The Internal Revenue Service (IRS) has imposed inheritance tax of varying rates on estates of varying sizes in the past. Inheritance taxes are levied on the taxable estate of a deceased person that is passed on to another person. Ethical gray areas regarding inheritance tax range from questioning the validity of such a tax to the ways an estate's executor can circumvent it. Fluctuations in inheritance tax rates and the size of estates subject to taxation also raise ethical questions.
Imposing the Tax
Since 2004, the IRS has taxed inheritances ranging in size from $1.5 million in 2004 to $5 million in 2010; because the inheritance tax was repealed in 2010, inheritances in that year were subject to special regulations. The inheritance tax rate has also varied -- from 55 percent in 2001 to 35 percent in 2010 and later. Such variance creates an ethical quandary regarding the tax itself due to the lack of standard application. Standardizing an inheritance tax rate, as well as the size of inheritances subject to it, could work toward an ethical inheritance tax.
Redistribution of Wealth
One of the most common arguments made in favor of an estate tax is, according to House.gov, that it redistributes wealth by generating tax revenue for the federal government and encouraging charitable donations, which are not taxed. Supporters of an inheritance tax argue that redistribution and donation of excess wealth is ethical because it supports projects in the public interest and common welfare. Additionally, Richard L. Harris argues in "Wealth Strategies Journal" that an inheritance tax supports a fair society because it supports an equal society instead of a plutocracy.
Taxing Hard Work and Saving
Those opposed to an inheritance tax argue that the tax discourages a person subjected to the tax to save her wealth or to work harder to earn more. If a person's estate meets the $5 million threshold, no alternative exists to paying an inheritance tax, except for leaving everything to a charity or spouse, according to Liz Pulliam Weston of MSN MoneyCentral. No empirical evidence exists to support the notion that the proceeds of inheritance taxes support public welfare or fairness, according to House.gov, which could support the case that an inheritance tax is unethical because it encourages those subjected to it to waste resources to avoid taxation.
Tax-Free Wealth Transfer
Inheritance taxes can motivate a person to be a responsible, ethical steward of his assets. If he leaves his estate to a spouse or charity, the proceeds are not subject to the inheritance tax. This creates an incentive to continue amassing wealth and to find a responsible or socially beneficial way to posthumously distribute it. Conversely, the tax could be an unnecessary or unethical burden on estates because, according to House.gov, the U.S. economy is fluid enough to allow wealth to move throughout the economy without the motivation of a tax.
- IRS: Estate Tax; March 25, 2011
- Bank Rate: "2010-2011 Estate Tax and Gift Tax Amounts"; Kay Bell
- House of Representatives: "The Economics of the Estate Tax"; Jim Saxton; December 1998
- "Wealth Strategies Journal": "Arguments for the Estate Tax"; Richard L. Harris; September 29, 2010
- MSN MoneyCentral: "5 Big Myths About the Estate Tax"; Liz Pulliam Weston
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