No one pays the estate tax

July 26, 2012

The Senate's partial extension of the Bush tax cuts Wednesday night did not include an extension of Bush's cuts to the estate tax, passed in 2001. The Bush bill gradually phased out the tax such that it was fully eliminated in 2010. The extension of the cuts, passed as part of a deal between Obama and Senate Republicans in December 2010, imposed a top rate of 35 percent while exempting estates under $5 million.

That's bigger than no tax, but a lot less than the 45 percent top rate and $3.5 million exemption that was in place in 2009. Sen. Claire McCaskill (D-Mo.) has proposed a bill to extend the current rates, and Sens. Jon Tester (D-Mont.) and Mark Pryor (D-Ark.) have signed on. If no extension is passed, rates will return to where they were during the Clinton administration, with a 55 percent top tax and $1 million exemption. Republicans allege that would strike "millions of family farms and small businesses."

They're wrong. Even under the Clinton administration rates, the estate tax hit a tiny fraction of Americans, hovering around 2-3 percent of all deaths according to this paper (pdf) by IRS researchers Darien B. Jacobson, Brian G. Raub, and Barry W. Johnson:


Source: IRS.

Of people who died in 1998, for instance, only 103,892 filed estate tax returns and, of those, only 50,089 — less than half — paid any taxes. That's 2.26 percent of the 2,218,455 Americans over 24 who died (pdf) in 1998. When you break down those filers by the size of their estate, it's even more striking:


The top tax bracket of 55 percent only affect estate assets above $3 million, so the vast majority of estate tax filers — themselves a tiny fraction of families whose relatives died — were not affected by it, and many more paid the much lower 18 percent starting rate. Indeed, there were only 4,796 filers with estates above $2.5 million.

So if you hear politicians worrying about the 55 percent rate, remember that when it was last in place, fewer than 5,000 people were affected every year. It's simply not that big a part of the tax code, and the idea that "millions" of families and small businesses would be affected by a return to Clinton rates is just plain wrong.

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Sarah Kliff · July 26, 2012