Business Seminar Report: Inheritance Tax

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Background

Inheritance tax, or estate tax, is a type of tax levied on those who inherit money or property from a deceased person. Modern inheritance tax was first introduced in 1916, with the major objective to narrow the gap between the rich and poor. By 2010, over two thirds of the countries in the world had implemented this tax, but some countries like Australia and Canada abolished it in recent years (Gilman, 2010). The effectiveness of inheritance tax remains a heated topic for debate. This report will give an analysis on the benefits and drawbacks of implementing inheritance tax in America.

Analysis

One benefit of inheritance tax is that it can redistribute wealth fairly. Inheritance tax is progressive, which means tax rate increases as the taxable base amount increases. According to Tax Policy Center, the richest 1% people paid 78.5% of the inheritance tax in 2011. In recent years, national budget for public education and universal health care exceeds 60% of the total (NASASBO, 2010). These two figures combined show that inheritance tax is mainly generated from the rich, but eventually spent on the public welfare that benefits the masses, hence it can improve social equality.

Additionally, inheritance tax provides incentives for the rich to donate their property to charities. The Tax Code states that donations within 7 years of death can be exempt from tax. Many people choose this method to legally avoid inheritance tax. These donations contribute 22.3% of charitable giving and contribution (NASASBO, 2010), which objectively improves philanthropy. Congressional Budget Office also pointed out that there would be a $13 to $25 billion reduction in charitable giving if inheritance tax was repealed in 2000.

However, inheritance tax will possibly reduce social mobility to some extent. Although the 25% low-income people in America pay much less than the rich, inheritance tax still occupies a significant share of their property. Self-employed ones...
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