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June 05, 2006

Estate taxation

In today's Economic Perspective, N.C. State University economist Mike Walden discusses issues surrounding estate taxes.

"Of course there is a federal tax on estates that is being phased out. However, that phase out is only temporary unless new legislation is passed. So this is still a timely issue," explains Dr. Walden, an economics professor in the College of Agriculture and Life Sciences.

"One issue is whether estate taxation affects wealth accumulation. That is, if someone knows their estate is going to be taxed, are they going to be more motivated to spend that money than to save it?

"And there is some economic evidence that this is the case, although the impact appears to be relatively small.

"Another issue is whether we need an estate tax to prevent wealth accumulation among high-income people," he adds. "Now several studies ... show that there has been no change in wealth distribution over time. So that issue is perhaps questionable.

"And then last, although a hot button issue, at its peak the estate tax really never affected more than one half of one percent of all estates. So it does impact a relatively small number of individuals."

Posted by deeshore at June 5, 2006 08:00 AM