Retargeting the estate tax to very wealthy households and lowering its rates would blunt much of the criticism against it while retaining many of its advantages. This brief explains how the estate tax works and examines who is affected by it under current law. It discusses how reform would affect tax revenues, the distribution of tax burdens, farms and small businesses, and charitable giving and bequests. A concluding section discusses ways to reduce the tax’s complexity.

This is a book review of Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes, by William H. Gates Sr. and Chuck Collins, published in the March 2005 Journal of Economic Literature.

Several pressures are combining to force lawmakers to seek a more permanent resolution to the estate tax issue. This article suggests a possible compromise that would enhance the ability of wealthy individuals to avoid paying tax to government and still pass on significant assets to their heirs-but only if they make substantial contributions to charity. The compromise includes giving a substantial credit against estate tax for charitable gifts.