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Roberton Williams
Roberton Williams is the Sol Price Fellow at the Tax Policy Center. He was at the Congressional Budget Office from 1984 through 2006, most recently as Deputy Assistant Director for Tax Analysis, and before that an assistant professor of economics at Williams College. He has written numerous papers on tax policy, income distribution, and social welfare programs.
Taxing Millionaires: Obama’s Buffett Rule
April 11th, 2013From the start of his 2008 campaign, President Obama has called for raising taxes on the rich. He got much but not all that he wanted in the American Taxpayer Relief Act (ATRA) earlier this year. Now his FY2014 budget takes another couple of bites at that apple.
The first repeats his proposal to cap at 28 percent the value of itemized deductions and specified exclusions, which would raise $530 billion over ten years. The president has pushed this idea in each of his five budgets, expanding it last year to include selected exclusions ranging from interest on municipal bonds to employer-paid health insurance premiums.
This year’s new wrinkle would extend the limitation to some taxpayers with income below Obama’s threshold for being rich—$250,000 for couples and $200,000 for singles. That will surely elicit howls from Obama’s critics on the left and the right, but it does recognize implicitly the budgetary need to raise taxes on more than just the top 2 percent of households.
Obama’s other bite on the rich is a Buffett Rule that would ensure that high-income households pay at least a minimum percentage of their income in taxes. Until now, the president has only spoken aspirationally about this idea. But his budget includes a concrete plan, dubbed the Fair Share Tax, or FST, that would collect $53 billion over ten years (and $99 billion if Congress doesn’t raise taxes on the rich with the 28 percent cap).
Obama’s goal is to keep the rich from taking advantage of tax preferences that allow them to pay low effective tax rates. Billionaire Warren Buffett raised this issue with stories about his secretary paying a higher tax rate than he does, and it resurfaced during the 2012 presidential campaign amid complaints about Mitt Romney’s 13 percent effective income tax rate.
But it turns out that setting a floor on the taxes rich people pay is not so easy. It is complicated and messy, and might not even accomplish its intended goal.
The FST would be a new minimum tax that requires rich taxpayers to pay at least 30 percent of their adjusted gross income (AGI) in federal taxes, with the rule phasing in between $1 million and $2 million of AGI (indexed for inflation).
But it would have exceptions. To protect charitable contributions, affected taxpayers could claim a credit equal to 28 percent of their deductible gifts. They could also count any alternative minimum tax liability, the 3.8 percent Obamacare tax on investment income, and the employee share of payroll taxes toward the 30 percent minimum tax.
And there are at least two other problems. First, the rich—particularly those who benefit from reduced tax rates on dividend and capital gains income—pay a disproportionate share of the corporate income tax, which is not included in the Buffett Rule calculation. TPC estimates that the corporate tax boosts the effective tax rate of the highest-income 1 percent by 7.5 percentage points, more than five times the rate for the bottom 90 percent. Excluding that tax understates the taxes the rich already pay.
But worse, the FST would be a new alternative tax with all of the problems of the one we have now. If the president does not like the fact that certain tax preferences allow rich people to pay less tax, he should reform the preferences, not layer on another tax of people who use them. That not only complicates the tax code but also makes the whole system less transparent.
We can disagree about whether Congress should raise more revenue and, if so, whether it should do so by raising taxes on the rich. But even if you think the answer to both question is yes, adding another minimum tax is not the way to do it.
How Much Will 2013’s Payroll Tax Hikes Cut Your Take-Home Pay?
April 5th, 20132013 is a tough year if you owe payroll tax, as most of us do. Not only did the 2010 payroll tax cut die at the end of 2012, but high-income workers now owe an extra 0.9 percent, thanks to the Affordable Care Act. Economists worry about what the combined new taxes will mean for workers’ net pay, consumer spending, and an economy still trying to get its footing. Now the Tax Policy Center’s updated Payroll Tax Calculator shows just what the tax hit means for individual households.
The 2010 tax act cut the workers’ rate for the Social Security payroll tax from 6.2 percent to 4.2 percent for 2011 and 2012. Congress allowed the reduced rate to expire as scheduled at the beginning of this year. The Tax Policy Center has estimated that the higher tax rate will take $115 billion out of workers’ pockets this year and cut consumer spending.
The ACA created a new “additional Medicare tax” that kicked in for the first time in January. Individuals earning more than $200,000 and couples earning more than $250,000 now pay a 0.9 percent tax on earnings above those thresholds. Few of us will pay the new tax, but it will nip at high earners’ wallets.
Finally, the cap on earnings subject to the Social Security payroll tax increased from $110,100 to $113,700.
A few examples illustrate the impact on workers (ignoring changes in income tax withholding):
- A worker earning a $40,000 median wage will take home $800 less this year than in 2012, a 2.3 percent reduction caused entirely by the expiration of the payroll tax cut.
- A single high-earner making $120,000 will see her payroll tax bill jump more than $2,400, a 2.5 percent cut in take-home pay. For her, the culprits are the higher tax rate and the higher income cap.
- A high-earning couple with each spouse earning $200,000 will pay about $5,300 more Social Security tax and $1,350 for the additional Medicare tax, reducing their net pay by 1.8 percent. They get hit by all three changes.
Try out our new calculator and see how the higher payroll taxes will affect your bottom line.
DOMA’s Tax Hassles for Same-Sex Couples
March 26th, 2013The annual income tax season is no fun for any of us but it can be a lot worse for same-sex couples in California, Nevada, and Washington. Those three states follow community property law and recognize either same-sex marriages or domestic partnerships. The combination makes tax filing an even bigger hassle than the rest of us face.
Because the Defense of Marriage Act (DOMA) denies federal recognition of those relationships, the IRS applies special rules to same-sex couples in the three states, rules that don’t apply to couples—same- or opposite-sex—in other states. Those rules complicate tax filing and can result in higher (or lower) income and payroll tax bills. (I blogged yesterday on more general issues concerning DOMA and taxes.)
Community property law generally requires that married couples split income evenly between spouses. That rule also applies to domestic partners in the three community property states that recognize them.
Splitting income makes little difference for opposite-sex married couples but creates tax issues for same-sex partners because of DOMA. Here are just a few of the problems that the IRS has explained in various publications.
- Same-sex couples with children may or may not be allowed to file as heads of household. The issue revolves around the requirement that a head of household provide more than half the support for a dependent child. Because spending out of community property income comes equally from both partners, neither provides more than half the support, so neither can claim the dependent. Only if some support comes from non-community property may one partner file as head of household.
- Domestic partners in community property states must split the income from a business operated by one partner, even if the other partner has no involvement. In contrast, in the case of opposite-sex couples, earnings from a business are attributed only to a spouse who is actively involved in the business. Further, each domestic partner must pay self-employment tax on her half of business earnings, a situation from which a special provision protects opposite-sex couples. As a result, same-sex couples could pay as much as double the payroll tax that finances Social Security that an opposite-sex couple would pay.
- The IRS applies community property laws inconsistently with regard to tax credits. For example, the earned income credit, the dependent care credit, and the refundable portion of the child tax credit all ignore community property laws in determining a domestic partner’s earnings but split all income in measuring adjusted gross income.
Same-sex couples may also benefit from being denied joint filing status. A person who adopts her same-sex partner’s child may claim the adoption credit, a benefit not available to opposite-sex spouses. And as I explained yesterday, being denied joint filing status protects same-sex partners with similar incomes from incurring marriage penalties.
Taxpayer Advocate Nina Olson has pointed out additional problems for same-sex couples caused not by tax rules but rather by IRS procedures. For example, domestic partners in community property states must split both earnings and the income tax withheld on those earnings. But the IRS has rejected returns filed electronically because its software failed to allocate withheld taxes correctly between partners.
The IRS appears to have first offered guidance for same-sex couples in 2010, three years after California granted community property rights to domestic partners and shorter periods after similar action in Nevada and Washington. At that point, the IRS gave domestic partners the option of filing amended returns reflecting community property laws but did not require them to file new returns. Affected couples could recompute their taxes and file new returns, but in a final kicker, a partner owing more tax would have to pay interest on the underpayment (offset, at least in part, by interest paid on the refund presumably going to the other partner). At least the IRS waived penalties for underpayment.
Finally, the interaction between the federal income tax and California’s tax complicates tax filing for same-sex couples. The state’s tax return requires a couple to enter adjusted gross income from their joint federal return, even though they cannot file that return with the federal government. That means such a couple must prepare three federal returns—one joint for their state taxes and two individual to file with the feds—plus a state return.
Same-sex couples in Nevada and Washington are luckier—neither state imposes an income tax.
Same-Sex Couples and Taxes
March 25th, 2013The 1996 Defense of Marriage Act (DOMA) was not primarily a tax law but it certainly affects the federal taxes that same-sex couples pay. In fact, taxes are the basis for the second of the two cases concerning same-sex marriage that the Supreme Court will hear this week.
Although the federal government generally recognizes state laws concerning marriage, DOMA requires the federal tax code treat all same-sex couples as unmarried. That standard applies to both the estate tax and the income tax. While the Supreme Court will be reviewing an estate tax case, Windsor v. United States, its ruling will likely affect both taxes.
The estate tax issue is this: Under DOMA, same-sex couples cannot take advantage of the unlimited deduction for bequests to spouses or share the doubled exemption that benefits federally-defined married couples.
New Yorkers Thea Clara Spyer and Edith Windsor married in Toronto in 2007 because their home state didn’t allow same-sex marriage. New York did recognize their status when Thea died two years later, but the IRS didn’t. It denied Clara the estate tax’s spousal exemption, resulting in a tax bill of more than $360,000. Lower courts subsequently ruled that denial unconstitutional and the federal government has appealed. In an extra twist, the Justice Department is not arguing the appeal—the House of Representatives is making the case.
The estate tax is small potatoes—in 2013 fewer than 4,000 estates will exceed the $5.25 million threshold for owing tax and few of those will involve same-sex couples. The income tax is where the action is: The Congressional Budget Office has estimated that hundreds of thousands of same-sex couples face different income tax bills because of DOMA.
The effect can be good or bad for a couple’s pocketbook. Marriage can reduce a couple’s income tax liability—yielding a “marriage bonus”—typically when spouses have markedly different incomes. Or marriage can increase their tax bill—a “marriage penalty”—usually when their incomes are similar. David Weiner and I explained all the details in a 1997 CBO paper.
But under DOMA, same-sex couples are not considered married and thus must file as individuals (or heads of household if they have dependents). They don’t suffer marriage penalties but neither can they benefit from marriage bonuses.
The IRS has made matters even more complicated. Under its regulations, same-sex couples in community property states that recognize their marriages, civil unions, or domestic partnerships must split their incomes (with some exceptions for income from assets owned separately). Each therefore pays income tax on half the total. The IRS rules create odd tax situations—I’ll explain some of those tomorrow.
The income-splitting requirement is based on a 1930 Supreme Court decision, Poe v. Seaborn, that affirmed income splitting for married couples in community property states (but not in non-community property states—see Lucas v. Earl). The result: The progressive rate structure of the federal income tax means income splitting combined with individual filing can only create marriage bonuses.
That’s the situation facing same-sex couples in three community property states, Washington (which recognizes same-sex marriage) and California and Nevada (which recognize domestic partnerships). If the court strikes down DOMA for tax purposes, many same-sex couples in those states will face higher tax bills. In other states that recognize same-sex relationships, couples may face bonuses or penalties. And in the many states that don’t recognize such relationships, nothing would change unless the court requires states to recognize same-sex marriages.
States that allow same-sex marriages, civil unions, or domestic partnerships for tax purposes could give people in those relationships the federal tax savings from income splitting even if the court upholds DOMA. They could use the same approach some non-community property states used right after World War II: establish community property rights for tax purposes only. After a number of states did exactly that, Congress created joint filing in 1948.
The Supreme Court will render such action moot if it strikes down DOMA. And if that happens, many same-sex couples will celebrate, even if it means that some will pay higher taxes.
A New Marriage Penalty for High Earning Couples—and a Bonus for Some
February 15th, 2013Our new Marriage Bonus and Penalty calculator, despite all 
its Valentine’s Day finery, ignores the new 0.9 percent Medicare payroll tax hike buried in the 2010 health law. The extra levy affects only a few high-income couples but in very different ways. Lucky couples will collect marriage bonuses of up to $450. But those less fortunate—if anyone making $250,000 can be considered less fortunate—will incur marriage penalties of as much as $1,350 in additional Medicare tax.
The culprit? The income thresholds for paying the tax. The new levy equals 0.9 percent of wages above unindexed thresholds—$200,000 for singles and $250,000 for married couples. Because the threshold for couples is less than double that for singles, the tax imposes a marriage penalty on couples with two high earners but gives a bonus to those with a high earner and a low- or non-earner.
Consider the simplest case of a penalty: each spouse earns $200,000. If they weren’t married, they wouldn’t owe the new tax because their separate earnings don’t exceed the singles threshold. As a married couple, their $400,000 combined earnings are $150,000 over the threshold for couples and they owe 0.9 percent of that in tax—$1,350.
The penalty stays the same if their earnings grow. As long as each has earnings above $200,000, they’ll pay $1,350 more each year. Marriage takes away $150,000 of the total exclusion the tax provides for two single workers.
Who are the lucky duckies for whom marriage will cut the tax? Couples with one spouse earning more than $200,000 and the other earning less than $50,000.
Consider again a simple case: a woman making $250,000 and her stay-at-home hubby. Unmarried, she owes the new tax on $50,000—$450. Married, that tax bill goes to zero. The savings derives from the $50,000 additional exemption that comes with marriage. That bonus shrinks if the husband starts working and goes away entirely if he makes more than $50,000.
It would be easy to get rid of those penalties and bonuses—just tax earnings separately for each worker the way we do with other payroll taxes. As long as the tax applies to a couple’s total earnings, there have to be either bonuses or penalties or both.
An Updated Marriage Bonus and Penalty Calculator for Valentine’s Day
February 13th, 2013Love is blind, says the adage, and that can be a good thing when it comes to taxes. That’s because married couples often pay a marriage penalty—a higher federal income tax bill than they would if they were single. But for most couples, marriage means a lower tax bill—a marriage bonus in tax-speak.
Just in time for Valentine’s Day, the Tax Policy Center has updated its marriage bonus and penalty calculator to reflect the provisions of the American Taxpayer Relief Act of 2012 (ATRA), the new tax law Congress passed earlier this year. The new calculator lets you compare the tax bills of a couple filing as singles and as a couple for either the 2012 or 2013 tax year.
My TaxVox post about TPC’s original marriage bonus and penalty calculator explained why the tax code rewards some married couples and penalizes others so I won’t repeat all of that here. Instead I’ll discuss three tax provisions that will increase marriage penalties a lot in 2013 for many high-income couples.
1. ATRA’s new top tax rate: ATRA created a new 39.6 percent top tax bracket, which starts at $400,000 for single filers and $450,000 for couples filing jointly. Consider two people, each with $400,000 of taxable income. Unmarried, neither would hit the 39.6 percent rate. Married, they would pay the top rate on $350,000. That and other rate effects would impose a marriage penalty of more than $30,000.
2. Return of PEP and Pease: ATRA reinstated both the phaseout of personal exemptions (PEP) and the limitation on itemized deductions (Pease) that the 2001-2010 tax acts had eliminated. PEP takes away 2 percent of personal exemptions for each $2,500 (or part thereof) above a threshold—$250,000 of adjusted gross income (AGI) for singles and $300,000 for couples (both indexed for inflation going forward). PEP wouldn’t affect an unmarried couple in which each person has $250,000 of AGI but would take away all of their personal exemptions if they were married. That could increase their tax bill by more than $1,500 for each person in their family.
Pease reduces itemized deductions by 3 percent of AGI over the same thresholds that apply for PEP. It wouldn’t affect the unmarried couple with each person having $250,000 of AGI, but would raise their taxable income by up to $6,000 if they married, adding as much as $2,376 to their tax bill.
3. Obamacare Taxes: Two new taxes associated with the 2010 healthcare acts take effect in 2013: a 0.9 percent tax on earnings over unindexed thresholds—$200,000 for singles and $250,000 for couples—and a 3.8 percent tax on investment income over those thresholds. Two people earning $200,000 apiece would owe neither tax. If they marry, they would pay between $1,350 (if their income is all wages) and $5,700 (if it’s all investment income) in new taxes to support Obamacare.
The calculator makes it easy to determine these and other tax consequences of marriage in 2013. That’s not a very romantic activity, however, and, speaking as a happily married man, I suggest you find a better way to spend Valentine’s Day.
Finally, a Permanent Estate Tax, Though Just for the Wealthy Few
February 7th, 2013After more than a decade of nearly constant change, the federal estate tax is finally permanent. It’s a bit more onerous than last year’s version but still only a shadow of its former self. New tables from the Tax Policy Center show that in 2013, just 3,800 estates—fewer than one in 700—will owe the tax. And they’ll pay a total of just $14 billion—half the revenue collected five years ago.
With the passage of the American Taxpayer Relief Act of 2012 (ATRA), Congress set the effective exemption for combined bequests and gifts at $5 million, indexed that value for inflation, and allowed surviving spouses to claim any exemption not used by their deceased mates. It also raised the rate to 40 percent, 5 percentage points higher than in 2012.
The estate tax has endured nearly constant change over the past dozen years. The 2001 tax act (EGTRRA) reduced the tax in steps, raising the effective exemption from $675,000 in 2001 to $3.5 million in 2009 and cutting the top rate from 55 percent to 45 percent before repealing the tax entirely in 2010. Because EGTRRA expired entirely in 2011, the repeal lasted only one year. But rather than let the tax return to its pre-EGTRRA status, Congress set new parameters for 2011 and 2012: a $5 million exemption and a 35 percent tax rate. The tax reverted to 2001 law at the stroke of midnight last New Year’s Eve.
ATRA reversed that just a few hours later. For the first time in over a decade, we have a permanent estate and gift tax. The wealthy will no longer have to arrange their gifts and wills in the face of uncertain law as they did in the closing months of 2010 and 2012.
All but the largest estates will now pass to heirs tax-free. And because surviving spouses can use any exemption not claimed by their dead mates’ estates, couples have less incentive to shift ownership of assets when one spouse dies. (There’s still a big incentive—moving a decedent’s assets into a trust can free subsequent appreciation from estate tax. And the first spouse’s estate must file an estate tax return to preserve the leftover exemption.)
The higher 2013 tax rate makes no difference to the nearly 99.9 percent of estates that are exempt from estate taxes. But big estates will face a significantly higher tax bill.—a $100 million estate will pay nearly $5 million more.
In the end, the details are less important than the fact that Congress has finally made the tax permanent. The rich will still hire attorneys to structure their estates in the most tax-advantaged ways but at least they won’t have to worry about big year-to-year changes in the law.
How the New Tax Act Affects the Alternative Minimum Tax
January 18th, 2013In the alphabet soup of Washington, ATRA fixed the AMT, sort of. In English, the newly enacted American Taxpayer Relief Act of 2012 will permanently protect millions of taxpayers from having to pay the alternative minimum tax without Congress having to approve a temporary patch every year or so. It even knocks a few hundred thousand people off the AMT this year. But it still doesn’t really fix the dreaded tax.
Since the first Bush tax cuts in 2001, Congress has protected millions of taxpayers from the AMT with one- or two-year patches. Each patch boosted the amount of income exempt from the tax, saving millions of households from having to pay the levy. The 2011 patch, for example, left just 4.3 million taxpayers owing AMT, down from 29 million who otherwise would have paid the additional tax. Congress never approved a permanent fix because it deemed the revenue loss too high.
With ATRA, Congress bit the fiscal bullet, which the Joint Committee on Taxation pegged at $1.8 trillion over the next decade. It set a higher permanent exemption for 2012 and indexed that and other AMT parameters for inflation. New estimates from TPC show what those changes—in combination with other ATRA provisions—will mean.
- More than 30 million taxpayers who would have owed AMT for 2012 won’t be dinged by the alternative levy. The higher exemption will save them and the 4 million who will still pay AMT more than $85 billion.
- The combination of a larger AMT exemption and higher thresholds for the exemption phaseout and top AMT tax bracket will further reduce the number of taxpayers owing AMT to just 3.4 million in 2013. Without ATRA, nearly 27 million more people would owe AMT this year.
- ATRA’s restoration of the 39.6 percent bracket and the return of the limitation on itemized deductions (aka Pease) and the personal exemption phaseout (PEP) will raise regular taxes enough to push some high-income taxpayers off the AMT. Of course, not owing AMT is small consolation for those folks, who I’m sure would be happy to pay the lower AMT bill.
One curiosity that won’t please high-income taxpayers: the new Obamacare taxes on investment income don’t count in determining whether you owe AMT. Although the 3.8 percent tax on investment income above unindexed thresholds—$200,000 for single filers and $250,000 for couples—is part of your income tax liability, you leave it out when you calculate whether you owe AMT. Including the new tax when you compare your regular tax liability against potential AMT would protect many high-income taxpayers from having to pay the alternative tax.
The permanent and indexed patch eliminates the need for Congress to revisit the issue every year or so. It also prevents repeated disruption of the tax-filing season. But it’s not a truly permanent fix—the AMT will still hit three or four million often unsuspecting taxpayers each year and will hit more people over time because indexing AMT parameters doesn’t protect taxpayers as their real income grows. TPC estimates that the number of AMT taxpayers will jump 35 percent by 2018.
The right thing to do is reform the income tax so that we don’t need an AMT to make sure that everyone pays an appropriate amount of tax. Given today’s paralyzed political environment, however, don’t hold your breath waiting for that to happen.
TPC Tax Calculator Shows What Avoiding Fiscal Cliff Means for Taxpayers
January 3rd, 2013Following Congress’s last minute passage of legislation averting a plunge off the fiscal cliff, TPC has released a new Tax Calculator that lets users examine the effects of the American Taxpayer Relief Act of 2012 (ATRA). As with earlier versions, the new calculator compares income and payroll tax liabilities under alternative scenarios:
- ATRA, the tax law that will apply in 2013.
- 2012 tax law (with an AMT patch). This is what you paid in 2012, including the now-expired payroll tax cut and a patched AMT.
- Pre-ATRA 2013 tax law. This is what you would have paid if Congress hadn’t acted and we’d gone over the fiscal cliff for all of 2013.
(More details on these plans, including their treatment of the AMT and estate taxes, are available here.)
To make things easy, you can look at ready-made examples or create your own case.
 a non-elderly childless couple |
 a couple with a child in college |
 a couple with two children under age 13 |
 a single person |
 a single mother with two children |
 a couple over age 65 |
Check out our new calculator and see how the different tax plans would affect real families.
Give Now or Pay Later: The Ever-Changing Estate and Gift Tax
December 13th, 2012For over a decade, the federal estate and gift tax has been in constant flux with its exemption rising, its rates falling, and its near-death experience in 2010 followed by resurrection in a reduced state. Now Congress once again has to decide what to do about these levies, which affect relatively few taxpayers but get an inordinate amount of attention. Calling something the “death tax” will do that.
For a few more weeks, the estate and gift tax exempts $5 million of gifts or bequests and taxes any excess at 35 percent. In January, unless Congress acts, the tax will return to its old pre-2001 self with a $1 million exemption and a 55 percent top rate. That possibility means that the wealthy once again have to decide what to do with their assets.
Of course, Congress can prevent most of this mess. President Obama wants to revert to the 2009 parameters—a $3.5 million exemption and a 45 percent tax rate. Others want make this year’s tax permanent. Some deficit hawks want to let the rate and exemption return to pre-2001 levels to collect needed revenue. And, of course, many people would like the taxes to go away altogether.
The Tax Policy Center, in newly updated tables, shows how different policies would affect the number of estates subject to tax and the amount of revenue the government would collect. If Congress extends this year’s rules, an estimated 3,800 estates—representing less than 0.2 percent of all deaths—would owe taxes totaling just $12 billion in 2013. If the temporary tax cut expires, more than 47,000 estates would pay nearly $38 billion.
While the estate tax has gotten most attention, the gift tax also faces big changes. Since 2010, anyone could give away as much as $5 million worth of assets to other people without owing any gift taxes to Uncle Sam. Married couples could distribute twice that much. If you give away even more, you owe 35 percent in federal gift tax on the excess.
But if Congress doesn’t act over the next few weeks, the exemption will plummet to just $1 million on January 1 and the tax rate will jump to 55 percent. That’s a real incentive to be very generous before the end of the year. Give $5 million to your favorite niece this month and it costs you $5 million. Give her $5 million next month and, barring congressional action, you’ll also have to give Uncle Sam more than $2 million in gift tax.
One advantage of this year’s large gift tax exclusion and low tax rate is that they match the estate tax parameters—you don’t have to die to take advantage of the bargain basement prices for passing on your wealth.
However, giving while you’re still alive has one big disadvantage if you are gifting assets that have appreciated in value. Your gift to your niece comes with your basis—what you paid for the asset. When she sells the asset, she will owe tax on both your capital gain and any appreciation after the gift. If she inherits the asset, your niece will owe capital gains tax only on the gains that occur after your death.
Discussions of the looming fiscal cliff have paid scant attention to estate and gift taxes. But wealthy people might do well to consider being very generous this month and giving very large gifts at today’s bargain tax prices.