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.
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Comments
Re: Estate Tax Update
by
Michael Bindner
on Wed 08 Apr 2009 10:29 AM EDT | Permanent Link
I wonder what the fiscal and political impact would be of a serious proposal to replace the Estate Tax with a Land Value Tax. I think it would be likely that everyone calling the Estate Tax the Death Tax would call the LVT some kind of banana republic land reform. K Street would certainly be out in force against it.
I am not in favor of Estates bearing taxation. Rather, liquidated estate assets should be considered normal income subject to tax. Real and personal property has already been taxed twice. Much as it pains me to say this, Uncle Nate's Jag should be inheritable tax free (although when his neice inherits it, she will understand the true pain of owning a shop queen). Re: Re: Estate Tax Update
by
Macrocompassion
on Fri 10 Apr 2009 10:05 AM EDT | Profile | Permanent Link
Land Value Tax is not the same as real-estate tax. The former applies only to the site value and not to the "improvements" in the form of buildings etc.
The effect of taxing land values should not be so hard if it is introduced slowly especially if it is used (as it should) to replace income and purchase taxes. Although a selfish few will undoubtably object to this arrangement, the vast majority will greatly benefit, no so much from paying smaller taxes as from finding that sites that were held out of use for purposes of speculation, now are made available, with a resulting reduction in the cost of use of the land in general and an increase in the amount of employment. Both the demand and the supply of goods will be eased by more people having more cash to spend on the cheaper produce that results. It will also help us to export more and balance the present international situation of money only going out. Remember, the cause of our present economic crisis was due to the bursting of the bubble of real-estate prices, and this speculation was assisted by both the banks and the government. TAX TAKINGS NOT MAKINGS. Re: Re: Re: Estate Tax Update
by
Michael Bindner
on Mon 13 Apr 2009 03:15 PM EDT | Permanent Link
I wasn't talking about real estate, but estates period. An LVT replacing all of income tax would be unweildly. If it replaced just the revenue gathered from inheritance taxes, it might be doable, at least to start - of course farmers would not like it.
My other point was that everyone who is out in force against the Inheritance Tax would be more out if force against an LVT. Am I right or wrong on this? Fifth option
by
AMTbuff
on Wed 08 Apr 2009 03:06 PM EDT | Profile | Permanent Link
What about the approach I posted here recently? Wouldn't it bring in plenty of revenue and simplify life (and death)?
Eliminate the estate tax but reduce the benefit of step-up basis at death by requiring beneficiaries to carry a tax basis of half the value of the assets on the date of death unless the beneficiary can prove that the decedent's basis was higher. For most types of investment assets, this should eliminate any need to search records more than a decade or so old. Personal use assets of the type that wear out could be excluded from this provision and carried at market value on the date of death up to $100k or so total. With this compromise, the beneficiary is not forced to sell to pay taxes. Family farms and businesses can be passed on forever, and the tax will only become due when the property is sold to new owners. The tax rate will be at most half the capital gains rate, but there will be no tax exemption or at least one much smaller than today's $3.5 million. Trackbacks
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