Estate Tax Myths and Facts

Myth: The Estate Tax is a "Death Tax."
Fact: 98% of Americans who die pass their estate on to their heirs completely tax-free — in fact, they get a valuable tax break on capital gains. Zero estate tax is charged on assets left to a spouse or to charity.

Myth: The wealthiest Americans are able to completely avoid paying estate taxes.
Fact: Wealthy Americans most definitely pay estate taxes. In 1998, out of 47,000 taxable estates, there were 374 that were larger than $20 million. Those 374 estates paid over $4.4 billion in estate taxes — more than 20% of all estate taxes collected that year.

Myth: The Estate Tax must be repealed because it is forcing family businesses to close.
Fact: This issue has been wildly exaggerated. Only 3 of every 10,000 people who die leave a taxable estate in which a family business forms the majority of the estate. Family businesses can be protected by raising exemption levels. Repealing the entire Estate Tax is unnecessary.

Myth: The Estate Tax must be repealed because it is forcing family farms to sell out.
Fact: As with family businesses, this issue has been distorted. Only 3 of every 10,000 people who die leave a taxable estate in which a farm forms the majority of the estate. 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. In any case, family farms can be protected by gradually raising exemption levels. Repealing the Estate Tax will likely encourage the growth of mega-farms, thereby hurting smaller operations.

Myth: The Estate Tax is unfair because it is "double taxation."
Fact: Unrealized capital gains, which form the majority of the value of the largest estates, have never been subject to taxation as income. Repealing the Estate Tax means that these gains would never be taxed. That’s unfair to those who pay capital gains taxes during their lifetimes.

Myth: The Estate Tax takes away over half the value of all estates.
Fact: For 98% of Americans, the Estate Tax takes away nothing, and it actually shields assets from capital gains taxes. For the other 2%, the average effective tax rate is 17%.

Myth: The Estate Tax discourages work and inhibits capital formation.
Fact: There is no hard empirical evidence that U.S. capital accumulation has been held back by the Estate Tax. There is evidence, however, that large inheritances do reduce work effort and saving among recipients.

Myth: The Estate Tax raises little revenue, so repealing it will have no effect.
Fact: Right now, the estate tax raises $30 billion a year for the federal government. That’s about 9% of the non-military discretionary budget. By 2011, the cost of the repeal will reach $60 billion a year, a time when the baby boomers begin to retire in large numbers. Meanwhile, the states stand to lose $9 billion a year by 2010, since they also receive revenue through the federal estate tax.

Myth: The Estate Tax is unfair.
Fact: The Estate Tax is eminently fair. It is collected from those most able to pay. It prevents the creation of family dynasties that would distort our democracy and limit economic opportunities for succeeding generations.

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