Estate Tax Debate

History and Debate of Estate Tax

The inheritance tax, or estate tax, is a tax which the United States levies on the total taxable value of the estate of a deceased person. The amount of tax is calculated regardless of the method in which the assets of the estate are transferred to the person's heirs: assets included in a will, transferred automatically because the person died intestate or as an insurance benefit or account payoff. Inheritance tax is paid by the executor of the estate or by the person in charge of its assets.

The United States has a consolidated policy on inheritance and gift tax so that a person cannot give away his or her estate to potential beneficiaries shortly before death in order to avoid taxation; beneficiaries would simply pay gift tax rather than inheritance tax in this case. The federal government makes a distinction between the "gross estate" (all assets) and the "taxable estate" (assets less a certain number of allowable deductions such as funeral expenses, some charitable contributions and various other deductions).

In most cases, if the estate is left to a charitable organization or a surviving spouse, no inheritance tax is due. There are also exclusions for a certain portion of the estate; however, these have been frequently changed by recent tax legislation, and usually, it is worth consulting a professional to determine what amount of the estate is not taxable under current federal law. In part because these complexities make it possible for some wealthy people to establish shelters that let them avoid estate tax; the estate tax debate has been going on for years.

Opponents of Estate Tax

Opponents of inheritance tax typically refer to it pejoratively as "death tax." They argue first that concern over burdening their children with this tax may lead elderly to make unwise investment decisions late in life, and that it may also discourage entrepreneurship earlier in life. Opponents also claim that morally it should be only the choice of the person who earned the money what should be done with it, not the government. They see taxing wealth at death as a kind of forced income redistribution that goes against free-market capitalism. Also, studies suggest that the expense to the government of collecting the estate tax is almost as high as the funds received from it, thus making it a highly inefficient way to get revenue.

Proponents of Estate Tax

Proponents of the inheritance tax say that it helps prevent consolidation of wealth in the hands of a few powerful families and is a basic building block of the nation's system of progressive taxation. They also feel that inheriting large sums without tax undermines people's motives to work hard in the future and, thus, undercuts the principles of capitalism, encouraging people to become idle and unproductive, which hurts the country overall. Those in favor of the inheritance tax also point out that, contrary to claims, it taxes the same earnings twice; within the structure of US estate tax, much inherited money is in the form not of prior salary for work, but of unrealized capital gains, money on which no tax has ever been paid before. Finally, proponents also make the point that transfers of wealth from generation to generation have often been limited, and the amounts that are currently being transferred are so high as to have very little historical precedent, thus making taxing them less onerous. The controversy that has raged over inheritance tax in the United States shows little sign of abating.

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