Talking Points

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Coalition to Preserve the Estate Tax:

Modify, Don't Repeal, the Estate Tax

Key Talking Points

Repeal of the estate tax is not fair. The U.S. tax system places a premium on tax progressivity--tax liabilities increase as income and wealth rises. Under current tax policies, the appreciated value of stock, property and other holdings are not taxed if passed on to heirs and thus may escape taxation altogether. The estate tax is really the only "wealth" tax that currently exists.
Nonprofits face a triple whammy if the estate tax is repealed.
- First, many charities depend on charitable bequests. Universities, scientific and medical institutions receive the largest share of charitable bequests; arts and cultural organizations, along with many social service agencies receive large amounts of money; and religious institutions receive the largest number of bequests. Repeal of the estate tax will mean a large drop in these types of gifts.
- Second, grants to nonprofits through private foundations will be reduced. Roughly one-third of private foundation assets derive from estate tax giving. Repeal of the estate tax will have a major impact on the creation of foundations and possibly even on resources available for existing foundations. Nonprofits of all types are heavily dependent on foundation grants to carry out their missions.
- Third, federal and state grants to nonprofits will likely be cut back.The fact that nearly one-third of nonprofit revenues come from government funding demonstrates the close government-nonprofit partnership that exists. A loss of federal and state revenue will mean a loss of money for nonprofits to carry out services.
The estate tax is not a "death tax." Proponents of repeal make it appear that Uncle Sam takes 55% of everything you own when you die. This is preposterous. Very few people pay the estate tax and most of those who pay are the super-wealthy. The actual effective tax is far lower than half of the value of the estate, ranging from about one-sixth to one-quarter of the value of the estate. The first $675,000 ($1.35 million if married) of the estate tax is free of taxation. This rises to $1 million ($2 million if married) by 2006. An unlimited amount of money can be given to the surviving spouse tax free. Moreover, an unlimited amount can be given to charity.
The estate tax is not "double taxation."Proponents of repeal argue that wealth is being taxed annually and again upon death. This is inaccurate. A large portion–from one third to over one-half--of the taxable value of estates consists of unrealized capital gains. Without the estate tax, these assets will be passed on to heirs without taxation.
Very few family farms and small businesses are affected by the estate tax. Although roughly 1% of estate tax revenue comes from estates consisting of family farms and small businesses, they have become the poster children of the repeal movement. These family-owned businesses and farms are already eligible for a number of special benefits. For example, the income exclusion exceeds, by twice as much in most cases, that of individual estates; most are eligible to pay the tax over fourteen years at low interest; property can be valued according to use rather than by fair market value; and conservation easements can be utilized to further reduce estate taxes. Nonetheless, since the tax is aimed at the super-wealthy, there is no reason why the tax cannot be modified to insure that family farmers and small businesses do not face unfair taxation.

For more information, visit www.ombwatch.org/npadv/estatetax/
Coalition to Preserve the Estate Tax (202) 234-8494



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