Estate Tax Burden Falls On The Less Wealthy
June 19, 2000
On June 9, the U.S. House of Representatives voted to abolish the estate and gift tax in the year 2010. Although estate tax rates are steeply progressive, taxing estates over $3 million at a 55 percent rate, estate planning can eliminate the tax. Those with great wealth are far more likely to engage in estate planning. Thus, more than two-thirds of all estate tax revenue comes from estates under $10 million.
The latest data from the Internal Revenue Service says:
- In 1997, more than 50 percent of all estate and gift taxes were collected from estates under $5 million.
- Only 20 percent came from the very wealthy, those with estates over $20 million.
- Furthermore, the effective tax rate (net tax as a share of gross estate) is significantly higher for estates between $5 million and $20 million than on those over $20 million.
- An estate between $2.5 million and $5 million actually pays a higher rate than that paid by estates over $20 million -- 15 percent for the former and 11.8 percent for the latter.
Furthermore, there is no evidence that a large share of the nation's wealthiest families got that way through inheritances.
- A 1961 study by the Brookings Institution found that only 6 percent of the wealthy acquired most of their assets through inheritance, while 62 percent reported no inheritances whatsoever.
- A 1995 study by the Rand Corporation found that among the top 5 percent of households, ranked by wealth, inheritances accounted for just 8 percent of assets.
- A 1998 study by U.S. Trust Corporation found that among the wealthiest 1 percent of Americans, just 10 percent of them received significant inheritances.
- According to the latest Forbes 400 list of America's wealthiest people, 251 were self-made.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, June 19, 2000.
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