An alternative to the estate tax?

Boston College law professor Ray Madoff, writing in the New York Times, suggests we abandon the estate tax and subject gifts and inheritances to the income tax instead. He acknowledges that the estate tax has, in recent years, failed its primary purpose of breaking up large fortunes in private hands.


I would argue that the reason for that failure is the estate tax has been applied at such punitive rates that it makes sense to spend large sums on clever lawyers to avoid it completely.  It will be interesting to see what happens to collections with the 35% rate.  Of course, two years is too short a time for the experiment.

It wouldn't be easy to collect income taxes on gifts.  Income taxes on inheritances could be collected via a withholding scheme imposed upon the executor. Still, there are significant valuation problems with any such plan, just as there are with transfer taxes.