DO MILLIONAIRES ADJUST THE REALIZATIONS OF THEIR LONG-TERM CAPITAL GAINS WHEN TAXES CHANGE? INTRODUCTION

At death, the basis is reset to the market value of the asset and the asset passes tax-free to the decedent’s heirs. [...] The set of controls in the first equation contains a dummy variable equal to 1 if there are losses in the prior year in excess of $3,000, and hence can be carried over to reduce taxes in the current year. [...] By the process of exclusion, we discovered that the inclusion or exclusion of California played an important role in the magnitude of the elasticity. [...] To test the degree to which there is such a bias, we omit the dummy variable for losses in the prior year in excess of $3,000 in the first stage and the inverse Mills ratio in the second stage. [...] The views expressed are those of the authors and should not be attributed to the Urban-Brookings Tax Policy Center, the Urban Institute, the Brookings Institution, their trustees, or their funders.