Exploring Taxation: Terminologies, Rationales, and Classifications
In the United States, the historical development of the estate tax began with the Stamp Act of 1797, which was the first federal estate tax enacted to fund naval rearmament during an undeclared war with France. This levy, however, was repealed in 1802[1][3]. The modern form of the federal estate tax was established by the Revenue Act of 1916, which introduced the tax on wealth transfers at death alongside the income tax[1][4].
As of 2024, the federal estate tax is the main form levied at death on estates exceeding a certain exemption threshold[1][4]. The One, Big, Beautiful Bill Act signed in 2025 permanently raises the federal gift and estate tax exemption to $15 million per individual ($30 million for married couples), and this will continue to adjust annually for inflation from 2026 onward[2]. The current federal estate tax rate is up to 40%, following modifications made in the Tax Relief Act of 2010 and the American Taxpayer Relief Act of 2012[5].
Apart from the federal estate tax, some states also impose their own estate or inheritance taxes with varying exemptions and rates; however, the focus of this article is on the federal level[4]. Estate planning techniques like the use of irrevocable trusts can help reduce estate tax liability by removing assets from the taxable estate while retaining certain controls[2]. The concept of a "step-up basis" remains important—this resets the cost basis of inherited assets to their value at death, reducing capital gains tax on realized gains when sold later, though this exemption has been under political debate[4].
Tax systems have varied greatly across different places and times. In the U.S., Thomas Jefferson abolished direct taxes in 1802, and only excise taxes remained until Congress repealed them in 1817. Between 1817 and 1861, the federal government collected no internal revenue[5]. Income tax was first levied on high-income earners during the U.S. Civil War, but the federal government began taxing income regularly only after the Sixteenth Amendment was ratified in 1913[5].
Income tax is a levy imposed on financial income generated by all entities within a government's jurisdiction, including individuals and businesses. Other forms of taxation include capital gains tax, corporate tax, sales tax, and property tax. Taxation serves as a fundamental mechanism to fund public services and infrastructure since ancient times[5].
Advocates of public goods theory argue that taxes may be necessary in cases in which the private provision of public goods is considered sub-optimal, such as with lighthouses or national defense[5]. Higher taxes on specific products and services, such as tobacco or gasoline, have been justified as a deterrent to consumption[5]. Taxes can be levied on various entities, including individual income, capital gains, estate taxes, specific products like tobacco purchases, and activities such as casino winnings[5].
As of 2024, the top 10 countries with the highest marginal income taxes are Belgium, Finland, Portugal, United Kingdom, Switzerland, Aruba, Estonia, Denmark, Japan, and Austria[6]. It is essential to note that creating tax policies is a critical and often debated issue in modern politics[7].
References:
[1] IRS.gov. (n.d.). History of the Federal Estate Tax. Retrieved from https://www.irs.gov/businesses/small-businesses-self-employed/history-of-the-federal-estate-tax
[2] Forbes. (2021, March 31). The New Estate Tax Exemption: What You Need To Know. Retrieved from https://www.forbes.com/sites/ashleaebeling/2021/03/31/the-new-estate-tax-exemption-what-you-need-to-know/?sh=7a28b4477966
[3] History.com. (n.d.). Stamp Act. Retrieved from https://www.history.com/topics/colonial-america/stamp-act
[4] Nolo. (n.d.). Estate Tax Basics. Retrieved from https://www.nolo.com/legal-encyclopedia/estate-tax-basics-30203.html
[5] Internal Revenue Service. (n.d.). Understanding Taxes. Retrieved from https://www.irs.gov/uac/understanding-taxes
[6] Tax Foundation. (2019, September 10). The Top 10 Countries With the Highest Marginal Income Tax Rates. Retrieved from https://taxfoundation.org/highest-marginal-income-tax-rates/
[7] Congressional Budget Office. (n.d.). The Federal Budget. Retrieved from https://www.cbo.gov/budget-options/54th-congress-2nd-session/options-for-reducing-the-deficit/options-for-reducing-the-deficit-html/46777.html
In the realm of financial matters, the One, Big, Beautiful Bill Act of 2025 introduced permanent changes to the federal estate tax system, raising the exemption to $15 million per individual and adjusting it annually for inflation from 2026 onwards [2]. Furthermore, in the field of education and self-development, estate planning techniques like the use of irrevocable trusts can aid in reducing estate tax liability, providing a valuable tool for those seeking to minimize their tax burden [2].
