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Few Wealthy Winners, Many Moderate-Income Losers from Tax-Extension Proposal

Republican leaders in Congress have called for extending a 2010 cut in the estate tax on roughly 7,000 multi-million-dollar estates.  But their proposals, one of which the House passed in August, wouldn’t extend a piece of the same 2010 legislation that strengthened the Earned Income Tax Credit (EITC) and Child Tax Credit for 13 million working families with moderate incomes.

Our brief report provides state-by-state data on the stark contrast between extending the estate-tax break — as opposed to reinstating the already generous 2009 rules — while letting the tax-credit improvements for working families lapse.  For example:

  • In Colorado, the largest 150 estates of people who die in 2013 would benefit, while 190,000 modest-income working families would lose out.
  • In Washington State, the largest 100 estates would receive a tax cut, while nearly a quarter-million working families with nearly 500,000 children would lose out.

The 2010 estate-tax cut, worth an average of $1.1 million per taxable estate, followed big cuts in the tax between 2001 and 2009.  Under the 2009 rules, a wealthy couple with two grown children could pass on $3.5 million to each child tax-free, and the tiny share of estates that owed any tax at all paid 19.1 percent of the estate’s value in tax, according to the Tax Policy Center — far below the official statutory rate of 45 percent.  President Obama favors reinstating the 2009 rules.

Only the wealthiest 0.3 percent of estates nationwide would face any tax in 2013 under the 2009 rules, the Tax Policy Center estimates.  So relative to the 2009 rules, only those estates would receive a tax cut from extending the 2010 rules.

Meanwhile, a single mother with two children working full time at the minimum wage and earning $14,500 will lose about $1,550 in her Child Tax Credit if policymakers fail to extend the improvement in the credit.  A married couple with three children with earnings equal to the estimated 2013 poverty line ($27,713 for a family of that size) will lose $1,934 in combined EITC and Child Tax Credit benefits.

See this interactive map for data on individual states.