The estate tax, also sometimes referred to as the “death” or “inheritance” tax, is levied upon individuals who leave a substantial bequest to their heirs. Currently, only those with assets of more than $1.5 million-about 1 percent of the population-will have to pay the tax. The first $1.5 million is tax free for individuals, and married couples can leave twice that tax free. Under current law, the tax-free amount (or “exemption”) will rise to $3.5 million in 2009, before being fully repealed in 2010, and then returning in 2011 with a $1 million per couple exemption.
Although the tax applies to only a small percentage of Americans, many conservatives decry its supposed punishment of hard-working people who have managed to accumulate such wealth, particularly small business owners and farmers. Others argue that it is only fair to ask the very wealthiest to pay their share, that it maintains a vibrant American meritocracy, and that it is a source of much needed revenue for the government-repeal would cost about $1 trillion over the first 10 years of enactment.
However, if the repeal proponents get their way, the tax will be phased out altogether in 2010 and beyond.
Here is a sample of what Americans are saying about the estate tax:
Philadelphia, Pennsylvania – Philadelphia Inquirer
July 26, 2005 – Editorial
“If your family isn’t acquainted with the estate tax, your family isn’t alone. This tax now is paid only by estates worth more than $1.5 million for an individual, or $3 million per couple. The Internal Revenue Service said only 2.11 percent of people who died in 2001 left estates subject to the tax.
“But the levy brought in more than $23 billion in revenue to the federal government in 2001. By draining the Treasury of an estimated $745 billion over 10 years, a permanent repeal would increase the burden on middle-class taxpayers to pay for necessities such as tuition aid, Medicaid and veterans’ benefits.”
Minneapolis, Minnesota– Star Tribune
July 27, 2005 – Editorial
“As a matter of fiscal policy, repealing the tax on large inheritances is a terrible idea. It would cost the federal Treasury $290 billion in lost revenue over the next decade, according to Congress’ Joint Committee on Taxation, and much more in the decade after that. Revenue losses of that magnitude could hardly come at a worse time. Last year the federal government ran the biggest budget deficit in history, and it will pile up hundreds of billions in new debt over the coming decade. No less an eminence than Alan Greenspan, chairman of the Federal Reserve, testified last week that Congress should not repeal the estate tax unless it finds a way to cover the cost.”
New Orleans, Louisiana – Times-Picayune
July 24, 2005 – Letters to the Editor
“It is the heirs, not the decedents, who are taxed. They have done nothing to earn what they will receive, although I have no quarrel that they should benefit from their forebears’ success. It is just a matter of degree. That is why small and moderate estates should be exempt and the tax on increasingly larger estates should be graduated. …
“The origin of the estate tax — also the reason for subsequent increases — was not merely to produce revenue but to limit the concentration of wealth. Wealth equates to economic power and thence to political power, and that is inimical to a democracy of the people. This legislation was good public policy.”
Seattle, Washington – The Seattle Post-Intelligencer
July 22, 2005 – Editorial
“Recent TV ads depict a World War II vet opposing the federal estate tax. But gutting the tax would actually undo much that the greatest generation fought and worked for their entire lives – by converting into private benefit for a few the last full measure these men and women devoted to American values of fair play, freedom and opportunity for all.
“Hard as they may work, the rich would not be so wealthy except for the social/economic infrastructure created by government and financed by taxes. …
“What business or farm could prosper without the United States’ tremendous investment in roads, harbors, railways and airports to facilitate the movement of products to market? How could business succeed without systems of currency, banking and laws kept intact by a court system?
“What if the estate tax is scrapped? The Brookings Institute calculates schools, churches and other non-profits would lose $10 billion a year in charitable giving. The Joint Committee on Taxation estimates gutting this tax would cost society nearly $1 trillion over 10 years. Especially in a time of war, this is fiscally reckless.”
Washington, D.c= – The Washington Post
July 24, 2005 – Editorial
“…’In order to make sure our farms stay within our farming families, we need to get rid of the death tax once and for all,’ President Bush proclaimed in a speech last month to the Future Farmers of America.
“This assertion, though, is more convenient myth than fact — something that senators might consider when they’re called on…to vote on abolishing the tax. A new study by the Congressional Budget Office examined estate tax returns filed by farmers and owners of small businesses in 1999 and 2000. The numbers that owed estate tax, the CBO found, were paltry, and the number without enough cash on hand to pay the bill even punier…
“In other words, the image of the grieving heir packing up his hoe as he trudges away from the family farm is just that — a powerful image but not an accurate one. … But members of Congress debating the issue now ought to look at the facts assembled by the CBO — not the misinformation peddled by those maneuvering to make repeal permanent.”
For more information read our memo on the Repeal/Reform of the Estate Tax