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Encyclopedia > Estate tax in the United States
Taxation in the United States

This article is part of the series:
Politics and government of
the United States
The examples and perspective in this article or section may not represent a worldwide view. ... Taxation in the United States is a complex system which may involve payment to at least four different levels of government. ... Image File history File links US-GreatSeal-Obverse. ... Federal courts Supreme Court Circuit Courts of Appeal District Courts Elections Presidential elections Midterm elections Political Parties Democratic Republican Third parties State & Local government Governors Legislatures (List) State Courts Local Government Other countries Atlas  US Government Portal      Politics of the United States takes place in a framework of a presidential...


Federal taxation
History
Internal Revenue Service
Court  ·   Forms  ·   Code
Income tax  ·   Payroll tax
Alternative Minimum Tax
Estate tax  ·   Excise tax
Gift tax  ·   Corporate tax
Capital gains tax
State & local taxation
State income tax
Sales tax  ·   Use tax
Property tax
State tax levels
Federal tax reform
FairTax  ·   Flat tax
Tax protester arguments
Constitutional
Statutory  ·   Conspiracy

Part of the Taxation series
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The estate tax in the United States is a tax imposed on the transfer of the "taxable estate" of a deceased person, whether such property is transferred via a will or according to the state laws of intestacy. The estate tax is one part of the Unified Gift and Estate Tax system in the United States. The other part of the system, the gift tax, imposes a tax on transfers of property during a person's life; the gift tax prevents avoidance of the estate tax should a person want to give away his/her estate just before dying. Taxation in the United States is a complex system which may involve payment to at least four different levels of government. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        The history of taxation in the United States began when it was composed of colonies ruled by the British Empire, French Empire, and Spanish Empire. ... Seal of the Internal Revenue Service Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        IRS redirects here. ... Seal of the United States Tax Court. ... Seal of the Internal Revenue Service Tax forms in the United States are used by taxpayers and tax-exempt organizations to report financial information to the Internal Revenue Service (IRS). ... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        The federal government of the United States imposes a progressive tax on the taxable income of individuals, corporations, trusts, decedents estates, and certain bankruptcy estates. ... The Federal Insurance Contributions Act (FICA) tax, a kind of payroll tax, is a United States employment tax imposed in an equal amount on employees and employers to fund federal programs for retirees, the disabled, and children of deceased workers. ...        Alternative Minimum Tax (AMT) is a tax system that is part of the federal income tax system in the United States. ...        Look up Excise tax in the United States in Wiktionary, the free dictionary. ... Inheritance tax, also known in some countries outside the United States as a death duty and referred to as an estate tax within the U.S, is a form of tax levied upon the bequest that a person may make in their will to a living person or organisation. ...        Corporate tax in the United States is a tax on the taxable income of a C corporation or an entity taxed as a C corporation. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income, but the tax rate for individuals is... Taxation in the United States is a complex system which may involve payment to at least four different levels of government. ... States with no state income tax are in red, states taxing only dividend and interest income are in yellow Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        State income tax is an income tax in the United States that is levied by each... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        A sales tax is a tax on consumption and is normally a certain percentage that is added onto the price of goods or services that are purchased. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        A use tax is a type of excise tax levied in the United States. ... Property tax, millage tax is an ad valorem tax that an owner of real estate or other property pays on the value of the property being taxed. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        State tax levels indicate both the tax burden and the services a state can afford to provide residents. ... Tax reform is the process of changing the way taxes are collected or managed by the government. ... Throughout this article, the unqualified term dollar and the $ symbol refer to the United States dollar. ... A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion on income), as opposed to a graduated, or progressive, scheme. ... Tax protester arguments are a number of theories that deny that a person has a legal obligation to pay a tax for which the government has determined that person is liable. ... Tax protesters in the United States make a number of statutory arguments that the assessment of the income tax in the United States violates the statutes enacted by the United States Congress and signed into law by the President. ... Tax protester conspiracy arguments are arguments raised by tax protesters that assert that the imposition of the income tax in the United States is the result of some kind of illicit conspiracy. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links Flag_of_the_British_Virgin_Islands. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links Flag_of_Germany. ... Image File history File links Flag_of_Hong_Kong. ... Image File history File links Flag_of_India. ... Image File history File links Flag_of_Indonesia. ... Image File history File links Flag_of_the_Netherlands. ... Image File history File links Flag_of_New_Zealand. ... Image File history File links Flag_of_Peru. ... Image File history File links Flag_of_Ireland. ... Image File history File links Flag_of_Russia. ... Image File history File links Flag_of_Singapore. ... Image File history File links Flag_of_Tanzania. ... Image File history File links Flag_of_the_United_Kingdom. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Comparison of tax rates around the world is a difficult and... This table lists OECD countries by total tax revenue as percentage of GDP (as of 2005). ... “Taxes” redirects here. ... At common law, an estate is the totality of the legal rights, interests, entitlements and obligations attaching to property. ... In the common law, a will or testament is a document by which a person (the testator) regulates the rights of others over his property or family after death. ... Intestacy is the condition of the estate of a person who dies owning property greater than the sum of his or her enforceable debts and funeral expenses without having made a valid will or other binding declaration; alternatively where such a will or declaration has been made, but only applies... Inheritance tax, also known in some countries outside the United States as a death duty and referred to as an estate tax within the U.S, is a form of tax levied upon the bequest that a person may make in their will to a living person or organisation. ...


In addition to the federal government, many states also impose an estate tax, with the state version called either an estate tax or an inheritance tax. Since the 1990s, the term "death tax" has been widely used by those who want to eliminate the estate tax, because the terminology used in discussing a political issue affects popular opinion.[1] The examples and perspective in this article or section may not represent a worldwide view. ... Estate tax is a form of tax imposed in the United States upon the transfer of the property of the estate of a deceased person that is left to a living person or organization. ...


If an asset is left to a spouse or a charitable organization, the tax usually does not apply. The tax is imposed on other transfers of property made as an incident of the death of the owner, such as a transfer of property from an intestate estate or trust, or the payment of certain life insurance benefits or financial account sums to beneficiaries. Intestacy refers to the body of common law that determines who is entitled to the property of a dead person in the absence of a last will and testament or other binding declaration. ... Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the policy owners death. ...

Contents

Federal estate tax

The Federal estate tax is imposed "on the transfer of the taxable estate of every decedent who is citizen or resident of the United States."[1] The starting point in the calculation is the "gross estate." Certain deductions (subtractions) from the "gross estate" amount are allowed in arriving at a smaller amount called the "taxable estate."


The "gross estate"

The "gross estate" for Federal estate tax purposes often includes more property than that included in the "probate estate" under the property laws of the state in which the decedent lived at the time of death. The starting point for the calculation of the estate tax is the value of the "gross estate"[2], as modified by certain other statutory provisions. The gross estate (before the modifications) may be considered to be the value of all the property interests of the decedent at the time of death. To these interests are added the following property interests generally not owned by the decedent at the time of death:

  • the value of property to the extent of an interest held by the surviving spouse as a "dower or curtesy"[3];
  • the value of certain items of property in which the decedent had, at any time, made a transfer during the three years immediately preceding the date of death (i.e., even if the property was no longer owned by the decedent on the date of death), other than certain gifts, and other than property sold for full value[4];
  • the value of certain property transferred by the decedent before death for which the decedent retained a "life estate," or retained certain "powers"[5];
  • the value of certain property in which the recipient could, through ownership, have possession or enjoyment only by surviving the decedent[6];
  • the value of certain property in which the decedent retained a "reversionary interest," the value of which exceeded five percent of the value of the property[7];
  • the value of certain property transferred by the decedent before death where the transfer was revocable[8];
  • the value of certain annuities[9];
  • the value of certain jointly owned property, such as assets passing by operation of law or survivorship, i.e. joint tenants with rights of survivorship or tenants by the entirety, with special rules for assets owned jointly by spouses.[10];
  • the value of certain "powers of appointment"[11];
  • the amount of proceeds of certain life insurance policies[12].

The above list of modifications is not comprehensive. Joint tenants with right of survivorship (or JTWROS) is a form of property ownership in common law legal systems where more than one person has ownership of property. ... A concurrent estate or co-tenancy is a concept in property law, particularly derived from the common law of real property, which describes the various ways in which property can be owned by more than one person at a given time. ...


As noted above, life insurance benefits may be included in the gross estate (even though the proceeds arguably were not "owned" by the decedent and were never received by the decedent). Life insurance proceeds are generally included in the gross estate if the benefits are payable to the estate, or if the decedent was the owner of the life insurance policy or had any "incidents of ownership" over the life insurance policy (such as the power to change the beneficiary designation). Similarly, bank accounts or other financial instruments which are "payable on death" or "transfer on death" are usually included in the taxable estate, even though such assets are not subject to the probate process under state law. Probate is the legal process of settling the estate of a deceased person; specifically, resolving all claims and distributing the decedents property. ...


Deductions and the taxable estate

Once the value of the "gross estate" is determined, the law provides for various "deductions" (in Part IV of Subchapter A of Chapter 11 of Subtitle B of the Internal Revenue Code) in arriving at the value of the "taxable estate." Deductions include but are not limited to: The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes...

  • Funeral expenses, administration expenses, and claims against the estate[13];
  • Certain items of property left to the surviving spouse[15].
  • Beginning in 2005, inheritance or estate taxes paid to states or the District of Columbia[16].

Of these deductions, the most important is the deduction for property passing to (or in certain kinds of trust for) the surviving spouse, because it can eliminate any federal estate tax for a married decedent. However, this unlimited deduction does not apply if the surviving spouse (not the decedent) is not a U.S. citizen[17]. A special trust called a Qualified Domestic Trust or QDOT must be used to obtain an unlimited marital deduction for otherwise disqualified spouses[18];. This article is about charitable organizations. ...


Tentative tax

The tentative tax base is the sum of the taxable estate and the "adjusted taxable gifts" (i.e., taxable gifts made after 1976) and the tentative tax is then calculated by applying the following tax rates:


For amounts not greater than $10,000, the tax liability is 18% of the amount.


For amounts over $10,000 but not over $20,000, the tentative tax is $1,800 plus 20% of the excess over $10,000.


For amounts over $20,000 but not over $40,000, the tentative tax is $3,800 plus 22% of the excess over $20,000.


For amounts over $40,000 but not over $60,000, the tentative tax is $8,200 plus 24% of the excess over $40,000.


For amounts over $60,000 but not over $80,000, the tentative tax is $13,000 plus 26% of the excess over $60,000.


For amounts over $80,000 but not over $100,000, the tentative tax is $18,200 plus 28% of the excess over $80,000.


For amounts over $100,000 but not over $150,000, the tentative tax is $23,800 plus 30% of the excess over $100,000.


For amounts over $150,000 but not over $250,000, the tentative tax is $38,800 plus 32% of the excess over $150,000.


For amounts over $250,000 but not over $500,000, the tentative tax is $70,800 plus 34% of the excess over $250,000.


For amounts over $500,000 but not over $750,000, the tentative tax is $155,800 plus 37% of the excess over $500,000.


For amounts over $750,000 but not over $1,000,000, the tentative tax is $248,300 plus 39% of the excess over $750,000.


For amounts over $1,000,000 but not over $1,250,000, the tentative tax is $345,800 plus 41% of the excess over $1,000,000.


For amounts over $1,250,000 but not over $1,500,000, the tentative tax is $448,300 plus 43% of the excess over $1,250,000.


For amounts over $1,500,000, the tentative tax is $555,800 plus 45% of the excess over $1,500,000.


For years before 2007, additional tax brackets applied for amounts over $2,000,000 with marginal rates of up to 55%.


The tentative tax is reduced by gift tax that would have been paid on the adjusted taxable gifts, based on the rates in effect on the date of death (which means that the reduction is not necessarily equal to the gift tax actually paid on those gifts).


Although the above tax table looks like a system of progressive tax rates, there is a unified credit against the tentative tax which effectively eliminates any tax on the first $2,000,000 of the estate (or the first $2,000,000 on a combination of taxable gifts during lifetime and a taxable estate at death), so the federal estate tax is effectively a flat tax of 45% once the unified credit exclusion amount has been exhausted.


Credits against tax

There are several credits against the tentative tax, the most important of which is a "unified credit" which can be thought of as providing for an "exemption equivalent" or exempted value with respect to the sum of the taxable estate and the taxable gifts during lifetime. A tax exemption is an exemption to the tax law of a state or nation in which part of the taxes that would normally be collected from an individual or an organization are instead foregone. ...


For a person dying during 2006, 2007, or 2008, the "applicable exclusion amount" is $2,000,000, so if the sum of the taxable estate plus the "adjusted taxable gifts" made during lifetime equals $2,000,000 or less, there is no federal estate tax to pay. According to the Economic Growth and Tax Relief Reconciliation Act of 2001, the applicable exclusion will increase to $3,500,000 in 2009, the estate tax is repealed in 2010, but then the act "sunsets" in 2011 and the estate tax reappears with an applicable exclusion amount of only $1,000,000 (unless Congress acts before then). The Economic Growth and Tax Relief Reconciliation Act of 2001 was a sweeping piece of tax legislation in the United States. ...


Do not confuse the estate tax credit or exemption equivalent with the federal gift tax credit or exemption equivalent. The gift tax exemption is frozen at $1,000,000 and does not increase, as does the estate tax exemption.


If the estate includes property that was inherited from someone else within the preceding 10 years, and there was estate tax paid on that property, there may also be a credit for property previous taxed.


Before 2005, there was also a credit for non-federal estate taxes, but that credit was phased out by the Economic Growth and Tax Relief Reconciliation Act of 2001. The Economic Growth and Tax Relief Reconciliation Act of 2001 was a sweeping piece of tax legislation in the United States. ...


Requirements for filing return and paying tax

For estates larger than the current federally exempted amount, any estate tax due is paid by the executor, other person responsible for administering the estate, or the person in possession of the decedent's property. That person is also responsible for filing a Form 706 return with the Internal Revenue Service. The return must contain detailed information as to the valuations of the estate assets and the exemptions claimed, to ensure that the correct amount of tax is paid. An executor is a person named by a maker of a will to carry out the directions of the will. ... Seal of the Internal Revenue Service Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        IRS redirects here. ...


Exemptions and tax rates

As noted above, a certain amount of each estate is exempted from taxation by the federal government. Below is a table of the amount of exemption by year an estate would expect. Estates above these amounts would be subject to estate tax, but only for the amount above the exemption.


For example, assume an estate of $3.5 million in 2006. There are two beneficiaries who will each receive equal shares of the estate. The maximum allowable credit is $2 million for that year, so the taxable value is therefore $1.5 million. Since it is 2006, the tax rate on that $1.5 million is 46%, so the total taxes paid would be $690,000. Each beneficiary will receive $1,000,000 of untaxed inheritance and $405,000 from the taxable portion of their inheritance for a total of $1,405,000. This means that they would have paid (or, more precisely, the estate would have paid) a taxable rate of 19.7%.


As shown, the 2001 tax act will repeal the estate tax for one year—2010—and then readjust it in 2011 to the year 2001 level.

Year

Exclusion
Amount

Max/Top
tax rate

 
2001
$675,000
55%
2002
$1 million
50%

2003
$1 million
49%

2004
$1.5 million
48%

2005
$1.5 million
47%

2006
$2 million
46%

2007
$2 million
45%

2008
$2 million
45%

2009
$3.5 million
45%

2010
repealed
0%

2011
$1 million
55%


Inheritance tax at the state level

Many U.S. states also impose their own estate or inheritance taxes (see Ohio estate tax for an example). Some states "piggyback" on the federal estate tax law in regard to estates subject to tax (i.e., if the estate is exempt from federal taxation, it is also exempt from state taxation). Some states' estate taxes, however, operate independently of federal law, so it is possible for an estate to be subject to state tax while exempt from federal tax. The state of Ohio imposes an [estate tax] on the transfer of assets from resident decedents (or on Ohio assets of nonresidents) of 7% on amounts over $500,000. ...


Tax avoidance

Estate tax rates and complexity have driven a vast array of support services to assist clients with a perceived eligibility for the estate tax to develop tax avoidance techniques. Many insurance companies maintain a network of life insurance agents, all providing financial planning services, guided to avoid paying estate taxes. Brokerage and financial planning firms also use estate planning, including estate tax avoidance, as a marketing technique. Many law firms also specialize in estate planning, tax avoidance, and minimization of estate taxes. This article contrasts tax evasion, tax avoidance and tax mitigation. ... Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the policy owners death. ... Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the policy owners death. ... Agency is an area of commercial law dealing with a contractual or quasi-contractual tripartite set of relationships when an Agent is authorized to act on behalf of another <No it is not. ... The Certified Financial Planner (CFP®) designation is a certification mark for financial planners conferred by the Certified Financial Planner Board of Standards. ... Estate planning is the process of accumulating and disposing of an estate to maximize the goals of the estate owner. ... A law firm is a business entity formed by one or more lawyers to engage in the practice of law. ...


The first technique many use is to combine the tax exemption limits for a husband and wife either through a will or create a living trust. Many, but not all, other techniques do not really avoid the estate tax, rather they provide an efficient and leveraged way to have liquidity to pay for the tax at the time of death. It is very important for those whose primary wealth is in a business they own, or real estate, or stocks, to seek professional advice or they may run the risk of the estate tax forcing their heirs to sell these things at an inopportune time. In one popular scheme, an irrevocable life insurance trust, the parents give their kids (within the allowed yearly gift tax limit) money to buy life insurance on the parents in an irrevocable life insurance trust. Structured in this way, life insurance is free of estate tax. However, if the parents have a very high net worth and the life insurance policy would be inadequate in size due to the limits in premiums, a charitable remainder trust may be used. This is where a large asset is flagged to be donated to a charity, sold, and invested. The investment income buys life insurance but the principal goes to the charity when the parents die. Meanwhile the children get the full amount as well in life insurance proceeds. This is a large reason for many charitable gifts, and proponents of the estate tax argue the tax should be maintained to encourage this form of charity. In the common law, a will or testament is a document by which a person (the testator) regulates the rights of others over his property or family after death. ... A living trust (inter vivos trust) is a trust created during a persons lifetime. ...


Debate

Arguments against

One argument against the estate tax is that the tax obligation in itself can assume a disproportionate role in planning, possibly overshadowing more fundamental decisions about the underlying assets. In certain unfortunate cases, this is claimed to create an undue burden. For example, pending estate taxes could become an artificial disincentive to further investment in an otherwise viable business – increasing the appeal of tax- or investment-reducing alternatives such as liquidation, downsizing, divestiture, or retirement. This could be especially true when an estate's value is about to surpass the exemption equivalent amount. Older individuals owning farms or small businesses, when weighing ongoing investment risks and marginal rates of return in light of tax factors, may see less value in maintaining these taxable enterprises. They may instead decide to reduce risk and preserve capital, by shifting resources, liquidating assets, and using tax avoidance techniques such as insurance policies, gift transfers, trusts, and tax free investments. [2] Image File history File links Emblem-important. ...


Moreover, not all taxpayers have equal access to (or trust in) estate planning services; an aging farm or business owner (perhaps a Depression survivor) might not understand the consequences of leaving inheritance issues to surviving family members, or even of intestacy. A policy that creates an uneven tax burden, even when due to ignorance or inaction, can raise the appearance of unfairness. Intestacy is the condition of the estate of a person who dies owning property greater than the sum of his or her enforceable debts and funeral expenses without having made a valid will or other binding declaration; alternatively where such a will or declaration has been made, but only applies...


Some argue that the estate tax creates a potential for double and triple taxation, that is, taxation on assets which have already been taxed. Double taxation occurs on earned income, and by imposing capital gains tax on the returns after earned income is reinvested in new ventures, stocks, bonds, and savings. Others argue, the capital gains on those reinvested proceeds have never been taxed in the first place, because the income tax system does not recognize income until the asset (here a share of stock) is sold or transferred. This is true. However, the increased value or capital gains that are being taxed in a wealth transfer are not actually realized. It's only a "paper" increase. The government is, in essence, taxing the estate for unrealized wealth. The estate tax essentially treats the transfer of ownership of the stock at death as a sale and imposes what is essentially a capital gains tax - despite the fact that a family has not reaped the actual wealth benefits.


Thus, a family could be forced to sell a business it helped grow, establish and runs efficiently. Since it has not reaped the actual monetary benefits of the value, the government forces its hand - unless it chooses to pay for the estate tax amount. Since it may not reap profits to offset the tax burden, the business may have to be sold at an inopportune time, at a significant loss.


The arguments favoring this tax essentially assume the government has a right to intrude into a family's personal property - treating the beneficiaries as market purchasers. Whether this government intrusion is desireable or not is certainly debatable. It does demonstrate a clear inconsistency among advocates who would find such governmental intrusion in other areas of family life a dictatorial intrusion. Such a tax certainly is contrary to fundamental free market principles and natural rights principles espoused early in the nation's history. Some may argue that it is essentially motivated by a desire of the less successful to penalize those who do succeed, others that it is a principle of fairness and an unmerited advantage over the less fortunate.

Estate value
(Millions)

Number of
returns

Average tax
(in thousands)

Effective
tax rate

 
$0.0 - $1.0
0
$0
0.0%
$1.0 - $2.0
190
$26
1.6%
$2.0 - $3.5
60
$190
7.5%
$3.5 - $5.0
40
$449
12.0%
$5.0 - $10
80
$1,322
19.3%
$10. - $20.
50
$2,832
22.9%
$20. +
30
$23,442
22.2%
All
440
$2,238
19.9%

Previous Tax Foundation research has found the estate tax acts as a strong disincentive toward entrepreneurship. A 1994 study found that the estate tax’s 55 percent rate at the time had roughly the same disincentive effect as doubling an entrepreneur’s top effective marginal income tax rate. The estate tax has also been found to impose a large compliance burden on the U.S. economy. Some past economic studies have estimated the compliance costs of the federal estate tax to be roughly equal to the amount of revenue raised—nearly five times more costly per dollar of revenue than the federal income tax—making it one of the nation’s most inefficient revenue sources. See The Economics of Federal Estate Taxes

Arguments in favor

Proponents of the estate tax argue that it serves to prevent the perpetuation of wealth, free of tax, in wealthy families and that it is necessary to a system of progressive taxation. Proponents point out that the estate tax affects only estates of considerable size (presently, over $2 million USD, and over $4 million USD for couples) and provides numerous credits (including the unified credit) that allow a significant portion of even large estates to escape taxation. Regarding the tax's effect on farmers, proponents counter that this criticism is misguided as there is an exemption built into the law that is specifically designed for family-owned farms. Image File history File links Emblem-important. ... A progressive tax, or graduated tax, is a tax that is larger as a percentage of income for those with larger incomes. ...


Furthermore, supporters argue that many large fortunes do not represent taxed income or savings, that wealth is not being taxed but merely the transfer of that wealth, and that many large fortunes represent unrealized capital gains which (because of a step up in basis at the time of death) will never be taxed as capital gains under the federal income tax. Cost basis, or basis as used in United States tax law, is the original cost of property adjusted for factors such as depreciation. ...


Proponents further argue that the estate tax serves to encourage charitable giving, one way in which individuals can avoid paying the tax. A 2004 report by the Congressional Budget Office found that eliminating the estate tax would reduce charitable giving by 6-12 percent.


Another argument in favor of the estate tax relates to comparative incentives. Proponents argue that the estate tax is a better source of revenue than the income tax, which is said to directly disincentivize work. While all taxes have this effect to a degree, some argue that the Estate Tax is less of a disincentive since it does not tax money that the earner spends, but merely that which he or she wishes to give away for non-charitable purposes. Moreover, some argue that allowing the rich to bequeath unlimited wealth on future generations will disincentivize hard work in those future generations.


Proponents of the estate tax tend to object to characterizations that it operates as a double or triple taxation. They either note that such double and triple taxation is common (through income, property, and sales taxes, for instance), or argue that the estate tax should be seen as a single tax on the inheritors of large estates.


Supporters of the estate tax also point to longstanding historical precedent for limiting inheritance, and note that current generational transfers of wealth are greater than they have been historically. In ancient times, funeral rites for lords and chieftains involved significant wealth expenditure on sacrifices to religious deities, feasting, and ceremonies. The well-to-do were literally buried or burned along with most of their wealth. These traditions may have been imposed by religious edict but they served a real purpose, which was to prevent the accumulation great disparities of wealth, which tended to destabilize societies and lead to social imbalance, eventual revolution, or disruption of functioning economic systems. This economic safety valve is now partially imposed via the estate tax, which strips excess wealth from the recently dead and diverts it back to the society as a whole.


One of the world's wealthiest men, Warren Buffett, and the world's richest man's father, William H. Gates, Sr., are in favor of the estate tax.[3] Warren Edward Buffett (b. ... William Henry Gates, Sr. ...


The "Death Tax" neologism

Many opponents of the estate tax refer to it as the "death tax" in their public discourse partly because a death must occur before any tax on the deceased's assets can be realized and also because the tax rate is determined by the value of the deceased's assets rather than the amount each inheritor receives. Neither the number of inheritors or the size of each inheritor's portion factors into the calculations for rate of the Estate Tax. For other uses, see Death (disambiguation), Dead (disambiguation), or Death (band). ... “Taxes” redirects here. ... This article is about the business definition. ...


The term was popularized in a famous memorandum written by Republican pollster Frank Luntz. He recommended that the party use the term "death tax" when referring to the estate tax, writing that the term "death tax" "kindled voter resentment in a way that 'inheritance tax' and 'estate tax' do not" [4]. A memorandum or memo is a written form of communication most often employed in business environments. ... The Republican Party, often called the GOP (for Grand Old Party, although one early citation described it as the Gallant Old Party) [1], is one of the two major political parties in the United States. ... An opinion poll is a survey of opinion from a particular sample. ... Frank I. Luntz (born February 23, 1962) is a corporate and political consultant and pollster who has worked most notably with the Republican Party in the United States. ...


Progressive linguist George Lakoff alleges the phrase is a deliberate and carefully calculated neologism which is used as a propaganda tactic to aid in the repeal of estate taxes. For other uses, see Progressivism (disambiguation). ... For the journal, see Linguistics (journal). ... This article or section does not cite any references or sources. ... A neologism is a word, term, or phrase which has been recently created (or coined), often to apply to new concepts, to synthesize pre-existing concepts, or to make older terminology sound more contemporary. ... For other uses, see Propaganda (disambiguation). ...


Effects of the debate

Congress has passed tax laws that have changed the estate tax. Since 2003, the top rate has been lowered from 49% by one percentage point per year; in 2006 the top rate was 46%. If the US Congress makes no changes to US tax law, the top rate will continue to drop by one percentage point per year until 2009 when the top rate is scheduled to be 45%; in 2010 all estates will be taxed at 0%; and in 2011 the estate tax will return at a top rate of 55%. Most experts expect that Congress will change the tax law before then. If the estate tax is eliminated, then unrealized capital gains would be subject to capital gains tax in order to justify the step up in basis in the hands of the new owner. For all other forms of taxation, see tax Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A capital gains...


Legislation to extend raising the unified credit (beyond year 2010) of the estate tax has passed the House of Representatives. It also passed in the Senate in June, 2006. Later when the conference committee added it to a bill to increase the minimum wage, the combined bill failed to garner 60 votes to invoke cloture in the United States Senate, and it failed to pass. A conference committee in the United States Congress and bicamerial state legislature is a committee appointed by the members of the upper and lower house to resolve disagreements on a bill passed in different versions of each House. ... The minimum wage is the minimum rate a worker can legally be paid (usually per hour) as opposed to wages that are determined by the forces of supply and demand in a free market. ... In parliamentary procedure, cloture (pr: KLO-cher) (also called closure, and sometimes a guillotine) is a motion or process aimed at bringing debate to a quick end. ... Type Upper House President of the Senate Richard B. Cheney, R since January 20, 2001 President pro tempore Robert C. Byrd, D since January 4, 2007 Members 100 Political groups Democratic Party Republican Party Last elections November 7, 2006 Meeting place Senate Chamber United States Capitol Washington, DC United States...


IRS audits

In July 2006, the IRS confirmed that it planned to cut the jobs of 157 of the agency’s 345 estate tax lawyers, plus 17 support personnel, by October 1, 2006. Kevin Brown, an IRS deputy commissioner, said that he had ordered the staff cuts because far fewer people were obliged to pay estate taxes than in the past.


Estate tax lawyers are the most productive tax law enforcement personnel at the I.R.S., according to Brown. For each hour they work, they find an average of $2,200 of taxes that people owe the government. [5]


Related taxes

The federal government also imposes a gift tax, assessed in a manner similar to the estate tax. One purpose is to prevent a person from avoiding paying estate tax by giving away all his or her assets before death. Inheritance tax, also known in some countries outside the United States as a death duty and referred to as an estate tax within the U.S, is a form of tax levied upon the bequest that a person may make in their will to a living person or organisation. ...


There are two levels of exemption from the gift tax. First, transfers of up to (as of 2006) $12,000 per person per year are not subject to the tax. An individual can make gifts up to this amount to as many people as they wish each year. A married couple can pool their individual gift exemptions to make gifts worth up to $24,000 per person per year without incurring any gift tax. Second, there is a credit that essentially negates the tax on gifts until a total of $1,000,000 has been given by one person to another.


If an individual or couple makes gifts of more than the limit, gift tax is incurred. The individual or couple has the option of paying the gift taxes that year, or to use some of the "unified credit" that would otherwise reduce the estate tax. In some situations it may be advisable to pay the tax in advance to reduce the size of the estate.


But in many instances, an estate planning strategy is to give the maximum amount possible to as many people as possible to reduce the size of the estate, the effectiveness of which depends on the lifespan of the transferor.


Furthermore, transfers (whether by bequest, gift, or inheritance) in excess of $1 million may be subject to a generation-skipping transfer tax if certain other criteria are met. The U.S. Generation-Skipping Transfer Tax imposes a tax on both outright gifts and transfers in trust to or for the benefit of persons two or more generations younger than the donor, such as grandchildren. ...


See also

The examples and perspective in this article or section may not represent a worldwide view. ...

Notes

The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes...

Further reading

  • Ian Shapiro and Michael J. Graetz, Death By A Thousand Cuts: The Fight Over Taxing Inherited Wealth, Princeton University Press (February, 2005), hardcover, 372 pages, ISBN 0-691-12293-8
  • William H. Gates, Sr. and Chuck Collins, with foreword by former Federal Reserve Chairman Paul Volcker, Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes, Beacon Press (2003)

William Henry Gates, Sr. ... Chuck Collins (b. ... Paul Adolph Volcker (born September 5, 1927 in Cape May, New Jersey), is best-known as the Chairman of the Federal Reserve (The Fed) under United States Presidents Jimmy Carter and Ronald Reagan (from August 1979 to August 1987). ...

External links

  • United for a Fair Economy: A History of the Estate Tax.
  • IRS publication 950, Introduction to Estate and Gift Taxes, revised September 2004
  • "Estate Tax Pyramid Scheme", a June 2006 article by former US Secretary of Labor Robert Bernard Reich arguing for the estate tax.
  • Deathtax.com an anti-inheritance tax campaign by a Seattle family-owned newspaper
  • Gross Estate and Net Estate Tax on Farms and Businesses in 2004, from the Tax Policy Center website
  • ...Ads exaggerate what the tax costs farmers, small businesses..., a June 2005 article from FactCheck
  • Death tax deception Article from Dollars & Sense magazine
  • Sterling Harwood, "Is Inheritance Immoral?" in Louis P. Pojman, Political Philosophy (McGraw Hill, 2002). www.sterlingharwood.com.
  • David Runciman, London Review of Books, 2 June 2005, "Tax Breaks for Rich Murderers"
  • Wiki Legal Comment, Night of the Living Dead: Why Death Tax Won’t Stay Dead, Wiki Legal Journal This article is part of a study to determine if a wiki community can produce high quality legal research, Nov. 18, 2006 (this comment explores the various proposals Congress has considered with a special emphasis on the interaction of estate tax on state revenue and philanthropy.).
  • A program at mystatewill.com gives a quick calculation of the federal estate tax

 
 

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