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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
rates 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%.
- Current federal death
tax rates are assessed as follows:
- Estates valued
up to $10 million pay taxes on a graduated rate system which ranges between
18% and 55%. An exemption is allowed for the first $650,000 of an estate's
value. This exemption is fixed and not indexed for inflation.
- Estates valued
between $10 and $21 million are taxed at a rate of 55%. In addition, an
additional 5% surcharge is levied. This surcharge has the effect of phasing
out the $650,000 exemption completely as the value of the estate approaches
$21 million.
- Estates valued
at over $21 million face a tax rate of 55% and no exemption is allowed.
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