Congress Should Not Weaken Estate Tax Beyond 2009 Parameters
Revised March 11, 2009
The Administration’s recently-released budget proposes to make permanent key features of the estate tax that are in place in 2009. This will launch a major congressional debate. Under current law, the tax has been phasing down for several years and is scheduled to end entirely in 2010, only to return in 2011 under the parameters that were in place in 2001. To avoid such roller-coaster changes, Congress is expected to consider estate-tax legislation this year.
Some in Congress have proposed going beyond the 2009 rules and further weakening the estate tax. This would be unwise, for the following reasons:
- Making the 2009 parameters permanent would be very expensive, costing $609 billion over the first decade in which its effects would be fully felt (2012-2021). Going further would not be fiscally responsible.
- Under the 2009 parameters, the estates of fewer than three of every 1,000 people who die will owe any estate tax whatsoever; there is no need to shrink this tiny fraction further.
- While going beyond the 2009 rules would benefit only a very small number of wealthy individuals, millions of middle- and low-income Americans likely would eventually bear a significant share of the costs, in the form of higher taxes and lower government benefits. Millions of ordinary Americans could end up with a lower standard of living so that some of the nation’s wealthiest individuals could escape much or all of the estate tax.
- The few estates that are taxable under the 2009 rules would be taxed much more lightly than is commonly understood. In 2011, taxable estates would owe less than one-fifth of their value in tax, on average.
- Under the 2009 estate tax parameters, almost no small business and farm estates would owe any estate tax — just 140 such estates in the entire nation would be taxable in 2011, for example. Moreover, it is extremely unlikely that any taxable estates would have to be liquidated to pay the tax under the 2009 estate tax parameters.
- A meaningful estate tax is an important incentive for charitable giving. Shrinking the tax beyond its 2009 level would weaken this incentive, likely producing a drop in donations.