The provision regarding estates would prevent taxpayers from using two different valuations for the same items. Under current law, the White House official said, some people estimate a particular inherited item at one value for the purposes of the estate tax, but estimate the value of the same item at a higher amount when reporting it as a gift.This gambit must be popular. Closing the loophole, according to the Obama administration, would raise an estimated $24 billion over 10 years.
That is because the incentive is to undervalue items when paying the estate tax. But the incentive is to overvalue them when reporting gifts, so that the basis will be higher when calculating capital gains if the item is sold. Under the proposal, taxpayers would have to use the same value for both purposes.
There is, of course, another way to eliminate the loophole, the method proposed by Douglas Holtz-Eakin, a former director of the Congressional Budget Office: Kill the "Death Tax."
1 comment:
I am deeply suspicious of that $24 billion number--in fact, the more I think about it the more preposterous it becomes.
They must be assuming that the capital gains tax rate will shortly be going to 25% or more. And they must also assume that taxpayers won't change their behavior when the "loophole" is closed.
I wish some graduate tax program somewhere would do a detailed study of how far off the mark all these tax estimates have been over the years, and determine why they are so wildly wrong all the time.
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