Building an Economy that Works for Everyone

Now is the time to fix the federal estate tax

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Washington’s estate tax has been on the books since 1901. But under current federal law, the  federal estate tax is repealed for the year 2010 — only to reappear in 2011. Rather than permitting this anomaly of a Bush era tax “reform” to continue, the federal estate tax should be reinstated for 2010 and subsequent years, in order to:

  • Raise revenue that we need to invest in the American people;
  • Ensure that families who have benefited the most from public goods pay their fair share to maintain them;
  • Provide a check on the concentration of power in the hands of those born into great wealth;
  • Correct a feature of our tax system that would otherwise allow certain income to escape taxation entirely; and
  • Encourage charitable giving.

And no, 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.

Congress and the President should take the following steps to address the federal estate tax:

1. Exempt no more than the first $2 million ($4 million for married couples) of assets in an estate. 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 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 that allows states to share in estate tax revenues without having to administer a separate state tax.

4. Simplify the estate tax by 1) “reunifying” the gift tax, estate tax, and generation-skipping transfer taxes to ensure tax fairness and reduce the need, and incentive, for complicated tax planning, and 2) allowing for the “portability” of any unused estate tax exemption from one spouse to another.

The findings and principles listed above are fleshed out in detail in the Principles for Fair Estate Tax Reform just released by Americans for a Fair Estate Tax, a coalition of dozens of progressive labor, faith-based, and social-justice groups that has fought to defeat efforts to repeal or cut the estate tax for years.

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