A Voluntary Tax? New Perspectives on Sophisticated Tax Avoidance
[Text from the book jacket on publication in 1979.]
George Cooper describes how the rich avoid transfer taxes by freezing their estates, by creating tax-exempt wealth, and by disposing of accumulated wealth in such a way as to avoid all, or nearly all, taxes. He concludes “that the present estate and gift tax serves no purpose other than to give reassurance to the millions of unwealthy that entrenched wealth is being attacked.” That attack is not successful, however. One of the greatest family fortunes in the United States belongs to the du Ponts. It was worth half a billion dollars in 1966. Unearthing Tax Court records from an estate tax dispute [which he obtain via an F.O.I lawsuit], Cooper shows that, by the time this generation (the great-great-grandchildren of the founder) has received all its inheritance, only $25 million (5 percent) will have been paid in estate taxes. “Unless the system can be significantly reformed,” says Cooper, “consideration should be given to scrapping it or at least replacing it with a more effective means of accomplishing its perceived goals.” The Tax Reform Act of 1976 only “changes the rules of the avoidance game.” Several alternative approaches might better serve the revenue and social goals of the estate tax, he says, and offers for consideration various changes in tax law and policy.
Estates and gifts have been subject to taxation by the U.S. government for decades. For most of the past generation, the rate of tax has been as high as 77 percent. Yet, because the owners of great wealth retain estate planners skilled in legal stratagems for tax avoidance, the estate and gift tax laws have never seriously interfered with the intergenerational transfer of large fortunes. One expert, testifying on the Tax Reform Act of 1976, remarked that “in fact, we haven’t got an estate tax, what we have, you pay an estate tax if you want to; if you don’t want to, you don’t have to.”
George Cooper, a law professor at Columbia University, wrote this study as a member of the Brookings associated staff.