Background

Arguments against repeal

• Equity -- the estate tax is an important component of a fair tax system.
• Less than 1% of estates pay any tax at all.
• When the tax is scheduled to be eliminated in 2010, less than 0.5% of estates will be taxed.
• It catches income that would otherwise slip through the tax system.
• Wealth -- the estate tax is the only significant federal tax on accumulated wealth
• The American system has enabled the accumulation of large amounts of wealth -- the super rich to owe some of their success to privilege of being an American and benefiting from what this country has to offer.
• A persistent "wealth-class" with it’s inevitable concentration of power is bad for American democracy
• The tax is on intergenerational wealth transfers -- the heirs of decedents
• Reduction in revenues
• If repealed, there would be billions in lost federal tax revenues -- these revenues support a large number of low-income programs.
• Over $900 billion in lost revenue over 20 years
• The deficit is already projected to be $400 billion in 2003
• There are vital national priorities that will require funding, including prescription drug benefits, social security reform, education priorities, and many others.
• States have also been, and will continue to be, hurt by the "coupling" of state law to federal law. Unless states enact their own estate tax laws, about $7 billion of state tax revenues will be lost per year if repealed.
• Charitable giving incentives.
• The estate tax includes an unlimited deduction for charitable giving, thus providing a valuable incentive to donate to charity.
• As a result, the elimination of the estate tax would have a harmful effect on charitable giving.
• Total of $10 billion reduction in charitable giving, every year, as a result of an estate tax repeal -- equivalent to the annual grantmaking of the largest 111 foundations combined.
• Empirically, the data show a 22% - 37% reduction in charitable bequests, for a $5 billion reduction.
• In addition, there is a 12% reduction in annual giving by those subject to the tax, for another $5 billion reduction.

Argument for repeal
The primary argument used by Congress in favor of a repeal is that small farmers and small business owners are overly burdened by the tax and are forced to sell their assets as a result of the tax and the death of the owner. Given the high exemption rate and special provisions for farms and businesses, only a very small number of business owners or farmers are forced to sell because of the tax.

We have no desire to force the sale of viable farms and businesses, and we think reasonable reform can accomplish this goal while maintaining the ideals of the estate tax. The National Farmers Union, for example, has spoken out against repeal and for reasonable reform.

Policy
We believe that the estate tax is an essential part of a fair and balanced tax system. The current tax law taxes only a very small percentage of estates, and, even for those that are taxed, the first $2 million is tax-free for individuals ($4 million for married couples).

We believe that small family farms and small businesses should not be overly burdened by an estate tax. This is why we support reasonable reform that allows these legacies to remain, but also preserves the ideals of the tax on inheritances.

We believe that permanently eliminating the estate tax is a bad policy choice.

Other estate tax information

• Tax Policy Center
• United for a Fair Economy
• Responsible Wealth
• Center on Budget and Policy Priorities
• Fair Taxes for All
• National Priorities Project