Estate Tax FAQ

May, 2002

When was the estate tax enacted?
The estate tax was enacted in 1916 with broad public approval. Early supporters of estate taxes included Teddy Roosevelt, William Howard Taft and Andrew Carnegie.

Why do we need the estate tax?
The estate tax raises a significant amount of money from only the wealthiest taxpayers. It encourages charitable giving and promotes America’s core economic and democratic values.

What’s wrong with repealing the estate tax?
The burden of paying for public services will shift to low and middle income taxpayers. States will lose billions in revenue, since many of them get a credit from the estate tax. Giant new loopholes will appear, permitting the very wealthy to avoid capital gains and other taxes they now pay. Overall, repealing the estate tax will further concentrate economic and political power in the hands of the richest 0.1% of American families.

How large must an estate be to be taxed?
The net value of the estate must exceed $1 million in 2000 for an individual. Couples can exempt $2 million from the estate tax. With planning, businesses can pass on $5 million tax-free. For farms, the figure is $8 million.

Who pays the estate tax?
The wealthiest 2% of Americans are the only ones who pay estate taxes. Half of all estate taxes are paid by the top one-tenth of one percent of all Americans.

How much does the estate tax raise every year?
In 1999, the estate tax raised $28 billion. Estimates put the figure at $30 billion for 2000. Nine cabinet departments —including Veterans’ Affairs, Labor, Commerce, Agriculture, and Interior — have budgets smaller than $30 billion.

Is the estate tax a "death tax?"
No. 98% of Americans who die pass on their estate completely tax-free. Zero estate tax is charged on money left to a spouse or to charity.

I’ve heard the estate tax targets family farms and businesses.
Not true. Only 3% of all taxed estates have farm or business assets totaling more than half of the estate.

Is the estate tax killing family businesses?
No. Family businesses can already take advantage of special estate tax breaks that are designed to allow businesses to continue operating.

But doesn't the estate tax force some businesses to close?
Rarely. Family businesses are sold or closed for a variety of reasons, and the estate tax would rank near the bottom of the list. Often, other family members are not interested in running the business any longer. In any case, the estate tax can be modified to protect small businesses without repealing it entirely.

Is the estate tax breaking up family farms?
Rarely, if ever. On April 8, 2001, the New York Times reported that the pro-repeal American Farm Bureau Foundation could not cite a single case of a family farm lost due to the estate tax. There are special estate tax breaks for farms, including the ability to value farmland at less than market value. Many “farms” that owe estate taxes are actually vacation ranches owned by wealthy city dwellers. In any case, the estate tax can be modified to protect farms. Repeal is unnecessary.

Does the estate tax encourage charitable giving?
Yes. A study by the Treasury Department found that eliminating the estate tax would reduce charitable bequests by 12% per year.

Do estate taxes take away half the value of all estates?
Not even close. Remember, 98% of all estates owe zero estate taxes. For the other 2%, a combination of permitted exemptions, deductions, and credits, together with estate planning strategies reduced the average effective tax rate to 17% in 1997.

Is the estate tax “double taxation?”
Not on the portion of estates that have risen in value over the years, such as the appreciated value of a stock portfolio. These capital gains, which make up the vast bulk of the value of the largest estates, have never been taxed.

I’m not in the top 2%, so why should I care whether or not the estate tax is repealed?
Repealing the estate tax would transfer $662 billion to the wealthiest 2% between 2002 and 2011. From 2012 to 2021, the figure is three-quarters of a trillion dollars. That means less funding available to help meet the growing costs of Social Security, Medicare and Medicaid, as well as other priorities such as improving educational opportunities, expanding health insurance coverage, and reducing child poverty. Just as important, the estate tax prevents giant fortunes from building up over generations. Huge family fortunes have been shown to distort our economy and damage our democratic process – this is the main reason the estate tax was enacted in the first place.

I worked hard for my money. The estate tax just isn’t fair.
The vast majority of Americans work hard, save what they can, and wouldn’t mind a tax cut. With families struggling, why prioritize a tax cut that will benefit only 2% of the population at the expense of all the rest?

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