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How-government-actions-affect-the-market
Answer 1) Estate tax is a tax which is imposed on value of the asset that a taxpayer left to heirs. According to the paper Dying to Save Taxes: Evidence From Estate Tax Returns on the Death Elasticity,” published by the National Bureau of Economic Research, taxes are great motivators in economic decisions, an individual decision to buy stocks, his decision on how many hours to work, how much to save and how much to invest, Whether to sign up for additional training or to take entrepreneurial risks all are influenced by taxes. Since, leaving an asset to heirs is also an economic decision we can state that it is also influenced by taxes. An estate tax on one hand will discourage the individual desire to save and transfer an asset to his heirs where as a zero estate tax on other hand, will encourage future investment and individual desire to save for his heirs. Therefore, the cost to government of imposing the estate tax is low investment on durable goods such as property this is because estate taxes destroy the incentive to leave bequest.
Answer 2) An estate tax will discourage the individual desire to save and transfer an asset to his heirs therefore with an introduction of estate tax his own consumption and desire to live till estate taxes fall will rises, in addition to it his savings to transfer asset to his heirs will fall this happens because an estate tax destroy an incentive to leave bequest by the individual.
Answer 3) Ability-to-pay principle in taxation states that tax should be imposed on individual according to his capacity to pay. Because an estate tax is a tax which is imposed on value of the asset that a taxpayer left to heirs and while imposing the tax heirs ability to pay the tax is not taken into account we can conclude that estate tax are not based on ability-to-pay principle.
Answer 4) Benefit principle in taxation concept that those who benefit more from government expenditure should pay more taxes to support such expenditure this is measured on utility enjoyed by individuals from public good and near public good. Given an estate tax is imposed on benefits received by private goods (since the asset transferred by taxpayer to his heirs is excludable and rival in nature we can call it a private good). We can conclude estate tax has nothing to do with benefit to pay principle.
Answer 5) No, there is no difference between the person(s) who pays the tax from the person who bears the burden of the tax under estate tax this is because these taxes are non transferable. Estate taxes are imposed on value of the asset that a taxpayer left to heirs. Because, the person(s) who is/are the legal heir’s of the asset enjoy the benefit and rights on assets and pays the concerned tax on the asset we can state there is no difference between the person(s) who pays the tax from the person who bears the burden of the tax under estate tax.
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