Estate Tax Update
As taxvox blogmeister, Howard Gleckman, noted last week, the estate tax is once again in play in Congress. TPC has updated our estate tax estimates to reflect the latest CBO projections and IRS data. The main factor driving the revisions is that there's a lot less wealth to tax now than there was a year ago. The new tables show the distribution of returns, value of estate, and estate tax by size of estate for 4 policy options in 2011.
The four options are:
1. current law, in which the estate tax exemption returns to $1 million and the top rate is 55% (Table T09-0196)
2. extending permanently the $3.5 million exemption and 45% rate that is in the law for 2009 (T09-0198)
3. the Obama proposal–extending the $3.5 million exemption and indexing it for inflation (T09-0197)
4. the Lincoln-Kyl proposal–a $5 million exemption with a 35% rate (T09-0199)
Compared with current law, the Obama proposal would cut the number of taxable estates by 87% to an estimated 6,160 taxable returns. The average estate tax bill would be about $3 million, or 19% of total estate value.
An always charged issue is how the estate tax affects small farms and family-owned businesses. We estimate that under the Obama proposal, 100 family farms and businesses would owe tax. (We define such estates as those where farm or business assets are valued at under $5 million and comprise the majority of estate assets.) The Lincoln-Kyl proposal would cut the number to 40. Even under current law, fewer than 2,700 family farms and businesses would owe tax.
The vast majority of the tax is owed by large estates. Almost 84% of the tax would be paid by estates larger than $10 million in 2011 under the Obama proposal. About half of the tax is paid by such large estates under current law. Under the Lincoln-Kyl proposal, the tax is even more concentrated, with more than 90% of the tax paid by such large estates.
The Lincoln-Kyl proposal would cut the number of taxable estates by almost half compared with Obama's proposal. The biggest winners would be the very wealthy. Estates worth over $20 million would save an average of $3.5 million.
For more information on how we do our estimates and the issues involved in the debate, see our 2008 study.