The most commonly heard argument against the estate tax - that it represents unfair double taxation - is specious. First, the estate tax does not even kick in until the assets left at death exceed $1.5 million, or $3 million per married couple - and those exemption amounts will more than double by 2009.
The level the estate tax kicks in at is pretty much irrelevant to whether it amounts to double taxation, for whatever wealth is taxed.
Second, much of the wealth transferred at death has never been taxed. That's because capital gains on assets like houses, stocks and bonds are not taxed until the asset is sold. Obviously, if you inherit, say, a house, its owner didn't sell it, so never paid any capital gains tax on it.
Much more relevant but income that was taxed will get taxed again.
Edit - This second point is the only reason that I am not 100% behind scrapping the this tax.
Another popular argument against the estate tax - that the rate is so high the government is basically confiscating your property - is also a sham. Estate tax rates currently top out at 47 percent. But those rates don't even start to apply until an estate tops the multimillion-dollar exemption. As a result of the exemption and other deductions, the effective tax rate - the percentage that is actually handed over to the government - is much lower than the top stated rate. It was only 18.8 percent, on average, in 2003, according to the Internal Revenue Service.
The average rate being relatively moderate doesn't mean that for transfers of a large enough level of wealth the tax isn't relatively confiscatory. There are loopholes to effectively reduce the rate or even avoid the tax but some people do get caught by the high rates and those who don't because of the loopholes have to structure their inheritance around the loopholes. Other than perhaps a high minimum I really don't think there should be any loopholes, but there should be a much lower rate (assuming the tax isn't scrapped entirely). I have a problem with 47% tax rates.
Tim |
