What Is The Logic Behind The Estate Tax? The estate tax was enacted back in 1916, and it has been assessed every year since with the exception of 2010, when it was repealed temporarily due to a provision that was included in the Bush tax cuts of 2001. More than a few people would make the case that the repeal should be permanent, but in the corridors of power this sentiment would seem to be falling on deaf ears. We would like to share three reasons why this federal levy is suspect and virtually impossible to support from any logical perspective. The Rate Of The Tax Is Draconian When you think about a fair and just tax, you are generally going to be expecting some relatively modest percentage that is useful to the common good because taxpayers hardly feel it but the combined payments can make a difference. The estate tax rate varies (why is anyone's guess) but over the last ten years the lowest it has been is 45%, and it is going to be 55% in 2011. No, that is not a typo. The Estate Tax Is Levied On After-Tax Income Put simply and succinctly, the assets that comprise your estate were acquired with money that you managed to hang onto after your income was taxed, and taxed heavily. When your net pay is deposited into your account and you write a check to your mortgage company, that check is being drawn on funds that have already been taxed by the IRS. The Tax Is Selectively Imposed Not that those who have to pay it would wish it on anybody else, but the government doesn't require everyone to pay the estate tax. There is an exclusion amount, and it has been varying year to year for no particular reason making who pays and who doesn't kind of a lottery thing. In 2008 the exclusion amount was $2 million, meaning that the first two million dollars of your estate's value was free of the tax. The exclusion in 2009 was $3.5 million. The tax was repealed for 2010 as previously touched upon, and the exclusion is just $1 million in 2011. So if Cindy passed away in 2009 or 2010 with an estate worth $3.5 million, her heirs paid no estate tax. But if Wayne was to die in 2011 with an estate valued at $3.5 million, his family would owe the IRS $1.375 million. Experienced estate planning attorneys Forest Hills NY of Davidov Law Group offers estate planning and business planning resources to residents of Forest Hills NY. To learn more about these free resources, please visit http://www.davidovlaw.com today.
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