Wednesday is Tax Day, and House Republicans are taking the opportunity to hold a vote to repeal the estate tax.
Republicans, who call the estate tax the “death tax,” and are calling the repeal bill the “Death Tax Repeal Act of 2015.” In announcing the planned vote, they said the bill was part of their effort to “make sure Americans keep more of their hard earned money.”
But a repeal of the estate tax, which applies to property transferred from the deceased to their heirs, would help out very few Americans. While the on-paper rate of taxation on estates is 40 percent, it only ends up applying to 1 percent of taxpayers thanks to a variety of exemptions. In 2013, just 4,700 estates owed taxes out of 2.6 million deaths, or one-fifth of one percent. The Center on Budget Policy Priorities estimates that only the wealthiest 0.2 percent, or just two out of every 1,000 estates, will owe the tax this year.
And despite the statutory rate of 40 percent on these few estates, the small group that has to pay it doesn’t even end up owing that much. The effective rate is just 16.6 percent. That’s because the tax only applies to an estate’s value over $5.43 million, shielding everything below that, and heirs can employ a variety of exemptions to bring the rate lower, particularly by hiring teams of lawyers and accountants. The statutory rate is also significantly lower than it has been in the past: it was 70 percent in 1977 and was above 50 percent until 2003.
Taxes on estates brought in $19.3 billion in 2014, or 0.6 of all federal tax revenue, and is expected to generate about $246 billion in revenue between 2016 and 2025 if the law isn’t changed. Those are somewhat small amounts compared to the total, but as the Center on Budget and Policy Priorities notes, “While this is less than 1 percent of federal revenue over the period, it is significantly more than the federal government will spend on the Food and Drug Administration, the Centers for Disease Control and Prevention, and the Environmental Protection Agency combined.” Repealing the estate tax, on the other hand, is projected to add $269 billion to the deficit over the next decade.
Critics of the tax argue that it hurts small and family businesses, particularly farms. But just 20 farms and businesses smaller worth under $5 million total owed estate taxes in 2013, and they only paid a rate of 4.9 percent.
The richest Americans often pay low tax rates on their wealth, particularly through the capital gains rate of 15 percent for investment income, lower than the tax rate for income from work. In fact most government benefits doled out through the tax code flow to the wealthiest. Repealing the estate tax would be one more way for the richest to pay fewer taxes.