The Pros & Cons of Estate Tax
An estate tax is levied by the federal or state government on estates whose values exceed a certain amount. The tax is to be paid by the person who inherits the assets in the estate. It is estimated that taxable estates usually pay one-sixth of their value in tax.
The estate tax is a significant revenue source for the government. Because it affects only large estates with several high-value assets, the estate tax is the most progressive component of the U.S. tax code. Many critics of the estate tax argue that it should be repealed.
They fail to realize that repealing the estate tax would result in over $269 billion revenue loss over a decade. Plus, there will be less capital available for investment.
BENEFITS
The estate tax promotes savings. It ensures that wealthy individuals who want to pass on as much wealth as possible to their heirs try to save more.
The estate tax plays a very important role in reducing the concentration of wealth in just a few hands.
The estate tax is levied only on the wealthiest one percent individuals. It is one of the best examples of a progressive tax – one that burdens the wealthiest the most.
Many wealthy individuals donate to charity as a way to reduce their estate tax. If the estate tax was not in place, donations to charities may have dried up.
The estate tax ensures that individuals do not pass on massive amounts of wealth to people who did not help create it. If the estate tax was not in place, heirs would have inherited more wealth.
In some cases, large amounts of inherited wealth can cause beneficiaries to be idle and they may become non-productive members of society.
DRAWBACKS
Estate tax critics refer to it as a death tax. They argue that it penalizes a person for being successful.
One of the biggest shortcomings of the estate tax is that it forces individuals to pay taxes on the same assets twice – once when they are bought and once when they are passed on to settlors’ heirs.
Individuals subject to the tax may be forced to consult a professional and contest the value of assets included in the estate. This results in additional expenses.
Do you have an estate tax strategy?
Need estate tax preparation help near you? Accolade Accounting has got you covered. We are a full-service accounting firm. Our team helps individuals and businesses identify ways to save income tax. To make an appointment, call 470-646-2663.
