The Estate Tax Slides 02.09.09 Notes
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The Estate Tax Slides 02.09.09 Notes The Estate Tax Slides 02.09.09 Notes Presentation Transcript

  • The Estate Tax
  • Contents
    • The estate tax
    • Congress must address the estate tax in 2009
    • Congress should not weaken the estate tax beyond the 2009 parameters: doing so would be fiscally irresponsible, as even making the 2009 parameters permanent would cost over $600 billion from 2012 to 2021.
    • The estate tax
      • A tax on property that is transferred from deceased persons to their heirs.
      • In 2009, the estate tax is levied at a 45% rate on the value of an estate above an “exemption” of $3.5 million per person (effectively $7 million per couple).
      • The $3.5 million per person exemption means that:
        • ─ Estates worth less than $3.5 million pay no estate tax
        • ─ Estates worth more than $3.5 million pay tax only on the portion of the estate in excess of $3.5 million .
      • Some estates can use other special valuation rules and deductions to further reduce the value of the estate that is subject to the tax
    The Estate Tax
  • Only a tiny fraction of estates from deaths in 2009 will owe any estate tax The Tax Policy Center estimates that for 2009 estates: Source: Urban Institute-Brookings Tax Policy Center.
  • Note: A small farm or business estate is defined as an estate with farm and business assets that represent at least half of the gross estate and total no more than $5 million. Source: Urban Institute-Brookings Tax Policy Center Only a tiny number of small business and farm estates nationwide owe any estate tax
  • The estate tax is an important incentive for charitable giving
    • The Congressional Budget Office estimated that, had the estate tax not existed in 2000, charitable donations would have been $13 billion to $25 billion lower that year, an amount that:
      • exceeds the total amount of corporate charitable donations in the Unites States in 2000 ($11 billion); and
      • approaches the total amount that foundations contributed to charitable causes in 2001 ($25 billion).
    • CBO also estimated that repealing the estate tax would have reduced charitable bequests by 16 to 28 percent and charitable giving during life by 6 to 11 percent .
    • Retaining the estate tax but lowering the top rate would also would produce a marked decline in charitable giving. Brookings economist and noted tax expert William Gale has testified that “reducing the top estate tax rate would have a significantly negative effect” on charitable giving.
  • Revenues that would be lost from estate tax repeal, 2012-2021 The estate tax “backstops” the income and gift tax *Includes estate, gift, and income tax revenues. Source: Urban Institute-Brookings Tax Policy Center; Joint Committee on Taxation, Center on Budget and Policy Priorities calculations. $605 billion $1 trillion Estate tax revenue lost All tax revenues lost
  • Official 10 year estimate masks true cost of extending estate tax repeal Note: Joint Committee on Taxation estimates through 2017; CBPP projections through 2021 Official 10-year cost estimate First 10 years of extending repeal
  • Repealing the estate tax would add more than $1 trillion to the deficit over 10 years Source: Joint Committee on Taxation and CBPP Cost, With Interest, FY 2012-2021 Interest Cost Revenue Loss
  • Estate tax repeal costs more than funding for key policy priorities Source: CBPP calculations based on CBO, Joint Committee on Taxation, and OMB Data Full cost of repeal in 2012; program funding levels 2012 $41 billion $29 billion $24 billion $69 billion
    • Congress must address the estate tax in 2009
  • Congress must address the estate tax in 2009
    • Under law enacted in 2001, the estate tax has been weakened since 2001, will be repealed in 2010, but reinstated in 2011 at pre-2001 levels.
    Repeal 2010 55% $1 million ($2 million) 2011 45% $3.5 million ($7 million) 2009 45% $2 million ($4 million) 2008 45% $2 million ($4 million) 2007 46% $2 million ($4 million) 2006 47% $1.5 million ($3 million) 2005 48% $1.5 million ($3 million) 2004 49% $1 million ($2 million) 2003 50% $1 million ($2 million) 2002 55% $675,000 ($1.3 million) 2001 Top Rate Per-Person (Effective Per-Couple) Exemption Year
      • 3. Congress should not weaken the estate tax beyond the 2009 parameters: doing so would not be fiscally responsible, as even making the 2009 parameters permanent would cost over $600 billion from 2012 to 2021.
  • Making the 2009 estate tax parameters permanent would mean a $3.5 million per person exemption; 45% rate on amounts above the exemption Source: Urban Institute-Brookings Tax Policy Center and Center on Budget and Policy Priorities calculation. * Cost compared to current law; includes the cost of forgone estate tax revenues, forgone income and gift tax revenues, and interest on the public debt, assuming that the legislation is deficit financed. 52% on estates between $10 million and $46 million 44%     $556 Deduction 47% $3.5 million Pomeroy (H.R.4242) 55% from above 10m 50% from $5m to 10m 45%       $569 Credit 45% from $2m to 5m $2 million (inflation indexed) McDermott (H.R. 6499) 48%   $609 Deduction 45% $3.5 million Make 2009 Permanent 50%   $640 Deduction 45% $3.5 million (inflation indexed) Carper, Voinovich, Leahy (S.3284) 30% above $25m 77%     $989 Deduction 20% from $5m to 5m $5 million Kyl Proposal 100%   $1,276 Repeal Cost as percentage of cost of repeal Cost* 2012-2021 ($ billions) State Estate Taxes Rate Per Person Exemption Proposal
  • *Includes lost estate, gift, and income tax revenues. Cost is for 2012-2021. Source: Urban Institute-Brookings Tax Policy Center. Making the 2009 parameters permanent is very costly, but less so than other proposals Billions of Dollars $1.3 trillion $989 billion $639 billion $609 billion $569 billion $556 billion Interest Cost Revenue Loss
  • Make 2009 Permanent Veterans’ Medical Care National Institutes of Health Elementary and Secondary School Ed. Making the 2009 estate tax parameters permanent would preserve tax revenues of $36 billion in 2012 Note: tax revenues preserved includes estate, income, and gift tax revenues that would otherwise be lost if the estate tax were repealed. Source: Urban Institute-Brookings Tax Policy Center. $36 billion tax revenues preserved $41 billion $29 billion $24 billion Revenues preserved from freezing 2009 parameters in 2012; program funding levels 2012 Billions of dollars
  • Actuaries Estimate Estate Tax at 2009 Levels Could Cover One Quarter of Social Security Shortfall (Assumes $3.5 Million Exemption, 45 Percent Rate) Source: Social Security Actuaries; updated by CBPP Portion of Shortfall Eliminated by Estate Tax Revenue
  • Percent of 2011 Estates Owing Estate Tax Source: Urban Institute-Brookings Tax Policy Center Under the 2009 parameters, only 3 of every 1000 estates would owe any estate tax in 2011
  • Small business and farm estates from deaths in 2011 owing estate tax Note: A small farm or business is defined as an estate tax return with farm and business assets that represent at least half of the gross estate and total no more than $5 million. Source: Urban Institute-Brookings Tax Policy Center If the 2009 estate tax parameters were made permanent, only 140 farm and small business estates would owe any estate tax in 2011 Number of Small Business and Farm Estates that owe estate tax
  • Less than $ 5 million $5 – 10 million $10 – 20 million More than $20 million 19% 16% Share of estate tax owed by size of 2011 estate, if the 2009 estate tax parameters were made permanent 62% of taxes owed would be from estates worth more than $20 million Source: Urban Institute-Brookings Tax Policy Center If the 2009 estate tax parameters were made permanent, the estate tax would be concentrated on extremely wealthy estates Only 3% of taxes owed would be from estates worth less than $5 million Value of gross estate
  • Source: Urban Institute-Brookings Tax Policy Center If the 2009 estate tax parameters are made permanent, less than one-fifth of the average taxable estate will be owed in tax Average Effective Tax Rate, in 2011, by Size of Gross Estate