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James Alm noted in 1988 that tax uncertainty is particularly problematic for taxpayers, and he identified two risk areas that can cause changes in taxpayer behavior: variations to the tax base (tax base risk) and modifications to the tax rates (tax rate risk).1 This report studies how estate and gift tax laws passed with sunset provisions created taxpayer uncertainty in 2010 and 2012, and how that uncertainty led to increased gifting activity by wealthy taxpayers, which in turn increased the amount of gift tax revenue collected by the federal government in 2011 and 2013. The sunsetting of a tax law means that its provisions (usually favorable to taxpayers) will remain in effect for a fixed period before expiring (that is, “sunsetting”) and returning the tax base and rates to the levels (usually less favorable to taxpayers) that existed before the passage of the law. In the case of tax cuts, a sunset provision effectively reverses the favorable tax conditions that were created when the law was first passed.

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