Lesson 2: History of Federal Estate Taxes

Welcome to Lesson 2 of our Introduction to Federal Estate Tax Law. Today, we'll be exploring the history of federal estate taxes in the United States. Understanding the historical context can provide valuable insights into the current law and its evolution.

Early Beginnings

The concept of an estate tax dates back to ancient times, but in the United States, the first federal estate tax was introduced in 1797 to fund naval rearmament. This initial tax was short-lived, expiring in 1802.

The Revenue Act of 1916

A significant milestone in the history of federal estate taxes was the Revenue Act of 1916. This act introduced the modern estate tax to help finance World War I. The initial tax rates ranged from 1% to 10% on estates exceeding $50,000.

Tax Brackets and Rates

Estate Value Tax Rate
$50,000 1%
$100,000 2%
$250,000 5%
$1,000,000+ 10%

Evolution Over the Decades

Over the years, the federal estate tax has undergone numerous changes, reflecting the economic and political climate of the times. Below is a timeline of key legislative changes:

graph TD; A["Revenue Act of 1916"] --> B["Estate Tax Act of 1926"]; B --> C["Revenue Act of 1932"]; C --> D["Tax Reform Act of 1976"]; D --> E["Economic Recovery Tax Act of 1981"]; E --> F["Taxpayer Relief Act of 1997"]; F --> G["Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)"]; G --> H["American Taxpayer Relief Act of 2012 (ATRA)"]; H --> I["Tax Cuts and Jobs Act of 2017 (TCJA)"];

Important Legislative Milestones

  • Estate Tax Act of 1926: Introduced gift tax to combat tax avoidance.
  • Tax Reform Act of 1976: Unified the estate and gift taxes into a single system.
  • Economic Recovery Tax Act of 1981: Increased the estate tax exemption and introduced the unlimited marital deduction.
  • Taxpayer Relief Act of 1997: Phased in higher exemptions over time.
  • EGTRRA (2001): Temporarily repealed the estate tax for 2010, with sunset provisions.
  • ATRA (2012): Made permanent a $5 million exemption indexed for inflation.
  • TCJA (2017): Doubled the estate tax exemption to $11.18 million per individual (indexed for inflation).

Current State of Federal Estate Taxes

As of 2023, the federal estate tax exemption is $12.92 million per individual, with a top tax rate of 40%. These figures are subject to change based on legislative updates.

To learn more about the intricacies of federal estate tax law, you can explore Lesson 3: Key Terminologies in Estate Tax Law.

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