The Amendment To Reform the Estate Tax To Avoid Subjecting Thousands of Families, Family Businesses, and Family Farms and Ranches to the Estate Tax, sponsored by Senator Ken Salazar [D-CO], creates a $45 billion fund in the FY2009 budget to allow for permanent cuts in the federal estate tax. While the present estate tax applies to inherited assets worth more than $2 million – and, thus, to approximately .5% of deaths – the amendment would exempt estates of up to $5 million per individual and $10 million per married couple, indexed for inflation. The top tax rate, currently 45%, would be lowered to 35%. The legislation requires cost offsets to ensure that reform of the estate tax does not increase the budget deficit; however, the amendment does not specify what these offsets would be. The tax is currently set to expire in 2010, but return in 2011 with a $1 million exemption and a tax rate of 60%.
The Middle-Class Position:
Middle Class Opposes. Although the Salazar Estate Tax Amendment is revenue-neutral, and so will not increase the budget deficit, estate tax revision that significantly decreases the tax rate and increases the exemption still adversely affects the middle class. The estate tax applies only to Americans lucky enough to inherit substantial fortunes – approximately .5% of deaths result in taxable estates – and the amendment’s changes to the estate tax in 2009 would benefit only 3 of every 1,000 estates worth millions of dollars. The tax preserves the American tradition of rewarding hard work, not inherited privilege and wealth. The revenue neutrality of the amendment could require spending reductions for already underfunded federal programs that benefit the middle class or will oblige those who work for their money to pick up a bigger share of the tax bill while allowing accumulated wealth to be passed on for generations.
From the Experts:
“[I]nheritances tend to exacerbate existing economic disparities and may be the most important barrier to intergenerational economic mobility. These tendencies are most pronounced at the top of the income distribution… The estate tax system is the most important mechanism by which the current fiscal system mitigates the effect of inheritances on economic disparities and intergenerational mobility…The scheduled repeal of the estate tax in 2010 and reinstatement at higher levels in 2011 create an opportunity to better focus the estate tax system on unearned income that inheritances represent. We should use that opportunity to reform, not repeal, the estate tax system so that we continue to tax inherited income, but in a more equitable manner.” – Lily L. Batchelder, Associate Professor of Law & Public Policy, NYU School of Law, 3/12/2008
“No one makes a fortune alone, without the help of our society’s investments. The moral justification for an estate tax is that some of us have disproportionately benefited from the fertile economic soil we have cultivated together. How many billionaires land on the Forbes 400 list courtesy of our technological and scientific commons, including the Internet, airwaves, biotechnology and mechanical advances? Seeing the invisible role of the commons in individual wealth creation should foster both an attitude of gratitude and recognition of our obligation to pass on similar opportunities. Previous generations did it for us -- and it is our turn to pass on the gift.” – Bill Gates Sr. and Chuck Collins, “We Still Need the Estate Tax”, Miami Herald, 12/26/2006
Beyond this Bill:
According to the Tax Policy Institute, the estate tax is the most progressive federal tax: in 2007, more than 90% of estate tax revenue will come from the top 10% of the income distribution. Middle-class Americans should not be faced with higher taxes or cuts in federal spending in order to provide tax breaks to Americans lucky enough to inherit a windfall. Tax reform should stabilize the estate tax rate and exemption at reasonable levels indexed to inflation in order to ensure that the tax continues to provide the federal government with much needed revenues.
Maximum value of estate exempted by the Salazar Amendment, in dollars: 5,000,000
Top estate tax rate mandated by the Salazar Amendment: 35%
Top estate tax rate in 2009 if the Salazar Amendment is not enacted: 45%
Percentage of estate tax revenue that will come from the top 10% of the income distribution in 2007: 90
Amount of revenue that the estate tax will raise from the 14,000 estates subject to the tax in 2007: $19 billion
The effective tax rate – calculated based on the share of an estate actually paid in tax – that results from a 35% statutory estate tax rate with a $3.5 million per person exemption: 14%
Income and payroll tax rate for a family of four with an income of $60,000: 18%
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