NCPA - National Center for Policy Analysis

Estate Tax Cuts Relatively Small

July 24, 2000

The estate tax repeal bill passed by the House and Senate would cost about $750 billion between 2011 and 2020, according to Treasury Department estimates, or $75 billion per year on average.

But $750 billion is far higher than other estimates. For example, the very liberal Center on Budget and Policy Priorities puts the "cost" of repeal at just $620 billion between 2011 and 2020. But both estimates are totally out of context in terms of the overall economy.

  • The Clinton Administration estimates today's $10 trillion will grow at a 4.9 percent average annual rate between 2006 and 2010, to just over $16 trillion in 2010.
  • If it continues this growth path afterwards, gross domestic product (GDP) rises to $26 trillion in the year 2020 ( see figure).
  • The cumulative total of all GDP between 2011 and 2020 is an estimated $211 trillion.
  • Thus the Treasury's $750 billion revenue loss estimate equals just 0.3 percent of GDP over this period.

But neither the CBPP nor the Treasury take into account the significant tax increase included in the congressional legislation. Right now, heirs do not pay capital gains taxes on any increase in the value of inherited assets during the life of the decedent. However, after 2010 the congressional bill would require an heir to pay capital gains taxes on all the increase in the value of an asset since it was originally purchased. This is called carryover basis, because the tax basis is carried over from one generation to the next.

Neither the Treasury nor the CBPP include the revenue gain from carryover basis in their estimates, although the latter concedes that it could raise $5 billion to $10 billion per year.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, July 24, 2000.


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