History of the US Estate Tax

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The US estate tax died in 2010—but you don’t need to mourn its demise. The tax is expected to return to life in 2011, a resurrection that’s taken place several times over the years.

Originally US estate tax didn’t act like an estate tax, nor was it called one. Formally known as the Stamp Tax of 1797, the tax took the form of a stamp duty imposed on legal documents such as wills. The revenue collected helped fund a new American Navy to fight France should the need arise. When the crisis ended, so did the stamp duty.

Then along came the Civil War. To meet the cost of the conflict, the government passed the Revenue Act of 1862. The Act gave new life to stamp duties and added an inheritance tax on personal property, and, later, a tax on bequests of real estate. These taxes were repealed in 1870.

In 1898, with the expense of the Spanish-American war looming, Congress passed the War Revenue Act. This legislation imposed a duty on the personal property of the estate. The tax was repealed in 1902.

Estate tax as we know it today came into being with the Revenue Act of 1916. The Act resurrected the tax levied on an estate at rates of one to ten percent. For US citizens, the first $50,000 was exempt from estate tax.

In 2008, according to the Congressional Budget Office, the estate tax rate was 45%, and revenue from the tax—now levied on real estate, bonds, cash, stocks, businesses and life insurance policies, among other things—came to more than $25 billion.

In 2010, the estate tax rate is zero, and collections will fall accordingly. In 2011, when the estate tax returns to life yet again, the rate is scheduled to increase to a maximum of 55%.

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