Question

Required information Skip to question [The following information applies to the questions displayed below.] In 2010 Casey made a taxable gift of $7.3 million to both Stephanie and Linda (a total of $14.6 million in taxable gifts). Calculate the amount of gift tax due this year and Casey’s unused exemption equivalent under the following alternatives. (Refer to Exhibit 25-1 and Exhibit 25-2.) (Enter your answers in dollars, not millions of dollars. Leave no answer blank. Enter zero if applicable.) a. This year Casey made a taxable gift of $1 million to Stephanie. Casey is not married, and the 2010 gift was the only other taxable gift he has ever made.

Answer 1

The described gift tax, with a 10% rate for amounts up to $100,000 and 20% for anything above, is an example of a progressive tax since the tax rate increases with the size of the gift.

Step-by-step explanation:

When considering whether a tax is regressive or progressive, it's essential to analyze how the tax rate changes as the taxable amount increases. A progressive tax is one where the tax rate increases as the taxable amount goes up, meaning individuals with higher incomes pay a larger percentage of their income in taxes. On the other hand, a regressive tax imposes a heavier burden on lower-income individuals relative to those with higher incomes, as the tax rate decreases as income increases or is flat across all income levels.

In the scenario provided, gifts are taxed at a 10% rate for amounts up to $100,000 and 20% for anything over that amount. This structure is a clear example of a progressive tax, as the rate at which gifts are taxed increases with the size of the gift. Hence, individuals making larger gifts will pay a higher rate on the portion exceeding $100,000.