The Impact of the Federal Estate Tax on State Estate Taxes 
Released: 2012-10-24T00:00:00

Introduction

An estate tax is a tax levied on the assets left behind by a decedent. The federal government and many state governments levy estate taxes or some type of tax on the transfer of assets at death. Under current law, the estate tax is scheduled to revert to the pre-2001 structure on January 1, 2013, with a $1 million exemption and top rate of 55%. In contrast, the federal estate tax currently allows for a significantly higher exemption amount, $5.12 million, and a significantly lower top rate of 35%. With this as backdrop, it is believed that Congress is likely to act on the federal estate tax in the near term.

How Congress chooses to act will impact state governments. The Administration's FY2013 budget proposes a middle ground between those options with a $3.5 million exemption and top rate of 45%. There is an important difference between these proposals: the 2012 law and the Administration's proposal each allow a deduction for state death taxes whereas the pre-2001 law provides a credit for those taxes.

For example, when an estate files a federal return for a death occurring in 2012, state estate taxes paid are deducted from the value of the estate before calculating tax liability. In contrast, under the pre-2001 law, the estate would calculate the federal estate tax liability then reduce the federal tax payment dollar-for-dollar for any state estate taxes paid.

Changes to the federal estate tax are in part responsible for a decline in state estate tax revenue from $9.07 billion in 2001 to $4.65 billion in 2009. If current law is extended or if the President's proposal enacted, then the recent trend of declining state estate tax revenues will likely continue (see Figure 1 ).

The interaction between federal and state tax policy, if not the estate tax explicitly, has drawn the interest of Congress. A recent congressional hearing, couched in discussions of potential tax reform, hinted at bipartisan interest in encouraging greater tax coordination between the federal government and the states (and among the states). Senator Baucus, in his opening statement for the hearing, noted the following:

We need to make sure our federal, state and local tax systems are working together. As part of tax reform, we should ask how we can help states collect taxes owed and how we can encourage standard rules to protect taxpayers from multiple taxes and needless complexity.

Senator Hatch also acknowledged the potential impact of the tax interdependence between the different levels of government. His interest, however, was from a constitutional perspective:

Issues involving the federal impact on state and local revenues impact both the Constitution's separation of powers between the federal and state governments and the separate identity of the sovereign states.

The bipartisan recognition that state taxes are affected by changes to federal tax law does not imply that there is agreement on how to structure the federal estate tax in 2013 and beyond. In the 112 th Congress, S. 3412 , The Middle Class Tax Cut Act, would allow the estate tax law to revert to the pre-2001 law. Alternatively, The Tax Hike Prevention Act of 2012 ( S. 3413 ) and its companion, The Job Protection and Recession Prevention Act of 2012 ( H.R. 8 ), would extend the 2012 estate tax parameters through 2013.

In general, the pre-2001 structure of the estate tax would tax significantly more estates than would the FY2013 budget proposal or extension of 2012 law. Reversion to the pre-2001 structure would result in an estimated significantly more taxable estates in 2013 compared to the number of taxable returns filed in 2009 ( Table 1 ). The President's FY2013 budget proposal would tax fewer estates in 2013 than in 2009. In absolute terms, the percentage of estates that are taxable under all proposals is relatively small, as roughly 2.4 million individuals over the age of 24 died in 2010.

If Congress elects to maintain a federal estate tax, the impact on states will depend critically on the treatment of state death taxes. Most critically, the impact will depend on the choice of whether to allow the state death tax to "count" against federal estate taxes and, if so, how. Other components, such as the exclusion amount, the top rate, and the valuation of transferred assets, will also be important. These factors, however, are less important from an intergovernmental coordination perspective with the possible exception of the exclusion amount—many states use the federal exclusion amount as the threshold for filing a state return.

This report provides an overview of the federal estate tax since 2001, highlighting recent trends in federal and state estate tax revenue. The report also analyzes the impact of the three policy options cited above, and presents an economic perspective of the policy options. The report will be updated as legislative events warrant.

Federal Estate Taxes: 2001 to 2012

As noted above, the federal estate tax will likely be an issue for Congress in the near term. Three alternatives are examined for this report: (1) revert to the pre-2001 law, (2) extend the 2012 law, and (3) return to the 2009 law as proposed in the Administration's FY2013 budget proposal (see Table 1 for a summary of the proposals). Though there are many other options that could be considered, these three plans are receiving the most attention, and they broadly represent the trade-offs under current consideration. For example, the federal estate tax could be repealed. If the federal estate tax were repealed, repeal of state estate taxes would likely follow. This option would most likely be considered in the context of broader tax reform and is beyond the scope of this report. The following is an overview of the modifications to the estate tax since 2001.

The Pre-2001 Law

If the estate tax reverts to pre-2001 law in 2013 as scheduled, significantly more estates will be subject to tax. The pre-2001 law includes a $1 million exemption amount, a top rate of 55% (with a 5% surtax on estates valued between $10 million and $17.184 million), no spousal exemption portability, and a credit for state death taxes paid. The pre-2001 law would yield an estimated 52,500 taxable returns in 2013.

The Economic Growth and Tax Relief Reconciliation Act of 2001

As noted above, the federal estate tax is scheduled to revert to the pre-2001 structure absent congressional action. The changes are the result of the delayed sunset of the modifications originally implemented by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16 ). Under that law, several important estate tax parameters were changed to reduce the burden of the federal estate tax and eventually repeal the tax in 2010. The changes in the years leading up to expiration included gradually increasing the exemption amount (technically the unified credit exemption equivalent amount) from $1 million to $3.5 million in 2009, decreasing the top rate from 55% to 45% by 2009, and changing the credit for state death taxes to a deduction. This final change fundamentally changed the relationship between state and federal estate taxes and led to a decline in both federal and state revenues generated by the estate tax.

Example: Value of a Credit for State Estate Taxes Paid vs. a Deduction

Following is an example of a hypothetical estate in Delaware valued at $7 million. This example will use 2012 law except for the treatment of state death taxes paid ("death" taxes because the credit could also be used for inheritance and succession taxes). In both scenarios, $92,640 in state death taxes are paid to Delaware. In scenario A, state death taxes paid to Delaware are credited dollar-for-dollar toward federal estate tax liability (pre-2001 law structure). In scenario B (current law), state death taxes paid to Delaware are allowed as a federal deduction. All other parameters are the same for each scenario and reflect 2012 law including the 35% top rate and $5.12 million exclusion. With scenario B, each dollar paid to Delaware reduces federal liability by $0.35, the marginal federal estate tax rate. In contrast, with scenario A, each dollar paid to Delaware reduces federal liability by one dollar (see Table 2 ).

Under current 2012 law with a deduction for state estate taxes, the estate pays $60,216 more in federal taxes when compared to a credit method, but the state liability remains the same, $92,640. The liability is higher because only 35% of the estate tax paid to Delaware offsets federal liability. If the credit for state death taxes were to replace the deduction (scenario "A"), Delaware's estate tax would not change the total liability as long as the tax were structured to "pick-up" the federal credit. Thus, with the deduction structure, total estate taxes paid is greater than under the credit method.

Changes in Federal and State Estate Tax Revenue 2001 to 2009

The changes implemented by EGTRRA have had and will have a significant impact on both federal and state tax revenues on transfers at death. Combined federal and state revenue from estate and inheritance taxes has declined from $31.0 billion in 2001 ($37.5 billion in 2009 dollars) to $25.3 billion in 2009 (see Figure 1 ). The decline, however, was much more significant for states: a 48% drop for state taxes compared to a 27% drop for the federal tax. Reversion to pre-2001 law would likely reverse this revenue change, increasing state estate tax revenue more rapidly than federal estate tax revenue.

The impact of federal changes to the estate tax on the states arises for a variety of reasons. First, most state estate taxes are linked directly or indirectly to the federal estate tax law. So, for example, when the federal exemption increased the filing threshold, states that were coupled with the federal law as currently in place saw their filing thresholds increase automatically. States had the option of proactively changing their laws, such as decoupling from the federal law, to maintain their estate tax revenue. Most states, however, did not change their laws for administrative or political reasons.

Second, EGTRRA changed the credit for state death taxes to a deduction beginning with the 2005 tax year. The impact on state estate tax revenue and structure was significant. The dollar-for-dollar federal credit for state death taxes meant that the state estate tax did not add any additional estate tax burden, as it offset some part of federal liability. The change to the deduction under EGTRRA meant that state estate taxes would impose an additional burden on decedent estates. This led to pressure, at the state level, to change state death taxes after passage of EGTRRA—something many states (26 states and the District of Columbia) have done.

The 2012 Estate Tax

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA, P.L. 111-312 ; 124 Stat. 3296) reinstated the expired estate tax retroactively for 2010 and extended it through 2012. Under TRUIRJCA, the top rate is set at 35% (the top individual income tax rate) and the exemption set at $5 million (adjusted for inflation thereafter). TRUIRJCA also extended the deduction for state estate taxes through 2012 and continued the portability of any unused spousal exemption (effectively doubling the exemption for married decedents). Through the remainder of 2012, the exemption is set at $5.12 million. If Congress extends the 2012 law through 2013 (with the parameters indexed for inflation), an estimated 4,000 estates would be taxable in 2013.

The President's FY2013 Budget Proposal

The President's FY2013 budget proposes returning the federal estate tax to the 2009 parameters on a permanent basis. Under the President's proposal, the top rate would be 45% and the exclusion amount $3.5 million for the federal estate tax. The portability of the spousal exclusion would also be made permanent. When measured against current law, this proposal would generate a revenue loss of $312.3 billion over the 10-year budget window when compared to current law (pre-2001 law). The President's proposal would yield an estimated 7,000 taxable returns in 2013.

Other Taxes

There are two related taxes the federal government levies at death: gift taxes and generation-skipping taxes. The estate tax is a tax on the wealth holdings of a decedent and is collected before assets are transferred to heirs. In contrast, gift taxes, which are often linked to an estate tax to stem tax avoidance strategies such as giving away assets at the end of life to skirt the estate tax, are not incurred at death. The federal gift tax has been "unified" with the estate tax in the past, meaning any taxable gifts during a lifetime were counted against any credits for federal estate taxes. The estate and gift taxes are not unified for the 2012 tax year and instead have separate exclusion amounts.

Generation-skipping transfer taxes (GSTs) are also intended to blunt tax planning strategies designed to avoid taxes. Generally, a generation-skipping transfer is a transfer to a grandchild (or great-grandchild) usually through a trust (a fund or account where the grandchild is the beneficiary). The transfer is taxable for the gift-giver at the highest rate of the estate tax at the time of transfer. The estate tax exemption amount, however, can be used to offset any GST tax. These taxes are an administrative patch to the estate tax intended to prevent aggressive tax planning utilizing a more distant decedent. For the remainder of this report, GSTs will not be directly addressed.

The tax on capital gains is another important element of the tax structure on assets transferred at death. Generally, capital gains are taxable when the gains are realized. Estates often have considerable unrealized capital gains included in the estate. Without an estate tax, a significant amount of income would escape taxation. The estate tax, in a sense, replaces capital gains taxes or is intended to capture these unrealized gains. Generally, once the asset is transferred, the value of the asset (or the basis) for the recipient is the market value on the date of the decedent's death ("stepped up" basis). Thus, any unrealized gains by the decedent are left untaxed. An alternative valuation method, the carry-over basis, has the heir assume the basis of the decedent (sometimes referred to as "stepping into the shoes" of the decedent). Any unrealized gain transferred to the heir would be taxable once the heir sold the asset. All of the proposals identified in this report follow the step-up in value of assets (the basis) transferred at death.

State Estate, Inheritance, and Gift Taxes in 201221

The impact of the impending changes will vary across states. As of 2012, 22 states and DC imposed some type of tax on transfers at death (see Table 3 ). Two states, Delaware and Ohio, are scheduled to repeal their estate taxes in 2013: Delaware on January 1, 2013, and Ohio on July 1, 2013. A recent report by the Minnesota House Research Department identified 14 states (and DC) with an estate tax, 6 states with an inheritance tax, 2 states with both an estate tax and an inheritance tax, and 2 with a stand-alone gift tax.

Generally, states with an estate tax use the now expired (but scheduled to return for the 2013 calendar year) rate schedule used to calculate the federal credit for state death taxes. The incorporation of the federal tax code can be automatic, meaning if the credit for state death taxes were to return in the federal tax code, the state estate tax would also return. Or, the link to the federal tax code can be as of a specific date, such as January 1, 2009. Three states, Connecticut, Ohio, and Washington, have completely independent estate taxes. For the "decoupled" state estate taxes, state legislative action may be required to reinstate an estate tax.

The initial exemption amount varies among states, ranging from $338,333 in Ohio to $5 million in North Carolina. Seven states use a $1 million exemption. Fourteen states and the District of Columbia follow the federal state death tax credit with a graduated rate schedule that reaches 16% for estates valued over $10.1 million. Washington State levies a top rate of 19% and Ohio a much lower 7%.

State inheritance taxes are less common than estate taxes. These taxes, levied on heirs rather than the estate, are more analogous to income taxes. Differential exemption amounts and tax rates based on relation to the decedent are common at the state level. Eight states levy a tax on heirs and four states allow a complete exemption for lineal heirs. The exemption amounts in the remaining states range from $3,500 (Pennsylvania) to $1 million (Tennessee).

Federal and State Estate Taxes: An Economic Analysis

Tax policy economists commonly evaluate a tax on four criteria: (1) administrative simplicity and compliance cost, (2) equity, (3) economic efficiency, and (4) revenue sufficiency. Following is an analysis of the changes to the estate tax since 2001 using these four criteria. Consideration of these criteria may help Congress as deliberations over the estate tax and tax reform are likely to continue in the coming months.

Administrative Simplicity and Compliance Cost

The administrative simplicity and compliance cost of a tax is important to revenue collectors and taxpayers. Revenue collectors prefer taxes that are easily administered and taxpayers prefer taxes where compliance is relatively easy. These factors are even more critical for taxes that are levied by different levels of government on a shared base like estate taxes. Intergovernmental coordination can improve both administrative simplicity and compliance costs.

There are two directions of coordination for taxes on a common base: "vertical" coordination and "horizontal" coordination. Vertical coordination is between the federal government and the states and horizontal coordination is among the states. The level of vertical coordination between federal and state estate taxes has eroded significantly since the 2001 changes. As of 2012, many states have abandoned the estate tax completely while others have decoupled from the federal tax, levying a separate estate tax. The following is from the Center on Budget and Policy Priorities:

Fifteen states that levied pick-up taxes prior to 2001 retained estate taxes. Of these, twelve states—Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Rhode Island, and Vermont—and the District of Columbia decoupled from the federal estate tax law and continue to levy an estate tax that is the same or very similar to the earlier pick-up tax. Three states—Connecticut, Oregon, and Washington—replaced their pick-up taxes with estate taxes that are not tied to the federal tax.

Maintaining separate state and federal estate taxes is a significant divergence from past practice. When the modern version of the federal estate tax was first implemented in the early part of the 20 th century (1916), the federal estate tax was somewhat controversial for state tax authorities. Up until that time, the taxation (or lack of taxation) of estates was viewed as a decision that should be left to the states. A federal tax would, in theory, impinge on the states' capacity to raise revenue from a tax levied on wealth transfers at death.

These "historical precedence" claims by state officials, however, may have been overstated. The federal government has imposed temporary levies on the transfer of assets at death several times in the past. The revenue from these temporary levies was used to help pay for wars or national defense. The Stamp Act of 1797 was imposed on wills offered for probate and was repealed in 1802; the Revenue Act of 1862 imposed a similar stamp tax and an inheritance tax. Both were repealed in 1872. The War Revenue Act of 1898 created a so-called "legacy tax," which was levied on the estate and was the "precursor to the present federal estate tax."

Nevertheless, the federal government structured the initial federal estate tax such that any state tax would be credited dollar-for-dollar up to a specified tax rate on the estate. This provision created the equivalent of a revenue sharing arrangement between the federal government and the states as most states structured their taxes to match exactly the federal credit. The state taxes "sponged up" any available credit. This degree of voluntary vertical coordination was unique to the estate tax.

This credit structure (pre-2001 law) had the advantage over the deduction structure (2012 law), from an economic and tax policy perspective, of virtually eliminating the incentive for states to "compete" among themselves to offer the lowest estate tax rates. If a state decided to levy an estate tax below the rates outlined for the federal credit, the decedent would simply pay more federal estate taxes. Thus, in addition to vertical coordination, horizontal coordination, as described earlier, would be strongly supported by this approach.

As outlined above, the overall simplicity of the estate tax is diminished if states and the federal government do not coordinate. For example, taxpayers, or their estates, would need to establish the location and taxability of assets, and both the federal and state governments would need to verify these claims. With a patchwork of state estate taxes and rules governing asset location, this process would be complicated. Over time, taxpayers would likely develop tax minimization strategies, further increasing compliance costs and complicating administrative oversight of the estate tax.

Equity

The equity (or "fairness") of a tax can be measured both vertically and horizontally. Vertical equity is evaluated by comparing the tax burden across individuals with different abilities to pay. Horizontal equity is evaluated by comparing the tax burden of individuals in otherwise similar economic circumstances. For an estate tax, a vertically equitable progressive estate tax would collect a larger share of the underlying estate as the value of the estate increases. A horizontally equitable estate tax would treat like-situated individuals (or decedents) in a like manner.

The estate tax is considered highly progressive with the "top ten percent of income earners paying virtually all of the tax; over half is paid by the richest 1 in 1,000." State estate taxes are also progressive, though the burden is not as concentrated in the top wealth brackets. Most state estate taxes had lower exemption amounts, which means more taxable estates. State estate tax rates are lower than federal rates, thus there are more taxable estates at the state level, but the average state tax paid is less than the federal estate tax paid.

Assessing the federal and state taxes together, the deduction for state estate taxes (2012 law), rather than the credit (pre-2001 law), has some impact on the vertical equity. The deduction treatment makes the tax slightly less progressive, as the deduction is worth more to estates in the higher marginal tax brackets. Reversion to the pre-2001 law and the return of the credit for state death taxes, however, would not make the estate tax more progressive when compared with the President's budget proposal or extension of the 2012 law. The reason is that the other parameters of the pre-2001 federal estate tax included a lower exemption amount, capturing many more smaller estates, and do not provide for spousal portability of the exemption. The higher top rate in pre-2001 law, set at 55%, would regain some progressivity, but overall, the pre-2001 law is less progressive than the President's budget proposal.

Horizontal equity is achieved if taxpayers in equal positions are taxed in equal amounts. For an estate tax, estates of like size should be taxed in like manner. There is some debate concerning how to define "like" estates. Using only total value of assets may not be considered fair, as some estates have less liquid assets. These estates, usually with a significant share of business assets, may be constrained in their ability to pay the estate tax. Special provisions exist for farms and small businesses to allow them to pay the tax in installments over a maximum of 10 years. These special provisions add complexity while potentially reducing compliance costs for liquidity-constrained entities.

Economic Efficiency

Efficient taxes are those that have a minimal impact on the behavior of taxpayers. Estate taxes can be identified as an inefficient tax for two principle reasons. One, the estate tax influences the investment decisions of taxpayers. If investments are taxed at death, then taxpayers will, in theory, invest less. Alternatively, if taxpayers have in mind a targeted value of assets to transfer at death, a tax that reduces the value of assets would mean more would have to be saved to achieve that target value. Either outcome would generate a loss in economic efficiency as decisions are made based on tax consequences, not underlying economic merit.

Taxpayers also devote considerable resources to minimizing estate tax liability. These costs are non-pecuniary, such as those distortions described above, as well as direct. The direct cost includes the fees paid to lawyers and accountants to plan any avoidance strategies.

Of the three options explored here, the different tax rates and exemption levels would determine the size of the efficiency loss. The higher rates and lower exemption amounts that would accompany return to the pre-2001 law would likely generate the greatest changes in taxpayer behavior. Thus, return to pre-2001 law would generate the greatest economic efficiency loss (or deadweight loss). However, reinstating the credit for state death taxes instead of the deduction would mitigate this efficiency loss. In contrast, a deduction for state estate taxes, which would accompany both extension of the 2012 law and the Administration's budget proposal based on 2009 law, increases the tax burden and thus the economic efficiency loss arising from state estate taxes. The direct costs would also be greater with a deduction for state estate taxes because variation among states would present more avoidance opportunities and planning strategies.

Some have suggested that state estate taxes influence retirement residency choices. In theory, a state with relatively low estate taxes (or taxes generally) would be more attractive to wealthy retirees seeking to avoid taxes. The perception that a state provides a more favorable tax environment for retirees (or those close to death) may be enough to induce relocations based only on tax effect. Moves induced by tax preferences alone generate inefficiencies. A tax credit for state estate taxes could virtually eliminate the incentive to move, as the state tax would not add an additional state tax burden.

Revenue Sufficiency

A final criteria is whether the tax raises enough revenue, or prevents the loss of revenue from other tax sources, to justify its imposition. This section presents data for federal and state estate taxes from two different sources, the Internal Revenue Service (IRS) and the U.S. Census Bureau (CB). The IRS data report federal estate and gift tax collections by state and the CB data report state estate, gift, and inheritance tax collections. The two sets of data are compared to exhibit how revenue from the estate tax for each level of government has changed from pre-EGTRRA laws (2001) to post-EGTRRA laws (2009) for each state.

In 2001, estates generated significant revenue for both state and the federal governments. For 2001, just over $31 billion was collected, with the states collecting $7.5 billion and the federal government collecting $23.5 billion (see Table 4 ). By 2009, estate and gift tax collections had declined to $25.3 billion, with the federal government collecting $20.6 billion (a 12.3% decline) and state governments collecting a combined $4.7 billion (a 37.9% decline). The decline is even more severe if the 2001 data are adjusted for inflation. Converting the 2001 data into 2009 dollars yields total revenue of $37.5 billion with state collections at $9.1 billion and federal collections of $28.5 billion (see Figure 1 ).

The decline has at least two possible sources, tax policy changes and the recession from December 2007 through June 2009. It is likely that almost all the 2009 federal estate tax filings were for deaths that occurred during the recession. However, the 2001 data likely include a significant number of deaths that occurred during the 2001 recession, which spanned from March through November of that year. Assets such as stock holdings, personal residences, and other real estate holdings accounted for 41.8% of taxable estate value in 2009. Those same assets accounted for more taxable estate value in 2001 (51.6%). The change in value can be explained almost entirely by the change in the value of stock in decedent portfolios, which dropped from 36.0% in 2001 to 25.4% in 2009. The drop in the value of stock as a portion of the decedent portfolio is also explained by the increased exemption amount eliminating estates at the lower end of the distribution. The average estate subject to federal estate taxes was larger in 2009, reflecting the elimination of the smaller estates. Stock holdings as a share of decedent portfolio rise with the size of the estate. Thus, if the average estate size is larger in 2009, then the concentration of publicly traded stock is more important.

As noted earlier, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) phased out the credit in stages and replaced it with a deduction. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA) extended the deduction structure through 2012. In 2013, the credit along with higher rates and lower exemption amounts are set to return.

Concluding Observations

Each of the proposals identified here offers a mixed bag of economic effects. Reverting to the pre-2001 law as scheduled would likely increase intergovernmental coordination and reduce compliance costs for medium to larger estates. The pre-2001 law, however, would capture more estates with the lower exemption amount of $1 million. These smaller estates would encounter compliance costs with reversion to pre-2001 law, as they would not be subject to estate taxes under the other two proposals. The added compliance costs of these smaller estates would counter the reduced compliance cost of the larger estates with the reintroduction of the credit for state death taxes.

The equity and the efficiency of a tax often work against each other. Achieving greater equity often comes with the cost of reduced efficiency. Further complicating the analysis is the perception or definition of equity, which is somewhat subjective. Generally, reversion to pre-2001 law would reduce the progressivity (compared with the 2012 law and the FY2013 budget proposal) of the federal estate tax as more, smaller estates would be subject to the tax. The federal tax code more generally, however, would become more progressive, as tax burdens on the relatively wealthy would increase. There is not a clear measure to identify the more equitable policy.

The estate tax impacts the economy more broadly as saving and capital investment become less attractive the higher the tax. In theory, lower estate tax burdens encourage more saving and investment. The higher exemption amounts and lower rates offered by the 2012 law and the FY2013 budget proposal would be preferred using this one-dimensional criteria. The lower tax burden, while theoretically encouraging more investment, necessarily reduces the revenue yield of the estate tax.

Which course of action Congress will choose is uncertain and the impact on the states unclear. Coordination with states would likely reduce administrative and compliance costs of the estate tax, increase the progressivity of the code generally, and possibly increase the economic efficiency of state estate taxes.