Replacing the Estate Tax with a Re-Imagined Accessions Tax

Abstract

This article proposes replacing the federal estate and gift tax system with an accessions tax. An accessions tax is a tax, at progressive rates, on the aggregate lifetime gratuitous receipts of an individual in excess of a specified exemption. The main thesis of this article is that an accessions tax is not simply a reverse image of the current estate tax system, but is significantly different both in purpose and effect. An accessions tax should be an easier pill to swallow than the estate tax, because it is a tax on the unearned income (accessions to wealth) of individuals. In operation, the accessions tax can avoid many of the loopholes in the estate tax, because the accession can occur after the transferor's death. Accessions would be taxed only when realized in cash or assets that are not hard to value. Thus, only trust distributions (as opposed to the acquisition of trust interests) would be taxed. Accordingly, actuarial tables would be irrelevant, and general powers of appointment would be ignored. Taxation of qualified hard-to-value property (such as interests in a closely-held business) would be deferred to conversion to cash (or other event whereby qualification lapses). Accessions by charities and by the spouse of the transferor would be excluded, as would transactions (such as one person purchasing the consumption of another) that do not involve true wealth transfers. Elaborate qualification rules for the spousal and charitable exclusions would not be necessary.