Posts Tagged ‘estates’

The One About Estate Taxes

December 15th, 2010 No comments


What is the Estate Tax?

The estate tax is tax that is levied on the transfer of the taxable portion of a deceased person’s estate.  It is levied on the estate as a whole, and is not dependent upon portions given to different individuals.

One of the items that is being negotiated for the current tax cut package is the estate tax.  It’s one of those hot button issues that everyone gets up in arms about, along with abortion and gay marriage.

The thing is, the estate tax doesn’t affect the majority of tax payers.  In 2000 only 2% of estates were levied estate taxes.  In 2010 there was no estate tax. If the proposed changes are approved, the estate tax won’t kick in until $5 million.  If nothing is done, estate taxes come back into play starting at $1 million and with a top rate of 55%.

Why are people against Estate Taxes?

It’s a double tax

This is true.  But then again, so is property tax and sales tax.  You pay for those with money that you earned and already paid income tax on.

It punishes success

Why should you work hard just to give your hard earned dollars to the government?

Why are people for Estate taxes?

It helps prevent a perpetuation of wealth

Wealth that is transferred from generation to generation with no tax just grows and grows, consolidating the wealth of the nation into a  smaller and smaller group.  We see this happening already.  90% of the wealth of the nation is held by 10% of the population.  The estate tax helps (in some small way) slow this down.

It prevents the lack of incentive to work

If someone just handed you a boatload of money, why would you bother to do anything? Why work or innovate?

Something that I ran into while reading about estate taxes are what is known as death elasticity.  This would be lengthening or shortening your life based upon the current estate tax laws.  Would you consider giving up treatments and dying during the current tax year if it would mean your survivors would keep more of the inheritance?  Pretty Morbid.

The median inheritance is $60,000 currently.  It isn’t going to be taxed.  So why do so many people get upset by it?  Do you?