Choosing between an income tax and a wealth transfer tax

This paper traces the implications of replacing the estate tax with a basis carry over regime under the income tax. Such changes are likely to level the playing field and generally extend uniform tax treatment to gifts and bequests, spousal bequests and bequests to children, gains realized during life and those hold at death, and deaths in community property versus non-community property states, among others. Relative to current law, these changes may have the effect of reducing spousal bequests in favor of direct transfers to the children, and discouraging lifetime gifts in favor of bequests as well as borrowing to finance consumption.