In 2001, Congress passed legislation to phase out and eliminate the federal estate tax, our nation’s only tax on inherited wealth. This was a $1.35 trillion dollar tax break for multi-millionaires and billionaires over the last decade. Due to Congressional inaction, the estate tax expired at the end of 2009. As a result, a Texas oilman worth $9 billion was the first billionaire in U.S. history to die without an estate tax in place. (See “Legacy for One Billionaire: Death, but no Taxes,” New York Times, 6/8/2010.)
Congress passed a deal at the end of 2010 to reinstate the estate tax at 35 percent and to exempt estates worth as much as $5 million ($10 million for a couple). Congress could institute a more progressive estate tax reform that closes loopholes and raises additional revenue from those able to pay. The Responsible Estate Tax Act (S.3533) establishes graduated tax rates, with no tax at all on estates worth under $3.5 million, or $7 million for a couple, and including a 10 percent surtax on the value of an estate above $500 million, or $1 billion for a couple.
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In the Senate, we support the Responsible Estate Tax Act (S.3533) which was introduced on Thursday, June 24, 2010 by Sens. Bernard Sanders (I-VT), Sherrod Brown (D-OH), Tom Harkin (D-IA) and Sheldon Whitehouse (D-RI).
The features of the legislation include:
* Exempts the first $3.5 million of wealth in an estate from federal taxation ($7 million for couples), the same exemption that existed in 2009. The tax is only paid by multi-millionaires and billionaires, fewer than one in 350 estates.
* Institutes a progressive graduated rate structure so that the super wealthy pay more. As Theodore Roosevelt called for, this legislation has higher graduated rates for larger estates. An estate between $3.5 million and $10 million would pay a 45 percent rate, the same as the 2009 level. The rate on the value of estates above $10 million and below $50 million would be 50 percent, and the rate on the value of estates above $50 million would be 55 percent, the top rate in 2000.
* Includes a billionaire’s surtax of 10 percent. The bill also imposes a 10 percent surtax on the value of an estate above $500 million ($1 billion for couples). According to Forbes Magazine, there are only 403 billionaires in the United States with a collective net worth of $1.3 trillion. Clearly, the heirs to these multi-billion fortunes have a greater capacity to pay than others.
* Closes all of the Estate and Gift Tax Loopholes requested in President Obama’s Fiscal Year 2011 budget. These loophole closers include requiring consistent valuation for transfer and income tax purposes; a modification of rules on valuation discounts; and a required 10-year minimum term for Grantor Retained Annuity Trusts (GRATS). OMB has estimated that closing these loopholes that benefit the super-wealthy, would raise at least $23.7 billion in revenue over 10 years.
* Protects family farmers by allowing them to lower the value of their farmland by up to $3 million for estate tax purposes. Under current law, the value of farmland can be reduced up to $1 million for estate tax purposes under 2032(a) of the Internal Revenue Code (Special Use Valuation). This bill increases this level to $3 million and indexes it to inflation.
* Benefits farmers and other landowners by providing estate tax relief for conservation easements. This bill provides tax relief to farmers and other landowners by amending estate tax rules for conservation easements through an increase in the maximum exclusion amount to $2 million and increasing the base percentage to 60 percent.
“The really big fortune, the swollen fortune, by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and in another tax which is far more easily collected and far more effective – a graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate.”
–Theodore Roosevelt, “The New Nationalism,” August 1910
The estate tax remains our nation’s only federal tax on inherited wealth. A century ago, President Theodore Roosevelt called for estate and inheritance taxes to slow the build-up of concentrated wealth in the hands of a few. The federal estate tax, enacted in 1916, has been in effect ever since. A reformed estate tax that takes a meaningful bite out of huge private fortunes would raise $1 trillion in revenue over the next decade, provide a powerful incentive for charitable giving, and help reduce our nation’s staggering inequalities in asset ownership.
The estate tax, as Bill Gates Sr. has written, “is a means by which wealthy people pay back the society and the commonwealth that has made their wealth possible.” Eliminating the estate tax — or gutting it with irresponsible reforms — would shift our nation’s revenue obligations onto lower-income taxpayers and future generations. We urgently need legislation that retains an estate tax robust enough to both raise badly needed revenue and put a break on America’s ever more narrowly concentrated wealth.
For calendar year 2009, the estate tax exemption amount was $3.5 million ($7 million total for a married couple) and the maximum tax rate on estates was 45 percent. Because of congressional inaction, the estate tax in 2010 was repealed. In 2011, the law sunsets and the estate tax returns to its pre-2001 levels with a $1 million exemption and a 55 percent rate.
During 2010, estate tax repeal is coupled with enactment of carryover basis rules that will require many heirs to pay tax on the built-in gains of property inherited in 2010. The new legislation would repeal these carryover basis rules and protect many small heirs from paying additional taxes.
This legislation would exempt over 99.75 percent of Americans from paying any estate tax whatsoever, while ensuring that the wealthiest Americans in our country pay their fair share. This is fewer than one in 350.
This bill would not harm family farmers or small businesses. The non-partisan Tax Policy Center has estimated that only 80 small businesses and farm estates throughout the country paid an estate tax in 2009 — representing 0.003 percent of all estates or 3 out of every 100,000 people who passed away that year. The proposed legislation would go even further to protect family farms and small businesses, while making sure that the wealthiest 0.25 percent of Americans pays their fair share.
There is no counterpart to the Responsible Estate Tax Act (S.3533) in the U.S. House. The Sensible Estate Tax Act (HR 2023) would also institute steeply graduated rates:
Wealth for the Common Good is working in coalition with Americans for Responsible Taxes and Americans for Fair Estate Tax. Our partners include Business for Shared Prosperity, Growth and Justice, United for a Fair Economy, Center on Budget and Policy Priorities, Citizens for Tax Justice, OMB Watch, and American Federation of State, County, and Municipal Employees (AFSCME).
David Kocieniewski, “Legacy for One Billionaire: Death, But No Taxes,” The New York Times, June 9, 2010.
Chuck Collins and Sam Pizzigati, “Resurrect the Estate Tax,” Huffington Post, June 2, 2010.
Bill Gates Sr. and Chuck Collins, Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes, Beacon Press, 2003.
“Spending Millions to Save Billions: The Campaign of the Super Wealth To Kill the Estate Tax” by Conor Kenny, Chuck Collins & Lee Farris, Public Citizen and United for a Fair Economy (April 2006).
Tax Policy Center –Estate Tax Summary
Center on Budget and Policy Priorities: Portal for Estate Tax.
United for a Fair Economy has been working to preserve and reform the federal estate tax since 1999. Visit their website for more background on this issue.