On the Estate Tax [View all]

[Fantastic Anarchist]

I was in a "debate" with someone on Reddit regarding the Estate Tax. His question was the standard reactionary one: The income is already taxed and "why should I have to pay for the takers." You know, the ignorant tripe that doesn't require critical thinking skills.

So, I thought I'd share my response for those who are interested. It doesn't affect nearly the amount of population that the reactionaries would have you believe. I mean, if you believed their arguments, you'd think the end of civilization is nigh!

My response:

To prevent a disproportionate accumulation of wealth and economic royalty. And estate taxes only tax above a certain amount. It's not like everyone who receives an inheritance has to pay taxes on them.

As noted above, a certain amount of each estate is exempted from taxation by the law. 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 the estate would have paid a taxable rate of 19.7%. As shown, the 2001 tax act would have repealed the estate tax for one year (2010) and would then have readjusted it in 2011 to the year 2002 exemption level with a 2001 top rate. That is, had no further legislation been passed, the estate of a person who deceased in the year 2010 would have been entirely exempt from tax while that of a person who deceased in the year 2011 or later would have been taxed as heavily as in 2001. However, on December 17, 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Section 301 of the 2010 Act reinstated the federal estate tax. The new law set the exemption for U.S. citizens and residents at $5 million per person,[26] and it provided a top tax rate of 35 percent for the years 2011 and 2012.[27] On January 1, 2013, the American Taxpayer Relief Act of 2012 was passed which permanently establishes an exemption of $5 million (as 2011 basis with inflation adjustment) per person for U.S. citizens and residents, with a maximum tax rate of 40% for the year 2013 and beyond.[28] The permanence of this regulation is not ensured: the fiscal year 2014 budget called for lowering the estate tax exclusion, the generation-skipping transfer tax and the gift-tax exemption back to levels of 2009 as of the year 2018.[29]

So, currently, only those inheriting $5.25 million or more are taxed, and only for the amount above the exclusion amount. If I recall correctly, this only affects ~0.3%* of the total population.

*This figure for 2014 is probably even lower since Congress raised the exclusion amount.

Wikipedia: Estate Tax in the United States