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Should the federal government abolish the estate tax?

Here in California and in a majority of states across the country, the state government no longer charges an estate tax to residents. Estate tax, often referred to as the “death tax” by critics, is sometimes considered a redundant tax since the assets in an estate have typically already been taxed as income or have been subject to property tax or capital gains taxes at some point.

Now, as even more states consider repealing the estate tax on the state level, many are arguing that this is time to tackle the bigger question of the federal estate tax. The federal estate tax has a lower limit of about $5.34 million, adjusted for inflation each year. That means that estates that fall under that limit will not be taxed. This may seem like a high limit but once property, retirement accounts, family heirlooms, business interests, and other assets are factored in many estate still qualify and are taxed. In states where there is a state-level estate tax taxpayers end up paying twice on the same funds in many cases.

This is just one reason why there has been a growing movement in politics to abolish the state tax on the federal level. Although it may still be many years off, it is an interesting question to pose. On one hand, it would save families money and allow them to pass along more to the other generation. On the other hand, it could decrease significant portions of tax revenue that might harm the availability of important social programs that are funding through tax revenue. 

Source: Roll Call, “Efforts to Kill Death Tax Find New Life in Blue States,” Thomas Fletcher, April 24, 2014.

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