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Who Is Paying Estate Taxes?
There is a push in Washington to repeal the estate tax (or "death tax"; as its critics like to term it). Who would benefit from such a repeal? Very few estates, it turns out. A close look at the numbers reveals that only a tiny fraction of estates pay any taxes at all, and only a small percentage of these pay the top tax rate.
In 1998, for example, only 47,000 estates--less than 2 percent of all estates--owed taxes. This is thanks to the large tax exemptions for estates. The estate tax applies only to estates valued at more than $675,000, meaning that a married couple can now exempt $1.35 million from tax. This amount will increase incrementally until it reaches $1 million ($2 million for couples) in 2006. Moreover, each person can give up to $10,000 annually to a family member (or anyone else) tax free. There is no limit on how many individual $10,000 gifts can be given. Finally, spouses can transfer assets to one another completely exempt from tax.
The estate tax is also progressive, meaning that most of the estates that do owe a tax pay far less than the maximum rate. The top federal tax rate of 39 percent applies only to estates valued at more than $3 million. In 1998, the estates of between $600,000 and $1 million paid on average only 5.9 percent of their value in estate taxes. The average tax for these estates was $46,000 and they paid only 4.5 percent of all estate taxes. By contrast, more than half of the estate taxes in 1998 were paid by the 2,900 largest estates'Ēall worth $5 million or more.
Those advocating for repeal of the estate tax claim that it breaks up family farms and small businesses. How extensive is this problem? According to Internal Revenue Service figures for 1998, only 1,418 of the 47,000 taxable estates held more than half of their value in either farm or small business assets. These estates paid only 1 percent of all estate taxes collected in that year.
While a repeal of the estate tax would indeed assist the wealthiest sliver of the population, it also would deprive the nation of more than $20 billion in revenues'Ēa shortfall we all might have to help repay.
For more on estate taxation, click here.