Estate taxes are taxes imposed on the estate of a deceased person and have been a contentious political issue. The use of property taxes varies greatly from country to country, and jurisdictions that impose inheritance taxes generally allow exemptions for charitable bequests and spousal inheritances. Controversies over estate taxes generally center on their use as a social policy tool.
Estate taxes, also known as estate or death taxes, are taxes imposed on the estate of a deceased person. They are one of the oldest forms of individual taxation in the Western world, with records indicating their use going back to the days of Aristotle. In the modern era, both Britain and the US began imposing inheritance taxes in the mid-18th century.
Historically, estate taxes have been a contentious political issue. In the United States, they were initially imposed to help finance the war for independence, then quickly repealed. They were subsequently reinstated and repealed on no less than three separate occasions. They were last introduced by the Roosevelt administration during the Great Depression, and in 2001 the United States Congress began a repeal process that will take until 2010 to complete. At that point, estate taxes will automatically reinstate the following year, unless Congress passes legislation making the repeal permanent.
The use of property taxes varies greatly from country to country. At its peak during the Great Depression, inheritance taxes in the United States reached 70%. As of 2005, estates worth less than $1.5 million are exempt from federal estate taxes. Canada eliminated estate taxes in the 1980s and began treating outlays as ordinary income. Even in the European Union, which is working on the harmonization of fiscal policy, large differences persist. Sweden, for example, has no inheritance tax at all, while the UK has a 40% rate on all property above par value.
Jurisdictions that impose inheritance taxes generally allow exemptions for charitable bequests and spousal inheritances. Families can also set up trusts as a way to minimize the impact of estate taxes. To prevent people from avoiding estate taxes simply by giving away property during their lifetimes, gift taxes are often imposed.
Controversies over estate taxes generally center on their use as a social policy tool. Unlike more direct forms of taxes, estate taxes can affect multiple generations of a family. By making it difficult for an extended family to accumulate wealth in the long term, certain political theorists argue that inheritance taxes are the optimal form of tax to preserve a large middle class, which in turn is necessary for a strong and participatory democracy. Others argue that family fortunes rise and fall on their own, and that inheritance taxes are simply an evil form of wealth redistribution. In societies where inheritance taxes are particularly high, critics often point out that small family businesses are particularly affected. To pay estate taxes, surviving family members may be forced to sell their businesses or farms to larger corporations.
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