Coalition Makes Recommendations Regarding Estate Tax

Coalition Makes Recommendations Regarding Estate Tax

News story posted in Transfer Taxes on 8 April 2010| 6 comments
audience: National Publication | last updated: 18 May 2011


A coalition of labor unions, women's groups, religious and public-interest organization has called on Congress to reinstate the federal estate tax with an exemption of $2 million ($4 million for couples), a top tax rate of at least 45 percent and with an additional 10 percent tax on estates exceeding $10 million. The group cited the estate tax as an incentive for charitable giving.

Americans for a Fair Estate Tax
Statement of Principles on Estate Tax Legislation

Our nation desperately needs revenue to invest in education, health, nutrition, and other priorities to promote a competitive workforce and ensure opportunity for every American. Only one-third of working adults have a college degree. One out of three Americans lacked health insurance at least once over the last couple years. Poverty, joblessness, and home foreclosures are harsh realities for millions of Americans.

We are told over and over again that increased investments in the American people are not affordable because the federal budget deficit is too great. And yet, Congress has gradually eliminated an important revenue source that can help fund these priorities and reduce the budget deficit.

Through a period of war, natural disaster, and now the worst economic downturn since the Great Depression, the Bush Administration and Congress set in place the gradual elimination of the federal estate tax. Since 2001, the tax was cut to exempt more and more estates so that in 2009, only one-quarter of one percent of all estates in the U.S. were expected to pay the tax. In 2009, only individuals with estates worth more than $3.5 million ($7 million for married couples) were subject to the tax. In January 2010, the estate tax was completely eliminated for one year.

The federal estate tax has been repealed for 2010 and under current law will reappear in 2011. Congress must permanently reinstate the estate tax for 2010 and subsequent years because it serves these crucial purposes:

  • The estate tax raises revenue that we need to invest in the American people. When Congress enacted the gradual repeal of the estate tax in 2001, it did not want to own up to the enormous cost of full repeal, which would exceed $800 billion over ten years. Therefore, after a year of outright repeal in 2010, the legislation calls for the estate tax to return to its old levels starting in 2011. Supporters of the Bush estate tax repeal assumed in 2001 that Congress would not allow the tax to be reinstated. Now that repeal has taken effect, Congress must take a hard look at the damage it is inflicting. Continuing the repeal will deepen the budget deficit by about $800 billion between 2012 and 2021. Keeping the estate tax at its 2009 level will cost about $400 billion over ten years.
  • The estate tax ensures that families who have benefited the most from public goods pay their fair share to maintain them. Families that have accumulated massive fortunes in America could not have done so without the infrastructure, educated workforce, stability and other public benefits that taxes make possible. Society only works when everyone contributes to the common good.
  • The federal estate tax provides a check on the concentration of power in the hands of those born into great wealth. Such a concentration of power is contrary to American values and democratic principles. This is a growing problem today, as hardworking Americans are finding fewer opportunities for success because education and other paths to advancement are increasingly out of reach. The United States now has the greatest concentration of wealth in the hands of the rich in nearly a century. As billionaire Warren Buffett reminds us, "Without the estate tax, you in effect will have an aristocracy of wealth, which means you pass down the ability to command the resources of the nation based on heredity rather than merit."
  • The estate tax corrects a feature of our tax system that would otherwise allow certain income to escape taxation entirely. Over half the value of inherited estates is capital gains income that has never been taxed. Most large estates include assets such as real estate, stocks or bonds. Any increase in the value of these assets is capital gain income that would be subject to the income tax if they were sold during the owner's lifefime. However, this income is not subject to the income tax if the owner dies and leaves it to an heir.
  • The estate tax encourages charitable giving. The estate tax is not imposed on assets bequeathed to charity. Many wealthy individuals take advantage of this unlimited deduction for charitable giving. In 2004, the Congressional Budget Office estimated that if the estate tax had not existed in 2000, charitable donations would have been $13-$25 billion lower that year.
Despite claims to the contrary, the estate tax does NOT affect the vast majority of small businesses and family farms. The Brookings/Urban Institute Tax Policy Center estimates that in 2009, only eighty small business and small farm estates nationwide owed any estate tax, and these estates paid an average tax of only 14 percent. This has not stopped estate tax opponents from spending millions in lobbying and advertising claiming that the estate tax hurts small businesses and family farms. This is simply a ruse to convince average Americans to support another massive tax cut for the wealthy that they would otherwise reject.

We call on Congress and the President to take the following steps when addressing the estate tax:

    1. Exempt no more than the first $2 million ($4 million for married couples) of assets in an estate.
A $2 million per-spouse exemption for the estate tax was in effect from 2006 through 2008. This shielded over 99 percent of the estates of people who died during those years from taxation. A $2 million per-spouse exemption is also twice as large as the exemption that takes effect in 2011 under current law.
    2. Set a tax rate of no less than 45 percent for the taxable portion of estates, with an additional 10 percent tax on the taxable portion exceeding $10 million.
The taxable portion of an estate includes assets in excess of the exemption, and it excludes any assets bequeathed to a spouse or charity. Therefore, even if the taxable portion of an estate is taxed at a statutory rate of 45 percent, the effective tax rate on the entire estate, i.e. how much is actually paid, is much lower.

A fundamental tenet of a fair tax system is that those who have the greatest ability to pay should pay a larger share. Great wealth is the best indicator of ability to pay. The estate tax should continue to target the very wealthy, and the largest estates should be taxed at a higher rate.

    3. Restore a credit for state estate and inheritance taxes.
The credit for state estate and inheritance taxes was gradually repealed under the tax cut legislation enacted in 2001, but will reappear in 2011. This credit allows states to share in estate tax revenues without having to administer a separate state tax.

Before the 2001 estate tax cuts were enacted, all 50 states had a tax on estates or inheritances. Many of these taxes have since disappeared because they were tied to the credit in the federal estate tax. Currently, only 20 states have such taxes. This is particularly problematic now, as this loss of tax revenue contributes to the severe budget shortfalls that many states are facing.

    4. Simplify the estate tax.
The estate tax should be simplified in two ways. First, the gift tax, estate tax, and generation-skipping transfer taxes should be "reunified," so that transfers made during the lifetime or at death are subject to the same rules, exemptions, and tax rates. This will ensure tax fairness and reduce the need, and incentive, for complicated tax planning.

Second, the estate tax should allow for the "portability" of any unused estate tax exemption from one spouse to another. If one spouse dies without using his or her entire $2 million exemption, the unused portion should automatically transfer to the surviving spouse. This would greatly simplify estate tax planning for many Americans and avoid the need to split up and re-title assets or set up complicated trusts. It also would eliminate situations in which some families have to pay the estate tax just because they failed to plan for it.

Endorsing Organizations

American Association of University Women
Americans for Democratic Action
Center for Law and Social Policy
Chicago Political Economy Group
Citizens for Tax Justice
Coalition on Human Needs
Community Action Partnership
Economic Opportunity Institute
Every Child Matters
Friends Committee on National Legislation
Institute for Policy Studies' Program on Inequality and the
Common Good
Institute for Wisconsin's Future
National Advocacy Center of the Sisters of the Good Shepherd
National Committee for Responsive Philanthropy
National Community Tax Coalition
National Women's Law
Center NETWORK: A National Catholic Social Justice Lobby
OMB Watch
Public Citizen
Responsible Wealth
Tax Fairness Oregon
Tennesseans for Fair Taxation
The United Methodist Church -- General Board of Church and Society
United Church of Christ, Justice and Witness Ministries
United for a Fair Economy
Wealth for the Common Good
Wider Opportunities for Women

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Income does not escape income tax

The article asserts that the estate tax is fair because some estate assets have never had capital gains tax imposed on them during the owner's lifefime. (As another commentator mentioned, this does not mean the assets were never income taxed.) However, in 2010, during which the estate tax has been repealed, the carryover basis rules (which provide for the gains on estate assets to be taxed) do apply except as to a limited amount of exempt assets in an estate that do get a basis adjustment. An estate's assets usually get a basis adjustment (which, by the way, is not always to the advantage of the estate) only in order to avoid what would otherwise be double-taxation of the same assets (e.g., a 45% estate tax being charged on not only the estate assets but also on the 15% capital gains tax on those assets). The so-called "basis step up/down" rules that apply when we have an estate tax would not apply if the estate tax is repealed; therefore the gains will be taxed.

Faulty rationale

This "Statement of Principles" asserts that the estate tax is fair because it ensures that "those who have benefited the most from public goods pay their fair share to maintain them.... Society only works when everyone contributes to the common good." The evidence shows the wealthy citizens of our country pay the vast majority of each and every kind of taxes (including income, capital gains, sales, property, social security, FICA/FUTA and death taxes) imposed in this country. I was recently cited a statistic that about 50% of Americans (up from about 40%) now pay no federal income taxes at all and that the top 10% of earners pay almost all of the income taxes. I have no doubt that the percentage of capital gains taxes paid by the wealthy is even higher. I think that it is highly inappropriate and inaccurate to suggest that the wealthy do not pay thier fair share of taxes in this country or contribute to the common good, especially considering that the wealthy do not qualify for a great many of the government benefits paid for with those taxes. Proponents of the estate tax, or at least those favoring as high a tax rate as suggested in this "Statement of Principles", apparently believe that the wealthy (through their productivity and ingenuity, charitable generosity and taxes) do not contribute enough to our society, and in fact, on top of all the other taxes paid by them over a lifetime, they should have to give up 45% to 55% (after excluding a modest exemption amount) of everything they saved up over a lifetime to make up for their apparent failure to properly contribute to society.


Working for higher taxes on our donors is like the insurance agents working for higher taxes on their clients to help sell high commission insurance policies. It is an elementary matter of ethics that we place the interests of clients/donors ahead of our own interests in maximizing donations/commissions. This is shameful and wrong.

Incentives for Charitable Giving

It is difficult to know what level of estate tax would incentivize or disincentivize charitable giving. Certainly in the case of estates holding oil and gas royalty interests, the incentives would be huge at an estate tax rate of 45% or higher. This is because such interests are valued by the IRS at a far higher amount than they would ever sell for in the marketplace and when you add on the income tax rate on the royalties you end up with a tax burden nearly as confiscatory as that on qualified plan accounts. In any event, it is difficult for me to see how the Coalition's recommendations have even a remote chance of passage given the fact that the overwhelmingly Democratic-controlled House has already passed a $3.5 million exemption, the President supports a unified credit at that level, the Senate is gridlocked over whether to raise the exemption even higher, and the Republicans are poised to make big gains in both chambers in November. Someone appears to have too much time on their hands.

"Simplify" the estate tax???

Portability will not "simplify" the estate tax, it will make it infinitely more complicated, because if Dad dies with $300,000 of assets (thus leaving $1.7 million unused exemption), the Executor now has to file an estate tax return for Dad to show how much extra exemption Mom becomes entitled to use. If portability didn't exist, no return would be needed for Dad. Also, the last sentence is (in my opinion) a sad commentary on the current "entitlement" mentality in this country. This group believes it is Congress' responsibility to "eliminate situations in which some familiies have to pay the estate tax just because they failed to plan for it". Whatever happened to personal responsiblity?

Interitance Never Taxed

This is an outright lie and deception -- a bogus argument. The money was taxed prior to it being invested. Just because it was not taken out of the investment and allowed to grow does not mean it wasn't taxed. It you want to argue something, be sure of your facts and don't attempt to sway the opinion by misinformation. The argument may want to be, "How many times can you tax something and it be "fair." We certainly will have that debate if tne VAT gets officially put on the table -- a terribly regressive tax. The argument must be taken a step further and faced that wealth confiscation and redistribution are a social good or a moral outrage. Robin Hood mentality may or not be the greatest virtue. Putting a gun to someone's head and demanding a certain part of their wealth may or not be viewed as morally courageous. The threat, in this case, will obviously produce some gruding benefactors that get "converted" on their way to the "dance" to receive their reward for being so philanthropic. Why do you think Warren Buffet is so gratuitous toward the IRS? Because they will get almost nothing (comparitavely)of his accumulated wealth.

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