NCPA - National Center for Policy Analysis

Federal Taxes On Giving And Dying

September 1, 1999

Although Washington claims our tax code is designed to encourage giving, the evidence shows otherwise.

  • The federal government limits tax-free gift giving to $10,000 per year per person.
  • A Gift Tax is imposed on all personal transactions, including gifts of cars, family heirlooms and other assets valued greater than $10,000.
  • The Gift Tax is even imposed on forgiveness of debts -- any debt owed greater than $10,000 that has been "forgiven" may be subject to a 55 percent tax upon death of the forgiver.

The Gift Tax exists as a supplement to the estate tax. Without it, people would transfer their wealth while they were alive to avoid the estate tax.

And the estate tax is affecting more and more Americans.

  • Estimates indicate that over the next nine years federal estate tax receipts will increase by 44 percent to $33.1 billion.
  • By 2004, the IRS expects the number of estate tax forms to be filed to rise by 52 percent (to 143,000 per year).
  • Federal Reserve data suggest that over 6 percent of U.S. households -- more than six million -- have a net worth sufficient to subject them to the estate tax if they were to die today.

One reason so many more estates will be subject to the estate tax is the rising stock market and the shift to 401(k) savings to fund retirements. The balance in such accounts becomes part of the estate upon the death of the account holder.

Source: Tom Riley, "The Final Cut: the Unsuspecting Middle Class Is On a Collision Course With the Estate Tax," Philanthropy, March/April 1999.


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