Revised August 4, 2006

LATEST DATA ON MINIMUM WAGE WORKERS
AND TAXABLE ESTATES, BY STATE
by Joel Friedman

The House passed legislation on July 29 that includes two unrelated policies.  One would sharply reduce the estate tax; the other would increase the minimum wage to $7.25 per hour.  These two policies affect dramatically different populations.  The estate tax reduction only affects the nation’s most well-off households, while the minimum wage increase would boost the earnings of some of the lowest income workers in the country.

The following table provides data that illuminate this contrast.  The first column presents estimates from the Economic Policy Institute, showing the number of workers in each state who would benefit directly from increasing the minimum wage to $7.25 an hour in 2009, as would occur under the House proposal.  EPI estimates that are 5.6 million such workers nationwide (workers who would earn less than $7.25 an hour in 2009 if the minimum wage were not increased).[1] 

The second column shows the number of estates in each state that paid the estate tax in 2004, reflecting the most recent data from the Internal Revenue Service.  In 2004, 30,200 estates paid the estate tax nationwide.  Most of these taxes were paid by the estates of people who died in 2003, because there is typically a nine-month lag between when a person dies and when the tax is paid.  In 2003, the estate tax exemption was $1 million for an individual ($2 million for a couple). 

In future years, far fewer estates in each state will pay the estate tax, because the exemption level will increase significantly.  Currently, in 2006, the exemption level is set at $2 million for an individual ($4 million for a couple), and it will rise under current law to $3.5 million for an individual ($7 million for a couple) by 2009.  As a result of this increase in the exemption, the number of estates paying the estate will decline sharply.  According to Urban-Brookings Tax Policy Center estimates, only about one-quarter as many estates will pay tax in 2009 as in 2004.  The House bill would reduce the estate tax below its 2009 levels, gradually increasing the exemption level to $5 million per individual ($10 million per couple), with the additional cuts benefiting only the small number of estates — those of 3 in 1,000 people who die — that would pay any tax under 2009 law. 

Thus the comparisons shown in the attached table do not fully convey the disparate impact of the minimum wage and estate tax policies in the House bill, because the number of taxable estates in 2004 is much greater than the number of estates that would face the tax if Congress simply continued 2009 law.