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The Death Tax — Where did it come from?
- In the early 1900's politicians became concerned about the growing concentration of money resulting in power among a few families and called for a "progressive tax" on rich families to prevent them from passing on their wealth from one generation to the next.
- In 1916 the estate tax was enacted and was used to fund national emergencies.
- In 1924, Congress enacted the first gift tax. This was done to curb the trend of citizens who gave their estates away as gifts to avoid the death tax.
- From 1932 to 1941, financing demands of World War II in this time period caused the high water mark for federal transfer receipts. During this time, rates were raised and revenue from death taxes accounted for as much as 9.7% of the federal tax revenue.
- From 1942 until 1976, there was very little change in the law regarding death taxes. The top tax rate remained at their relatively high wartime levels and exemption amounts were unchanged.
- In 1976, the Tax Reform Act resulted in a major overhaul of the death tax system. Death and gift taxes were basically united and became subject to the same progressive rate schedule. Rates ranged from 18% to 70%, based on the value of the estate.
- Following the Tax Reform Act came the Economic Recovery Tax Act in 1981, and the Omnibus Reconciliation Act of 1987 and 1993 which eventually capped the estate tax at 55%.
- In 2001, The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) took the first step since the death tax was permanently adopted to eliminate it. As a part of broader tax reforms, Congress phased out the death tax as follows:
| |
Estate Tax Rates |
Unified Credit* |
| 2002 |
50% |
$1 million |
| 2003 |
49% |
$1 million |
| 2004 |
48% |
$1.5 million |
| 2005 |
47% |
$1.5 million |
| 2006 |
46% |
$2 million |
| 2007 |
45% |
$2 million |
| 2008 |
45% |
$2 million |
| 2009 |
45% |
$3.5 million |
| 2010 |
0% |
$N/A |
| 2011 |
55% |
$675,000 |
*Amount excluded from the tax
Because the 2001 Act is not permanent, the death tax comes back in 2011 at the previously high and confiscatory level. Advocates for repeal continue to seek permanent elimination of the death tax.
Please e-mail us with your comments, death tax horror stories and suggestions on-line at feedback@deathtax.com.
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