Estate tax
ADVANCED TAXATION
Estate and Gift Tax I
Alan Davis
CHINESE PROVERB: “Tell me, I’ll forget. Show me, I may remember. But involve me and I’ll understand.”1
"To talk much and arrive nowhere is the same as climbing a tree to catch a fish”2
“One who talks does not know, one who knows does not speak.”3
SPECIAL TAX RATE FOR DIVIDENDS - The great tax debate of 2003 concerned the taxation of dividends. Prior to 2003, dividends were given no special treatment in the law. Conservatives argued that dividends should not be taxed at all. Why? (Phuong and Alex)
Liberals argued that dividends should receive no special tax break. Why? (Mandip and Lauren)
The compromise was to include dividends in income but tax them at a special tax rate as follows:
Marginal tax rate
Dividend tax rate
10%
0%
15%
0%
25%
15%
28%
15%
33%
15%
35%
15%
39.6%
20%
Note that the 39.6 MTR and 20% dividend rate were added in 2013 while the 0% and 15% tax rate go back to 2003. Note also that this is the same tax rate that is applied to net long-term capital gains and preferential treatment of capital rates go all the way back to 1913 (although the exact rates how changed many times. To qualify, the dividend must be from an American corporation (or a foreign corporation that does business in the US – and thus is subject to US tax). In addition, the taxpayer has to hold the stock for at least 60 days during the 120 day period before the ex-dividend date.
Why does this compromise satisfy neither side? (Josh and Cydney)
How could we eliminate double taxation and avoid a tax break for the rich at the same time (anybody)?
QUESTION: What is the justification to have a gift tax (imposed on the one making the gift)? (Alan will give us an historical overview)
RECENT HISTORY OF THE ESTATE TAX
1976 – Congress unified the estate and gift tax rate system.
1998 – Republican Congress voted to repeal the estate tax, President Clinton vetoed
Estate and Gift Tax I
Alan Davis
CHINESE PROVERB: “Tell me, I’ll forget. Show me, I may remember. But involve me and I’ll understand.”1
"To talk much and arrive nowhere is the same as climbing a tree to catch a fish”2
“One who talks does not know, one who knows does not speak.”3
SPECIAL TAX RATE FOR DIVIDENDS - The great tax debate of 2003 concerned the taxation of dividends. Prior to 2003, dividends were given no special treatment in the law. Conservatives argued that dividends should not be taxed at all. Why? (Phuong and Alex)
Liberals argued that dividends should receive no special tax break. Why? (Mandip and Lauren)
The compromise was to include dividends in income but tax them at a special tax rate as follows:
Marginal tax rate
Dividend tax rate
10%
0%
15%
0%
25%
15%
28%
15%
33%
15%
35%
15%
39.6%
20%
Note that the 39.6 MTR and 20% dividend rate were added in 2013 while the 0% and 15% tax rate go back to 2003. Note also that this is the same tax rate that is applied to net long-term capital gains and preferential treatment of capital rates go all the way back to 1913 (although the exact rates how changed many times. To qualify, the dividend must be from an American corporation (or a foreign corporation that does business in the US – and thus is subject to US tax). In addition, the taxpayer has to hold the stock for at least 60 days during the 120 day period before the ex-dividend date.
Why does this compromise satisfy neither side? (Josh and Cydney)
How could we eliminate double taxation and avoid a tax break for the rich at the same time (anybody)?
QUESTION: What is the justification to have a gift tax (imposed on the one making the gift)? (Alan will give us an historical overview)
RECENT HISTORY OF THE ESTATE TAX
1976 – Congress unified the estate and gift tax rate system.
1998 – Republican Congress voted to repeal the estate tax, President Clinton vetoed