New
Report Focuses on Federal Estate Tax
Latest
State-by-State Data from Citizens for Tax
Justice Shows Why Obama Should Scale
Back His
Proposal to Cut the Federal Estate Tax
New estate tax statistics from the IRS show that
the percentage of deaths resulting in federal
estate tax liability is below one percent
nationally and in most states and continues to
fall.
Under the tax cut enacted by President Bush in
2001, the federal estate tax is being reduced
gradually over the decade (meaning the exemption
for estates is gradually increasing while the
tax rate is gradually decreasing) until it
disappears entirely in 2010. Like almost all of
the Bush
tax cuts, the gradual changes in the estate tax
expire at the end of 2010. If Congress simply
does nothing, the federal estate tax will be
repealed for 2010 but then return in 2011 in a
form
much closer to what existed at the end of the
Clinton years.
President-elect Barack Obama has proposed a
change that would prevent the estate tax from
disappearing in 2010, but which would also
unnecessarily cut the estate tax below the level
it
would reach in years after 2010 if Congress
simply does nothing. (
Note:
CTBA helped the State of Illinois enact a
"decoupling" law to retain Illinois state estate
tax revenues. The law links Illinois' state tax
code to the Federal law as it existed prior to
the 2001 changes).
The data shows that about 0.9 percent of total
US deaths in 2005 resulted in federal estate tax
liability
in 2006. (Usually the estate tax is paid during
the year after the year in which an individual
dies). It also shows that only 0.7 percent of
total US deaths in 2006 resulted in federal
estate tax liability in 2007. The decrease is
explained by the fact that the exemption
increased, as scheduled under the 2001 law,
between these two years. In 2005, the first $1.5
million (per spouse) in the value
of an estate was not taxed, while in 2006 that
exemption was $2 million (per spouse).
In 2009 the per-spouse exemption is scheduled to
increase to $3.5 million and in 2010 the
estate tax is scheduled to disappear altogether
for one year.
Similar to the
country as a whole. In 2000 about 2.5 percent
of estates in Illinois paid the federal estate
tax. By 2005 that number dropped to 0.9
percent.
Advocates for tax fairness have called on
Congress to act before 2010 to prevent the
federal estate tax from disappearing. If the
estate tax is allowed to disappear, they fear,
Congress will find it more difficult to resist
the lobbyists who will insist that repeal of the
estate tax be made permanent.
Obama Proposes
to Block Repeal of the Estate Tax - But Would
Still Cut It Unnecessarily
President-elect Barack Obama has proposed to
make permanent the estate tax rules that will
be in effect in 2009 under current law,
including the $3.5 million per-spouse exemption.
This
would be an improvement in the sense that it
would prevent the estate tax from disappearing.
But it would be a regressive and costly giveaway
to the very wealthiest families in America,
because it would mean that the tax would affect
even fewer estates than it does now.
The Estate Tax
Does Not Threaten Family Farms and Businesses
Anti-tax activists and lawmakers have dubbed the
estate tax the "death tax" and have
convinced many people that it is destroying
family farms.
This could not be further from the truth. The
American Farm Bureau Federation, which lobbied
for the repeal of the estate tax, famously
admitted to the New York Times in 2001 that they
could not cite a single example of a farm that
had to be sold due to the estate tax.
To the contrary, family farms and other closely
held businesses get additional breaks from the
estate tax (in addition to the exemptions all
estates get) including a provision that allows
the
tax to be paid off over a period of 14 years.
The estate tax has always been confined to
serving
its actual purpose - reducing extreme
concentration of wealth in the hands of a few
superwealthy
families, and asking these families to
contribute to the society that made their wealth
possible.
A Fair Tax
System Is Impossible Without an Estate Tax
Government provides public safety and national
security. It provides education that results in
a
more productive workforce. It provides highways
and bridges. It even funded the research that
led to the creation of the internet. Looking at
America's millionaires today, one doubts that
very many of them would ever have acquired their
wealth if the government had never
provided these goods and services. It's entirely
logical that the families who have accumulated
large fortunes be asked to contribute more to
the society that made these fortunes possible.
This idea is not new. President Theodore
Roosevelt said, "The man of great wealth owes a
peculiar obligation to the state, because he
derives special advantages from the mere
existence of government."
But the need for the estate tax actually goes
beyond that and goes to a fundamental question
of fairness. A society whose government provides
the goods and services necessary for
wealthcreation
must decide how to pay for them, which means we
must decide what to tax.
We have decided to tax income from work through
the federal income tax and payroll tax,
which the vast majority of Americans are
familiar with.
If we tax earnings from work, it would seem only
fair that we also tax transfers of large
fortunes to those who do not need to work
because of the enormous wealth of their
families.
This is particularly true when you consider that
most of the fortunes being transferred from
one generation to the next consist largely of
income (capital gains income) that has never
been
taxed at all.
If the families who pass huge fortunes down
through successive generations are no longer
asked to help pay for the goods and services
that make such wealth possible, then surely
Americans will question whether ours is truly a
country where hard work counts more than a
family name.
Read the entire report at:
http://www.ctj.org/pdf/estatetax20081203.pdf
For more
information contact Citizens for Tax Justice at:
Citizens for Tax Justice
1616 P Street NW
Suite 200
Washington, DC 20036
Phone: (202)299-1066
Fax: (202) 299-1065
www.ctj.org
