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AP Teddy Roosevelt, a powerful proponent of the estate tax.
One sticking point in the ongoing debate over taxes in Washington is the question of estate taxes.
Don Gonyea speaks with Columbia Law School's Michael Graetz (update at 10 a.m. ET: he's also a professor emeritus and lecturer at Yale law School) about the history of the tax for Morning Edition. Graetz is co-author of the book Death by a Thousand Cuts: The Fight Over Taxing Inherited Wealth.
Graetz tells Don that the estate tax in its current form was passed by Congress in 1916, just three years after the start of the federal income tax. (Update at 1 p.m. ET: While Graetz said "Teddy Roosevelt ... was the one who got it passed by the Congress," it didn't happen while Roosevelt was president. Roosevelt pushed for the tax, but he left office in 1909. We've corrected the language in this paragraph. We thank the commenters who called this to our attention.)
Roosevelt supported the tax as an instrument for enforcing the equality of opportunity in the U.S. by making it more difficult to pass great fortunes from one generation to another. Graetz says that the public accepted the tax as a another progressive-era reform.
"It was the beginning of the progressive era," says Graetz. "The income tax had just come in, in 1913. So, the public was very interested in progressive taxation and the estate tax was a natural piece of that kind of system."
Significant opposition first appeared in the 1920s when Andrew Mellon of Gulf Oil tried to repeal the estate tax during his stint as secretary of the Treasury during the Coolidge administration. Then, in the 1940s, Graetz says that opponents started labeling it the "death tax" in a bid to gain wider support for the repeal movement.
The movement never succeeded. But the 1990s saw a resurgence in efforts to kill the tax, with an emphasis on how it affects family farms and small businesses.
Graetz tells Gonyea, however, that the estate tax has rarely affected these types of small family operations and that opponents eventually fell back to the position of advocating a complete repeal.
In the end, Graetz says the debate over the tax seems more symbolic than anything else in light of the fact that it has never produced more than 2 percent of federal revenues in any individual year since World War II.
The estate tax was repealed for 2010. But if nothing happens, it will return in 2011 — individuals who inherit estates valued at $1 million or more would see them taxed at a 55 percent rate; couples who receive estates of $2 million or more would also pay that rate.
But under the framework of the deal struck between President Obama and Congressional Republicans, the first $5 million of an estate would be exempt — the rest would be taxed at 35 percent.
Many House Democrats would like to see a 45% tax on individuals' estates worth more than $3.5 million and couples' worth more than $7 million.
Still, "it is an issue that generates a lot more heat than the revenue it produces would require," says Graetz. "On the other hand, it is the most progressive tax in our tax system. And as a result, I think it plays a special role in terms of a number of people's views about a fair distribution of the tax burden."
Under the compromise tax agreement, "99.7% of American families will not pay 1 nickel in an estate tax."
Bernie Sanders on Monday, December 13th, 2010 in a Twitter messageSen. Bernie Sanders says 99.7% of American families would be exempt from estate tax
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While the debate over the compromise tax agreement proposed by President Barack Obama has focused mostly on Bush's income tax cuts and whether they ought to be extended to wealthy Americans, the issue of estate taxes has also become a sticking point for some legislators.
Under the plan, the estate tax rate would be set at 35 percent, with an effective exemption of $5 million.
Many Republicans had hoped to do away with the estate tax altogether, and Democrats last year had proposed a higher rate: 45 percent on the value of estates over $3.5 million.
The compromise has ruffled feathers on both sides of the aisle. Sen. Jim DeMint, R.-S.C., for example, said he would not support the plan because he considered the estate tax compromise a tax increase. We ruled that claim Half True.
Meanwhile, Sen. Bernie Sanders, an independent from Vermont and a self-described democratic socialist, sent out a message via Twitter on Dec. 13, 2010, saying that under the estate tax plan, "99.7% of American families will not pay 1 nickel in an estate tax. This is not a tax on the rich, this is a tax on the very, very, very rich."
According to an analysis by the nonpartisan Tax Policy Center, Sanders is correct.
The Tax Policy Center estimated that about 99.7 percent of estates were exempt from the estate tax in 2009 when the first $3.5 million of an estate was exempt. Even fewer people would be subject to the tax if the threshold is increased to $5 million, as proposed in the compromise tax plan.
Under the compromise plan, less than 2/10 of 1 percent of estates would be subject to the estate tax next year, said Bob Williams of the Tax Policy Center. That means more than 99.8 percent would be completely exempt.
The Tax Policy Center estimates that about 3,600 estates would be subject to the tax under the $5 million threshold. Those 3,600 estates would have to pay an estimated $11.4 billion in estate taxes under the compromise tax plan.
Estate tax rates have fluctuated through modern history. In 2001, President George W. Bush signed a plan to gradually reduce the estate tax from 55 percent to 45 percent, while at the same time increasing the exemption value from $1 million in 2002 to $3.5 million in 2009. The estate tax disappeared altogether in 2010.
But the Bush plan only had a 10-year window because Republicans didn't have the votes at the time to permanently abolish the estate tax. It passed the Senate under budget reconciliation, which requires only a simple majority of 51 votes but which also limited it to a 10-year shelf life. Barring a new tax agreement, the rate was set to revert next year to a 55 percent rate with an effective exemption of $1 million.
Last year, Democrats proposed a plan to permanently set the estate tax rate at 2009 levels -- 45 percent on the value of estates over $3.5 million. But the plan never reached a vote in the Senate. Had that plan gone through, the Tax Policy Center estimates it would have subjected 6,460 estates to a tax (bring in an estimated $18.2 billion). If no tax plan passes, and the rate goes back to 55 percent on the value of estates over $1 million, an 43,540 estates would have to pay (bringing in an estimated $34.4 billion next year).
Sanders was correct that in 2009, when the effective exemption was $3.5 million, about 99.7 percent of all estates were exempt and didn't pay anything. The compromise plan -- which would set effective exemption at $5 million -- would push the number of exempted estates even higher, so that more than 99.8 percent of estates would not pay anything. We rate Sanders' comment True.
Subjects: Taxes
Sources:
Tax Policy Center, Taxable Estates, Estate Tax Liability, and Average Estate Tax Rate, By Size of Gross Estate, 20111
Twitter, Message posted by Sen. Bernie Sanders, Dec. 13, 2010
Interview with Bob Williams of the Tax Policy Center, Dec. 13, 2010
Written by: Robert Farley
Researched by: Robert Farley
Edited by: Martha Hamilton
Under the plan, the estate tax rate would be set at 35 percent, with an effective exemption of $5 million.
Many Republicans had hoped to do away with the estate tax altogether, and Democrats last year had proposed a higher rate: 45 percent on the value of estates over $3.5 million.
The compromise has ruffled feathers on both sides of the aisle. Sen. Jim DeMint, R.-S.C., for example, said he would not support the plan because he considered the estate tax compromise a tax increase. We ruled that claim Half True.
Meanwhile, Sen. Bernie Sanders, an independent from Vermont and a self-described democratic socialist, sent out a message via Twitter on Dec. 13, 2010, saying that under the estate tax plan, "99.7% of American families will not pay 1 nickel in an estate tax. This is not a tax on the rich, this is a tax on the very, very, very rich."
According to an analysis by the nonpartisan Tax Policy Center, Sanders is correct.
The Tax Policy Center estimated that about 99.7 percent of estates were exempt from the estate tax in 2009 when the first $3.5 million of an estate was exempt. Even fewer people would be subject to the tax if the threshold is increased to $5 million, as proposed in the compromise tax plan.
Under the compromise plan, less than 2/10 of 1 percent of estates would be subject to the estate tax next year, said Bob Williams of the Tax Policy Center. That means more than 99.8 percent would be completely exempt.
The Tax Policy Center estimates that about 3,600 estates would be subject to the tax under the $5 million threshold. Those 3,600 estates would have to pay an estimated $11.4 billion in estate taxes under the compromise tax plan.
Estate tax rates have fluctuated through modern history. In 2001, President George W. Bush signed a plan to gradually reduce the estate tax from 55 percent to 45 percent, while at the same time increasing the exemption value from $1 million in 2002 to $3.5 million in 2009. The estate tax disappeared altogether in 2010.
But the Bush plan only had a 10-year window because Republicans didn't have the votes at the time to permanently abolish the estate tax. It passed the Senate under budget reconciliation, which requires only a simple majority of 51 votes but which also limited it to a 10-year shelf life. Barring a new tax agreement, the rate was set to revert next year to a 55 percent rate with an effective exemption of $1 million.
Last year, Democrats proposed a plan to permanently set the estate tax rate at 2009 levels -- 45 percent on the value of estates over $3.5 million. But the plan never reached a vote in the Senate. Had that plan gone through, the Tax Policy Center estimates it would have subjected 6,460 estates to a tax (bring in an estimated $18.2 billion). If no tax plan passes, and the rate goes back to 55 percent on the value of estates over $1 million, an 43,540 estates would have to pay (bringing in an estimated $34.4 billion next year).
Sanders was correct that in 2009, when the effective exemption was $3.5 million, about 99.7 percent of all estates were exempt and didn't pay anything. The compromise plan -- which would set effective exemption at $5 million -- would push the number of exempted estates even higher, so that more than 99.8 percent of estates would not pay anything. We rate Sanders' comment True.
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Published: Tuesday, December 14th, 2010 at 1:49 p.m.Subjects: Taxes
Sources:
Tax Policy Center, Taxable Estates, Estate Tax Liability, and Average Estate Tax Rate, By Size of Gross Estate, 20111
Twitter, Message posted by Sen. Bernie Sanders, Dec. 13, 2010
Interview with Bob Williams of the Tax Policy Center, Dec. 13, 2010
Written by: Robert Farley
Researched by: Robert Farley
Edited by: Martha Hamilton
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