Congress Should Not Weaken the Estate Tax Beyond 2009 Parameters
End Notes
[1] The $82 billion difference in cost between the Berkley and Pomeroy proposals is over the 2012-2021 period (the first decade in which the effects of further estate tax changes would be fully felt) and includes the effects of increased interest payments on the national debt, as a result of deficit financing. Because none of the current major estate tax proposals include offsets, all of the cost estimates in this paper include the interest costs. The Joint Committee on Taxation has estimated that the Berkley proposal would cost $280 billion over 2010-19 (compared to $234 billion for the Pomeroy proposal), but this figure understates the cost both because it excludes interest costs and because the proposal would not be fully in effect until 2011, and the revenue effect lags by a year.
[2] According to the Urban Institute-Brookings Institution Tax Policy Center, taxable estates would pay an average effective tax rate of 18.9 percent in 2011 if the 2009 estate tax rules were made permanent. In other words, the taxes they pay would equal 18.9 percent of the estates’ value, on average.
[3] According to a 2000 study, unrealized capital gains make up 56 percent of the value of estates worth more than $10 million. See James Poterba and Scott Weisbenner, “The Distributional Burden of Taxing Estates and Unrealized Capital Gains At the Time of Death,” p. 19, NBER, July 2000.
[4] Total lifetime earnings for the middle-class family would be approximately $3 million. For simplicity of argument, assume that all amounts are present values, as inflation effects do not alter the overall story. In addition to the large amounts that wealthy individuals can pass on tax free after death, an individual can provide $13,000 each year during his or her lifetime to another individual on a tax-free basis through the annual gift tax exclusion.
[5] This $391 billion cost, a CBPP estimate based on estimates from the Joint Committee on Taxation, consists of $315 billion in forgone revenue and $76 billion in higher interest payments on the debt.
[6] For more on the Lincoln-Kyl proposal, see Chuck Marr and Jason Levitis, “Lincoln-Kyl Estate Tax Amendment Is Both Unnecessary and Unaffordable,” Center on Budget and Policy Priorities, revised April 10, 2009.
[7] See Tax Policy Center, “$3.5 Million Exemption and 45 Percent Rate: Distribution of Gross Estate and Net Estate Tax by Size of Gross Estate, 2010,” November 18, 2009, http://www.taxpolicycenter.org/numbers/Content/PDF/T09-0440.pdf. We follow the Tax Policy Center definition of a small business or farm estate as one in which more than half of the value of the estate is in a farm or business and the farm or business assets are valued at less than $5 million.
[8] Jane G. Gravelle and Donald J. Marples, “Estate and Gift Taxes: Economic Issues,” Congressional Research Service, November 27, 2009.
[9] See Chye-Ching Huang, Gillian Brunet, and Chuck Marr, “Reports Calling for Estate Tax Repeal Seriously Flawed,” Center on Budget and Policy Priorities, July 7, 2009.