies are observed.

A comprehensive and accessible account of the U.S. estate tax, examining its history and evolution, structure and inner workings, and economic consequences. Governments have been levying some form of inheritance tax since the ancient Egyptians did so in the seventh century BC. In the United States, the federal government experimented with various forms of inheritance taxes, settling on an estate tax in 1916 and a gift tax in 1932. Despite this long history, there are few empirical studies of the federal estate tax. This book offers the first comprehensive look at U.S. estate and inheritance taxes, examining their history and evolution, structure and inner workings, and economic consequences. Written by David Joulfaian, a veteran economist at the U.S. Department of the Treasury, the book provides accessible accounts of such topics as changes in tax laws, issues of equity, the fiscal contribution of the estate tax, and its behavioral effects. Joulfaian traces the evolution of U.S. inheritance taxes from 1797 to the present, noting that the estate tax rate and base expanded through 1976, then began to decline. He describes the tax itself, explaining that it currently applies to estates and gifts in excess of $11.18 million, and outlines applicable deductions and credits. He sketches a profile of taxpayers and their beneficiaries; surveys the revenues from estate and gift taxes; and discusses the effect of estate taxation on labor decisions, saving and wealth accumulation, charitable giving, life insurance ownership, and other economic activities. Finally, he addresses criticisms of the estate tax and analyzes its shortcomings. Accompanying tables present a wealth of data gathered by Joulfaian in his research and not available elsewhere.

This manuscript traces the evolution of the estate tax since its enactment. It provides a brief legislative history and description of the structure and features of the tax through 2013. Next it reviews the fiscal contribution of each of the estate and gift taxes through the turbulent recent years. In addition, it provides trends on the number of individuals and households touched by the tax as reflected by the number of returns filed over time through 2012. Furthermore, it also provides a comprehensive review of the behavioral effects of the tax. Estate and gift taxes may have considerable implications for economic behavior. The latter include the effects on saving, labor supply, charitable giving, migration, capital gains realizations, and timing of transfers among others.The estate tax is the only wealth tax levied by the Federal government. It was enacted in 1916, and its scope was expanded to encompass gifts as well. It evolved over the years into the current Unified Transfer Tax which consists of the estate, gift, and generation skipping transfers taxes. The major features of the tax in effect in 2013 reflect a maximum tax rate of 40 percent and an indexed exemption of $5,000,000, with a full exemption for spousal and charitable bequests. The tax provides for a deduction for state death taxes, which replaces the more generous pre-2002 credit for such taxes.The revised text expands on previous drafts by covering recent changes in the estate tax as well as documenting their consequences.

Households can reduce taxes by transferring taxable income generating assets from high income family members to those in lower tax brackets. Parents, for instance, may exploit differences in the marginal tax rates that they face and those that apply to their children. But under progressive taxation, the marginal tax rates may converge upon transferring large sums from high to low income members as the income of the recipient is pushed into higher tax brackets, thereby limiting the tax arbitrage benefits of intergenerational transfers. As an alternative, and under a more effective form of income splitting, high income family members may create trusts for the benefit of other family members, and divide the transferred assets among a large number of trusts so as to subject the income from each trust to the lowest possible tax bracket. The Tax Reform Act of 1986 modified the treatment of trusts such that the maximum individual tax rate became applicable at very low levels of trust taxable income thereby erasing much of the benefits of transferring income through this vehicle. This paper provides an overview of the tax treatment of income received by individuals and that of trusts, and provides evidence on how changes in differential tax rates introduced in 1986 altered the use of trusts as means to splitting income and sheltering it from taxation.

Abstract When compared with wage earners, the self-employed are reported to have a lower take up rate of tax-favored retirement plans in the United States. Using panel data from federal income tax returns for the years 1999–2006, this paper explores the various factors that shape the observed pattern of contributions to such plans by the self-employed. Consistent with previous findings in the literature, contributions rise with income, tax rates, as well as savings in taxable accounts. More interestingly, the novel findings in this paper address the role that debt plays in shaping contributions. While housing and business-related debts are accorded similar tax treatment, the findings show that contributions decline with business debt whereas they rise with household debt.

Like-kind exchanges enable taxpayers to defer capital gains taxes when certain types of property are exchanged rather than sold. The deferred gains from such exchanges have grown over the years, peaking at over $100 billion before the onset of the Great Recession. Equally noteworthy, the share of corporations of these exchanges has increased in recent years, with much of the corporate deferred gain concentrated in certain sectors and accounted for by a relatively small number of firms. Contrary to the conventional wisdom, exchanges are not typically dominated by real estate transactions and, in recent years, corporations have accounted for over half of deferred gains.

This paper attempts to gauge the return to education in Armenia by examining how earnings vary with educational attainment. It employs household survey data where member wages and educational attainment are reported. The findings suggest that wages rise with educational attainment, albeit not uniformly and mostly for men. They also provide evidence on a large gap in pay between men and women.

In 2010, the U.S. estate tax expired and executors of wealthy decedents were not required to file estate tax returns. In the absence of the estate tax, beneficiaries received assets with carryover rather than stepped-up basis. Unrealized capital gains accounted for 44 percent of the fair market value of non-cash assets in estates that chose the carryover basis regime, and an even higher percentage for some asset categories. Many of the largest gains were on assets that had been held for at least two decades.

INTRODUCTIONAt its one-hundredth anniversary, the estate tax continues to generate passionate debates reminiscent of those leading up to its enactment in 1916. tax retains much of its original structure, albeit with a different rate schedule and a much-expanded size of exempted estates.1 In its current form, the tax contributes less than one percent of total federal government revenues.2 It also directly impacts the estates of less than one percent of decedents.3The estate tax can be viewed as a hybrid inheritance tax. It is a tax on inheritances withheld at the source,4 but with tax rates that vary by type of relationship, form of asset held, and time of transfer (gifts versus bequests). It can also be viewed as a deferred income tax on bequest-motivated wealth accumulations, either as a backstop to leakages from the income tax or simply as another layer of taxes to bolster the progressivity of the tax system to apply at death.5Ultimately, however it is viewed, the estate tax is a tax on bequestmotivated savings, or capital. It applies to the wealthiest of estates of individuals and addresses concerns related to tax progressivity and wealth concentration.6Yet despite its limited scope, the tax continues to draw attention with passionate calls for its repeal. This dichotomy raises interesting questions related to the burden imposed by the tax, actual or perceived, that is shaping these views. It also raises questions about the behavioral effects of the tax. Only a very small number of individuals are subject to the estate tax, but as a group they are particularly tax-savvy or otherwise have access to highly competent tax planners.This Article proceeds in two Parts. Part I explores the change over time in the scope and budgetary importance of the estate tax and in how it relates to other taxes imposed on taxed estates.7 Part II then reviews the economics literature and the empirical evidence showing how the varying burden of an estate tax affects other financial decisions made by those whose estates may become subject to the tax.8I. THE SCOPE OF THE TAX AND ITS BURDENA. Trends in Tax RevenuesHow important is the estate tax for governmental finances? At one point in time, the estate tax represented an important source of revenues as it accounted for about ten percent of the federal government's tax revenues.9 Today it is close to one percent.10 It has declined both in terms of its contribution to government finances as well as the size of the population it touches.Contributions to tax receipts peaked in 1936 at ten percent of collections.11 Contributions to tax revenues, in nominal terms, peaked in fiscal year 2000 at about $29 billion before the dot-com bubble burst and stock market valuations crashed.12 About 50,000 of the estates in 2001, out of 2.4 million decedents, reported a positive tax liability.13 This declined to about 5200 estates in 2014, which reported tax liabilities of $16.4 billion.14According to Gregory Mankiw, then-Chairman of President George W. Bush's Council of Economic Advisers, The estate tax . . . raises little, if any, federal revenue.15 Whether the estate tax, even with the recently expanded exemption,16 raises revenue is in the eye of the beholder. Other things being equal, and particularly in the absence of the estate tax, the revenue shortfall will have to be made up elsewhere and at the expense of other taxpayers. What is clear, however, is that the burden of the tax is extended to a very small group of taxpayers who are at the top of the distribution of wealth.Another observation often encountered is that individuals pay little in taxes, as the estate tax is riddled with preferences and complexities. Although the effective estate tax rate is bound to be lower than that suggested by the statutory tax rates, this does not shed light on how important or burdensome the estate tax is.One way to gauge the perceived importance of the estate tax is to compare it to the income tax. …

Executors of estates for decedents in 2010 could choose between an estate tax regime and a basis carry-over regime. This typically created a tradeoff between a current estate tax payment and a future capital gains tax liability for beneficiaries who inherited assets with carryover-basis. Some executors chose to file estate tax returns, but these filings yielded very little estate tax revenue. Evidence from tax returns suggest that an increase of one percent of estate value in the difference between estate tax liability and prospective tax liability under the carryover basis regime reduced the likelihood of filing an estate tax return by between 0.3 and 1.5 percentage points.

Executors of 2010 estates had an unusual choice: either to file an estate tax return and possibly pay a 35% estate tax on amounts above $5 million or instead to choose to have assets pass without an estate tax but with a carryover in basis. The data are now in, and we can see that on average, executors of 2010 estates made the right decision. Thousands did choose to voluntarily file an estate tax return, but they wound up paying little or no estate tax. TOPICS:Wealth management, legal/regulatory/public policy

The paper examines the pattern of lifetime transfers during a period of uncertainty in estate taxation where the tax was set to expire, reintroduced, and its reach curtailed. More specifically, it examines lifetime gifts made during the past decade, with a focus on the size and frequency of transfers over the period 2002-2012. Using data from gift tax returns, reported lifetime taxable gifts over the years 2002-2009 were in the range of $20 to $30 billion per year. But, by 2012, these taxable gifts (which are in excess of the annual exclusion) increased to an unprecedented level of $440 billion. These transfers represent significant acceleration in bequests, and may very well have serious implications for future tax revenues, as well as the observed distribution of income and wealth. Equally important, the findings also provide further support for the bequest motive as these lifetime transfers cannot be accidental in nature.

Life insurance proceeds are generally subject to the estate tax. An exception is when the policy is owned by the beneficiaries and the insured gives up ownership and control, including the ability to change beneficiaries. Should the insured strategically own the policy contract and potentially subject proceeds to estate and inheritance taxes, or relinquish control, with the beneficiaries owning the policy, and escape such transfer taxes? This paper addresses how the estate tax influences the choice of life insurance ownership. Using samples of estate tax returns, the empirical evidence suggests that those facing high estate tax rates are more likely to forgo ownership and have proceeds excluded from their estates, and provides further evidence on the incentive effect of taxes and in support of the strategic bequest motive.

By borrowing against their appreciated assets, individuals are able to postpone realizing capital gains and defer paying taxes to a later date, or avoiding them altogether if the assets are held until death. While the effects of capital gains taxes on investment incentives are well studied, there is very little in the way of evidence in the literature to support the proposition that taxes on realized capital gains lead to greater borrowing. This paper employs pooled samples of estate tax returns spanning 25 years to gauge how leverage varies with capital gains taxes. The data is ideally suited to measuring debt held by the well off elderly. The findings suggest that the debt ratio rises with capital gains tax rates, and add another dimension to the dynamics of household debt in the US.

Shareholder wealth may be maximized by borrowing, as it is tax preferred, or by under reporting firm profits; both shield income from taxation, legally in the case of the former. But does the utilization of one shield crowd out the use of the other? More specifically, does tax evasion lead to lower leverage, as the empirical literature suggests, or is it the other way around with highly leveraged firms cheating less? Using a unique random sample of small corporations thoroughly audited, the empirical results show that tax evasion declines with firm leverage; there is little support for the findings in the literature.