An International Comparison of Death Tax Rates

Many countries tax estates (or inheritances) more lightly than does United States, according to a new survey of 24 industrialized and developing countries sponsored by the American Council for Capital Formation Center for Policy Research and compiled by Arthur Andersen LLP (see Figure 1).

The U.S federal tax code imposes a gift tax on lifetime transfers and an estate tax on transfers at death. The Tax Reform Act of 1976 included a unified system so that a single graduated rate schedule applies to cumulative taxable transfers made by a taxpayer during his or her lifetime. A unified credit effectively exempts a total of $650,000 in 1999 from the estate and gift tax; the Taxpayer Relief Act of 1997 increases the exemption gradually to $1 million by 2006. For estates and gifts over $650,000, the marginal tax rate ranges from 37 to 55 percent; in certain instances involving the generation-skipping transfer tax, the combined marginal tax rate on transfers by gift or at death can reach nearly 80 percent.

Figure 1: International Comparison of Top Marginal Death Tax Rates

International Survey Results

The top U.S. federal marginal “death tax” rate is higher than that of all other countries surveyed except for Japan (see Figure 1). Death tax rates imposed on estates inherited by spouses and children average only 21.6 percent for the 24 countries in the study compared to 55 percent in the United States (see comparison table, col. 2). (Tax rates are often higher on assets inherited by more distant relatives or by non-relatives.) Seven countries, including Argentina, Australia, Canada, China, India, Indonesia, and Mexico, have no death or inheritance taxes. The average tax rate in the 17 countries with a death tax is only 30.5 percent, which is slightly more than one-half of the U.S. top federal estate tax rate.

Not only are U.S. death tax rates higher than those in most of the industrialized and developing world, but the value of the estate where the top tax rate applies is lower. The average value of the estate where the top tax rate applies is over $4 million, compared to only $3 million in the United States (see comparison table, col. 3).

Conclusions

The survey, which shows that the U.S. death tax rate is higher than almost all of the 24 countries surveyed, lends support to the conclusions of many academic scholars and policy experts that the estate tax should be repealed or reduced because it adds to the already heavy U.S. tax burden on saving and investment and, by raising the costs of capital, impedes investment. In particular, the estate tax makes it harder for family businesses, including farms, to survive the deaths of their founders. Reform or repeal of the death tax could also help increase the low U.S. saving rate (see comparison table, col. 4).

 

DEATH TAX COMPARISON TABLE (*indicates note)
Country (1)
Death/Inheritance Tax
(2)
Top Marginal Rate for Spouses or Children
(3)
Value of Estate Triggering Top Marginal Rate
(4)
Gross Domestic Saving as a Percent of GDP, 1997
Argentina No* 18.0
Australia No 21.0
Belgium Yes 28.5* $413,000* 22.0
Brazil Yes 4% tax on real estate; 6% on other assets. $237,000 19.0
Canada No 21.0
Chile Yes 25% $764,000 25.0
China No 43.0
Denmark Yes 0 for surviving spouse; 15% on estates over $29,000. $29,000 24.0
France Yes 40% $1,898,000 20.0
Germany Yes 30% $28,414,000 22.0
Hong Kong Yes 15% $1,355,000 N/A
India No 20.0
Indonesia No 31.0
Italy Yes 25% $1,727,000 22.0
Japan Yes 70% $15,268,000 30.0
Korea Yes 45% $3,570,000 34.0
Mexico No 26.0
Netherlands Yes 27% $832,000 26.0
Poland Yes 7% $5,000 18.0
Singapore Yes 10% $7,176,000 51.0
Sweden Yes 30% $75,000 21.0
Taiwan Yes 50% $2,981,000 N/A
United Kingdom Yes 0 for surviving spouse; 40% on estates over $383,000. $383,000 15.0
United States Yes 0 for surviving spouse; 55% on estates over $3,000,000 $3,000,000 16.0
Average 71% have a death tax 21.6% (all 24 countries)*
30.5% (17 countries w/ death tax)
$2,839,000 (all 24 countries)
$4,007,000 (17 countries w/ death tax)
25.0 (average)
NOTES
General

Foreign currency conversions were made with 1998 weighted average exchange rate from theFederal Reserve Bulletin, March, 1999, published by the Federal Reserve Board of Governors.Col. 1
Argentina imposes a court filing fee ranging from 2-3% based on fair market value; the fee is paid by the beneficiaries.Col. 2
Belgium: average for Flemish and Walloon regions.

The calculated average uses the rate applied to children when the spouse tax rate is 0.

Col. 3
Belgium: average for Flemish and Walloon regions.

Col. 4
Source: World Bank, World Development Indicators 1999 (Washington, D.C.: World Bank, 1999).