Who's Really Affected by the Estate Tax?
Why is the federal estate tax called "the death tax"? To make it sound far more ominous than it really is.
I'm not sure that I support an estate tax, but nonetheless I think it's important that we get our facts straight about who it affects. While in 1977, 10.5% of estates paid the tax, nowadays, the reality is that it doesn't even come close to affecting you and me.
This Los Angeles Times article makes the point that estate tax exemptions are so high that almost no one has to pay it. The current estate tax
allowed couples to leave their heirs $7 million tax free and taxed any additional inheritance at 45%...approximately 6,600 wealthy taxpayers annually [are] affected by the estate duty.In 2009, only one quarter of one percent of all estates were liable for any estate tax at all. Not everyone with an estate died in 2009, so will the number of estates that will ever have to pay the tax be a higher percentage? The way the figures are stated, I'm not sure.
This paper from the Center for Budget and Policy Priorities implies that a complete repeal of the Estate Tax would reduce federal revenues by just over $100 billion per year. It also makes this interesting observation about the tax:
It also encourages billions of dollars in charitable donations each year, since donations substantially reduce the tax on large estates.From an opposing perspective, Senator Jim DeMint says:
More than half of them? That sounds hyperbolic to me. That assumes that no one plans for the future. He said further
but President Obama and Democrats plan to raise the death tax next year up to 55 percent, allowing the federal government to seize more than half of many farms, small businesses and personal estates.
According to the Joint Economic Committee, 115,000 businesses were hit by the death tax between 1996-2005, including many small businesses. ...raising the death tax as President Obama plans could destroy 500,000 jobs. On the other hand...permanently repealing the death tax, as outlined by the DeMint Amendment, could create 1.5 million jobs.
He doesn't describe in a clear statistical manner what "hit by the death tax" means. If nothing had been done by the end of 2010, the estate tax would have increased the rate to 55% and lowered the individual exemption to $1 million. United for a Fair Economy states that this change would result in 1.76% of estates being affected at all instead of .14% having to pay any tax at all.
Something was done, though, and the current estate tax, which will essentially be a two-year continuation of what has gone before, leaves an individual exemption of $5 million, above which the rest is taxed at 45%. At that rate, research by the the Center on Budget and Policy Priorities shows that:
The number of small, family-owned farms and businesses that owe any estate tax at all is tiny, and virtually no such farms and businesses have to be liquidated to pay the tax.If Republicans have to wildly exaggerate the effects of a change in the estate tax, that probably means that either they don't have a good case, or they're making the wrong case. It's okay to be against something. But it's not okay to fudge the facts, let alone fudge them so badly that they have almost no relationship whatsoever to reality.
The estate of only 0.24 percent of all people who die in 2009 (i.e., the estates of between two and three of very 1,000 people who die) are expected to owe any estate tax, according to the Tax Policy Center. And only about 1.3 percent of the few estates that still are taxable are small business or farm estates.