The Controversy of Estate Tax You Must Know

Estate tax, also called inheritance tax or death tax, is a tax imposed on the transfer of the estate of a deceased person. This tax is based on the net value of the estate, including real estate, cash, investments, and other assets. While estate tax has been a topic of controversy for a long time, it has recently become a hot-button issue among policymakers, politicians, and the public.

The estate tax system has changed over time, with various laws and regulations evolving in response to economic and political pressures. In this article, we will explore the history of estate tax and the debates surrounding it. We will examine why some people believe that estate tax is necessary to ensure a fair distribution of wealth, while others argue that it is an unfair burden on families and businesses.

The History of Estate Tax

Estate tax has been around for centuries, with the earliest forms of inheritance tax dating back to ancient Rome. However, modern estate tax systems were first introduced in Western Europe in the 18th and 19th centuries, as governments sought to increase their revenues to fund their military and social programs.

In the United States, estate tax was first enacted in 1916 as part of the Revenue Act of 1916. The estate tax was implemented as a way to raise revenue during World War I. The tax was initially set at a rate of 1% and applied only to estates worth over $50,000 (approximately $1.3 million in today’s dollars). Over time, the estate tax has been adjusted numerous times, with rate increases and changes to exemption limits.

The current version of the estate tax, implemented by the Tax Cuts and Jobs Act of 2017, applies to estates worth over $11.4 million per person or $22.8 million per couple. This means that most Americans will not have to pay any estate tax. However, for those whose estates are above the exemption limit, the tax rate is currently set at 40%.

Arguments For Estate Tax

Proponents of estate tax argue that it is a necessary means to address income inequality and to level the playing field between the rich and the poor. Estate tax is viewed as a form of progressive taxation, which means that the wealthier a person is, the more they pay in taxes.

Supporters of estate tax also argue that it provides necessary revenue for the government to fund essential services and programs. Without estate tax, the government would need to generate revenue from other sources, such as increasing income or sales taxes. Estate tax is seen as a way to balance the budget and ensure that everyone pays their fair share.

Another argument for estate tax is that it discourages the concentration of wealth and promotes social mobility. Estate tax encourages wealthy individuals to distribute their wealth more evenly among their heirs, rather than allowing it to remain concentrated in the hands of the few. This, in turn, can create opportunities for new entrepreneurs and innovators to rise to the top.

Arguments Against Estate Tax

Opponents of estate tax argue that it is an unfair burden on families and businesses. Many people believe that estate tax is a form of double taxation since it taxes assets that have already been taxed as income. Opponents of estate tax argue that this creates a disincentive for people to save and invest, as the value of their assets will be subject to estate tax when they die.

Another argument against estate tax is that it is a job killer. Opponents of estate tax argue that small businesses and family farms are particularly vulnerable to being forced to pay estate tax, which can force them to sell off assets or go out of business. This can lead to job losses, lower economic growth, and decreased innovation.

Opponents of estate tax also argue that it is not an effective means of addressing income inequality. They argue that the wealthy can use various legal and financial strategies to avoid paying estate tax, such as setting up trusts or transferring assets prior to death. This means that estate tax is often not paid by those who are actually the wealthiest, but rather by those who are caught in the middle, with assets that are too valuable to avoid estate tax, but not valuable enough to be considered truly wealthy.

Recent Developments

The debate over estate tax has been ongoing for decades, but recent developments have brought the issue to the forefront of political discourse once again. In 2017, the Trump Administration passed the Tax Cuts and Jobs Act, which raised the exemption limit for estate tax. This change has been hailed by opponents of estate tax but criticized by supporters.

In addition to changes in tax policy, there have been other developments that have contributed to the debate surrounding estate tax. One such development is the growing awareness of income and wealth inequality in the United States. With a small percentage of the population holding a large percentage of the country’s wealth, many people are calling for policies that can address this disparity.

Another development that has contributed to the debate is the increasing number of billionaires who are entering politics. Many of these billionaires have inherited their wealth, leading to questions about whether they understand the struggles of everyday Americans. The estate tax has often been a topic of discussion when it comes to these billionaire candidates, with some arguing that they are hypocritically opposed to estate tax despite their own massive inheritances.

Conclusion

Estate tax is a complex and controversial issue that has been debated for decades. While supporters of estate tax argue that it is necessary to address income inequality, promote social mobility, and fund essential government services, opponents argue that it is an unfair burden on families and businesses that creates a disincentive to save and invest.

The debate over estate tax is likely to continue, with both sides presenting compelling arguments. Estate tax policy will likely continue to evolve in response to economic and political pressures, and it remains to be seen what the future holds for this controversial tax.

There are many that argue that an estate tax or the inheritance tax prevents families from continuously passing on their wealth tax free. Arguments on both sides say that an inheritance tax and an estate tax are progressive taxes. Because the inheritance tax is a progressive tax, the tax burden is equally distributed according to a percentage of wealthy. In contrast, regressive taxes tax those with lesser wealth at a higher rate as a percentage of income.

The Federal inheritance tax can be as high as fifty percent, when it is active. That means that benefactors only actually leave beneficiaries half of what they intended to leave them. Individuals that work hard all of their lives, with the intention of leaving their wealth to family members, often find that a majority of the accumulated wealth is contributed to a tax burden.

There are those that argue in favor of the estate tax or inheritance tax as a replacement of income tax. Income tax is said to penalize workers and discourage employed from working harder to get a better salary. An increase in salary can put taxpayers in the next tax bracket, which increases their income tax burden, sometimes in large amounts, as a percentage of their salary. If the inheritance tax or estate tax were to replace the income tax, it is believed that employees would be encouraged to work harder so that they could invest more money and save for the future.

Just as in income tax discourages hard work, it is believed that tax free inheritance also discourages work in future generations because they become wealthy from their inheritance. By allowing individuals to keep their entire salary, taxes are only applied to the money that they earn and give away. In addition, some people claim that the inheritance tax and estate tax are simply imposed because nobody has the implicit right to inherit money and enjoy the benefits of inheritance which results form the hard work of others.

In contrast, the inheritance tax and the estate tax are said to discourage entrepreneurship because individuals believe that the money they make will not be given to future generations, but instead be taxed at high rate. The inheritance tax and the estate tax are also said to be costly because of the large percentage of revenue utilized to force taxpayers to comply with the tax. It is actually one of the least effective taxes when one examines the cost of compliance with the amount of revenue generated through the estate tax and the inheritance tax.

Although the inheritance tax and estate tax do not currently apply on a federal level, many beneficiaries are subject to those taxes in their state of residence. The debate as to the fairness of those taxes continues to rage on. Those that are beneficiaries or benefactors tend to be opposed to the tax. In fact, most of the wealthy believe that the tax unfairly places a tax burden on their shoulders. However, the tax is often favored by a majority of employed taxpayers in order to make up for the deficit in the income tax burden which unfairly taxes those with lower salaries.