Tax-transfer System Research Articles

Professor Friedman, meet Lady Rhys-Williams: NIT vs. CIT

In the conventional view, income testing is required to make a tax-transfer program ‘efficient.’ This view can be seen to hinge on the ‘target efficiency’ concept. The economic efficiency of income testing is analyzed here-including distortions of household behavior and the total administrative costs of the tax-transfer system. The income-tested program is a negative income tax system (NIT), which has divergent marginal tax rates for beneficiaries and net taxpayers; the nontested scheme is a credit income tax (CIT), which makes universal payments and imposes a uniform marginal tax rate. Theoretical analysis shows the conditions under which the CIT is more efficient than a comparable NIT. Some suggestive empirical evidence and policy considerations in the choice between NIT and CIT are presented.

WISCONSIN INHERITANCE TAXATION*

SINCE the enactment of its first permanent inheritance tax in 1903 the state of Wisconsin has substantially altered and extended its transfer tax system. Although these inheritance, estate, and gift taxes have provided on the average somewhat less than 2 per cent of the total state and local revenue, their present and future potential yield is far from negligible to a state faced with the usual, difficult problem of budget balancing. Thorough investigation of the legal, administrative, and economic aspects of these transfer taxes is the design of this thesis. Primary reliance has necessarily been placed upon a study of court reports, session laws, and records of the State Department of Taxation and upon personal interviews with state and county officials who administer the death and gift taxes. With the assumption that there is no federal legislation basically affecting state transfer taxes the following major conclusions are reached: 1. Wisconsin should not replace its well-established and generally well-accepted inheritance tax by a full-fledged estate tax. (Its present estate tax, which should be retained, is effective only in rare cases when the inheritance tax does not collect the full amount permitted a state under the federal estate tax credit provision.) 2. The base for the state gift tax should not be made cumulative over the years because of the danger of driving property out of the state. The present system whereby each year's gifts to the same donee from the same donor is aggregated into a single non-cumulative base is unfair, illogical, and unproductive of revenue. Yet there is no federal gift tax credit and only twelve states levy gift taxes so that any state attempting to collect a really effective gift tax faces a real migration threat. 3. The deduction allowed under the Wisconsin inheritance tax for death taxes paid by the estate to the federal government should be continued.