The United States imposes substantial federal taxes on estates, gifts, and generation-skipping transfers exceeding high exemption levels (currently US$5.25 million). These transfer taxes are very distortionary compared to other federal taxes, and raise little revenue; their appeal lies in their distributional properties. Gratuitous transfers benefit both those who make the transfers and those who receive them; transfer taxes therefore impose burdens on both donors and recipients, in addition to distorting economic behavior. This article considers a potential reform of replacing federal transfer taxes with greater income taxes on the highest-income earners. Such a reform holds the prospect of raising additional federal tax revenue with improved efficiency and greater measured tax progressivity.
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