The Limited Reach of the Estate Tax

December 14th, 2012 at 8:49 pm

The Tax Policy Center (TPC) today released some interesting info on the estate tax, another contentious part of the cliff debate.  As I note here, because of the large exemptions, very few estates face the tax.  The figure below quantifies the point, from the perspective of the parties’ two different preferred policies.

The President and the D’s would like the tax to reset to its 2009 parameters: 45% rate, $3.5 million exemption for individuals’ estates ($7 million for couples).  The R’s want to lock in the 2012 rules: 35% rate and a $5 million exemption.

The former raises about $280 billion according to TPC, 2013-22, while the R’s version raises about $100 billion less.

But my point here is that in neither case, and in no year from 2011 to 2022, does either plan reach even 0.5% (that’s half a percent!) of estates.  The D’s plan starts out hitting about 0.25% of estates and climbs to 0.35%; the R plan goes from about 0.15% to about 0.2%.

So, let’s be clear—under either side’s plan, the estate tax ain’t biting hardly anyone.  Death may be certain, but taxes—at least this one—is much more discerning.

Source: Tax Policy Center

[Data note: I multiplied the TPCs deaths per year by .97 since about 3% of deaths occur to persons under 25 years of age who I assume wouldn’t have estates.  This makes the shares in the graph slightly larger than they would be if I’d used the TPC number for all deaths.  H/t: NF]


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One comment in reply to "The Limited Reach of the Estate Tax"

  1. save_the_rustbelt says:

    The estate tax doesn’t bite so many because smart guys like me do planning.

    One unintended consequence is a reduction of competition, medium sized construction company sells out to bigger construction company either before or after the death of the owners. I have watched this in the highway construction business, and I imagine states are overpaying for work in less competitive markets.

    The primary purpose of the estate tax is to serve as a welfare system for lawyers and life insurance companies (both lobbyist-rich of course). A secondary purpose is to feed the envy of the left.

    If the administrative and enforcement resources were shifted to tax evasion we would collect more money.