Gift and Estate Tax System
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Gift and Estate Tax System
Introduction
The estate tax has faced many critics where many have advocated for its abolition (Rhodes & Lord, 2016). The claim has always been that the tax contributes greatly as a major factor contributing to the destruction of many small businesses and family farms. Another claim has been that the estate tax encourages spendthrift behavior and generates huge compliance costs, leading to ingenious shelter schemes (Kitamura, 2018). The tax levied on the deceased has been viewed as a weapon meant to violate every norm of good policy (Brunson, 2019).
There is also a group of people who support the same estate tax (Brunson, 2019). The tax’s support claims that the complaints levied against the estate tax are wrong and overstated (Shatz, 2016). The tax is only levied to a smaller percentage of people who die since a minimum required percentage set wealth attracts the tax (Kitamura, 2018). They claim that the government uses the estate tax as a revenue source and bridging the gap between the rich and the poor. This study will discuss whether the estate ad gif tax system should be changed (Kitamura, 2018).
Studies indicate that for a better estate tax, there is a need to transform the tax by raising the minimum level of amount of wealth checked before levying the tax to an individual, need to close the loopholes that exist, lowering the tax rates and preventing inflation rates in the country (Brunson, 2019). Changes in the market, aging population, the surplus left on the national budget, increased corruption, and controversial issues are some of the major factors that cause a lot of debate on the estate tax (Rhodes, & Lord, 2016).
The research indicates that even though the estate tax is majorly associated with the rich and the dead, it also advocates bridging the gap between the rich and the poor, which is in line with the government policy (Shatz, 2016). Another issue here is the relationship between the parent and the child, which is also affected by the tax (Kitamura, 2018). This is affected by the government’s aim of having equal opportunities and the shortcomings of the government’s roles in income distribution (Brunson, 2019).
Effects of gifting and charity
Studies show that changes in estate taxes will greatly affect such transfers’ content and timing (Brunson, 2019). Reduction on estate tax for donations always drives people to contribute more to death. It may also contribute while still alive, especially when one knows that donation will reduce both income and estate tax making the taxpayer fall in a lower tax bracket (Kitamura, 2018).
Proposal for change on the estate and gift tax
Several proposals have emerged where policymakers have been on the opinion of coming up with a change on both the estate tax (Brunson, 2019). This has come with mixed reactions where some argue that the tax should be abolished. Abolishing the tax may do away with the existing problems where many complain about the tax; however; however, serious additional issues are expected to come from this motion (Rhodes, & Lord, 2016).
One of the problems is reducing the government’s total amount of tax, hence reducing the revenue (Kitamura, 2018). Studies show that this tax forms a good percentage of the government revenue; hence its abolition may greatly affect the government projects (Shatz, 2016). Studies show that the country can estimate about thirteen percent tax evasion if the government decides to abolish the estate tax. The estate tax has skewed the income distribution; hence if the government can abolish it, then the higher gap between the rich and the poor will be witnessed in the entire world (Rhodes, & Lord, 2016).
Another notable reform suggested is to replace estate taxes with tax charged on gifts and inheritance (Kitamura, 2018). The suggestion may be a better one, as some states in America have implemented this idea, which has helped them solve the previous problem. In this case, income tax, tax on inheritance, and tax on gifts received from the major areas that the government uses as income sources. It is believed that when the recent pay the tax, it becomes easier to collect than when the donor pays, which makes the system a better option compared to the estate tax (Rhodes, & Lord, 2016).
One of the best reforms suggested is to invoke the income tax, increase the minimum estate tax level, close all the loopholes that may make some not pay, and finally reduce the rates charged (Shatz, 2016). This would maintain a constant income for the government, which may help develop the economy (Kitamura, 2018). One of the advantages of this method is that when the minimum level is raised, a few wealthy people will pay the tax, which can provide room for coming up with small businesses by people who would otherwise have been locked out due to estate tax payment (Rhodes, & Lord, 2016).
Conclusion
The transfer of tax requires critical thinking, and one of the factors that the government needs to factor out before concluding a decision should be the effect of such an act on the economy (Rhodes, & Lord, 2016). The decision on the transfer taxes should put into account the motives that drive the need for such a change, political and technical limitations that may arise as a result of that change, the basic knowledge estimated on such change in the tax, among other factors that may gear the country towards economic development (Shatz, 2016). There is hope that a better way to favor everyone will come into place through the policymakers who are in serious consultations of such changes (Shatz, 2016).
References
Brunson, S. D. (2019). The afterlife of the Death Tax. Ind. LJ, 94, 355.
Keebler, R. S. (2017). The Framework for Tax Reform: Summary of Proposals and Initial Planning Ideas. Taxes, 95, 5.
Kitamura, Y. (2018). Intergenerational Transfers and Inheritance Tax in Japan. Economic Review, 69(3), 206-226.
Rhodes, A. M., & Lord, E. E. (2016). Smith v. Shaughnessy: Slippery Remainder Interests and the Intersection of Gift and Estate Taxes. ACTEC LJ, 42, 53.
Shatz, H. J. (2016). US International Economic Strategy in a Turbulent World: Strategic Rethink. Rand Corporation.