NCPA - National Center for Policy Analysis

Estate Tax Often Hits Wrong Target

January 27, 2011

When Congress at the end of last year voted to keep the Bush-era tax rates in place through 2012, it made one huge exception:  It voted to increase the estate tax from zero to 35 percent for the next two years.  This will apply to all estates valued at more than $5 million.  Beginning in 2013, the rate will increase again, to 55 percent, on estates valued at more than $1 million.  Many estates, however, consist of business assets, and this looms large when business owners make plans, says Antony Davies, an associate professor of economics at Duquesne University.

  • Findings from a recent research report shows nearly 2,000 estate tax filings in 2009 included farm assets.
  • In addition to farms, some 46 percent of all estate tax filings in 2009 listed other business assets, such as limited partnerships, closely held stock and unincorporated business assets.
  • But we can estimate that some 29,000 private corporations and some 14,000 real estate partnerships also would be affected if their owners die.

Together, these statistics paint a picture of small family business owners and family farmers being penalized by a tax that politicians claim is aimed at the idle rich, says Davies.

  • The fact is that the death tax can affect almost anyone, including the frugal middle class.
  • A worker who starts work at age 22, earns $30,000 the first year and receives average raises thereafter, saves 15 percent of his income in a 401(k) plan, and retires and dies at age 67 would pay the tax.
  • Under current law, when this worker dies he would owe $50,000 or more.

Source: Antony Davies, "'Estate Tax' Label Misleads on Levy's True Purpose," Washington Examiner, January 23, 2011.

 

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