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I know the United States has the inheritance tax. But I do not really know the purpose or the point behind it. What is the point of the inheritance tax? Why must the inheritance assets be taxed instead of given directly to the heir(s)?

closed as off-topic by Dale M, Flup, cpast, feetwet Aug 26 '15 at 12:58

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  • This tax only affects about 1-3% of estates if I remember correctly. This tax also provides an additional avenue for a progressive tax. – Viktor Aug 26 '15 at 4:05
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    This is a question about politics not law – Dale M Aug 26 '15 at 6:30
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    @daleM I respectfully disagree. I think this is a good question and it is about the legal principle behind the purpose for the tax. There are whole law school courses on estate tax. – gracey209 Oct 18 '15 at 19:49
  • First of all, the United States has a gift and estate tax, not an inheritance tax (an estate tax is imposed on the dead guy, an inheritance tax is imposed on each heir separately). Basically, these taxes compensate for the omission of gifts and inheritances from income for income tax purposes, by providing an easier to administer tax system for these transfers in lieu of an income tax imposed on heirs and gift recipients that recognizes that aggregate donative transfers of wealth are overwhelmingly concentrated in the very wealthy. – ohwilleke Nov 3 '16 at 21:49
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The purpose of the inheritance tax is to raise revenue for governmental activities, just like like income taxes, sales taxes, value-added taxes, excise taxes, property taxes, and other taxes.

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Consider a scenario: You make investments(perhaps in the stock market or real estate, but any investment will serve for the example). When you sell those investments, you realize (hopefully) a capital gain. In the US, the two principal forms of taxation on individuals is on income and capital gains.

Let's say you bought stock 10 years ago, and it's doubled in value to date, and you're still holding it. You don't pay the capital gains tax on that increased value until you actually sell it. As long as you're holding on to it, you havent "realized" your capital gains. Same with real estate...no capital gains until you sell.

In effect, the estate tax (inheritance tax) is a form of capital gains recapture tax, that "recognizes" the capital gains as you "sell" your final assets to your estate and subsequently your heirs through the probate process.

  • The estate tax is a separate tax from any capital gains or other taxes the estate will owe. – Dave D Aug 26 '15 at 14:08
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    @DaveD, You state the utterly obvious. It is indeed entirely separate. I was attempting to answer the question however, which was basically, what reasoning is there behind the estate tax. – dwoz Aug 27 '15 at 1:48
  • The capital gains tax is relatively new to the scene, coming about around 1913. The estate tax has been around for a very long time - the first one in the U.S. was in 1797. There was a time that the estate tax was used to raise revenue and the early introductions of the estate tax in the U.S. were temporary. It wasn't until we introduced a progressive income tax system that the estate tax became so political. If you look at defenses of the estate tax you will see many, many arguments about the need for income redistribution. That is why this question is political rather than legal. – Dave D Aug 27 '15 at 3:58
  • wish i saw this sooner... really great answer. – gracey209 Oct 18 '15 at 19:46

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