This article is not going to state whether the estate tax rate should be increased, whether it should be decreased, whether the exclusion rate should decrease or increase, but rather discuss its initial purpose and the benefits it has produced. Although the Estate Tax sounds high, it generate just .6% of tax revenue and in 2014 only brought in $20 billion. Extremes on the right have called for it to be 100% abolished while extremes on the left have called for it to be progressively raised with some proposals going as high as rates of 55%.
Who does the estate tax affect? The estate tax affects wealth of $11.18 Million or over when passed on. So if a family member who passed on $11.20 Million to you died, only $.02 Million would be taxed by 40%. This only affects .1% of estates so 99.9% of estates never, ever pay this tax and even if it is taxed, as stated above, it may only affect a small percent of the inheritance passed on.
Many credible economists and studies have shown that with an estate tax repeal fully, charitable giving would plunge. That is because the estate tax has a charitable giving deduciton. So any money given to charity, would not be affected by this tax lowering an estate’s tax bill. When the Tax Cuts & Jobs Act passed, the Tax Policy Center estimated that charitable giving would decrease by 4% — 6.5%, again the Tax Cuts & Jobs Act double the exemption from about $5.5 Million to $11 Million, so a complete and total repeal would have an even greater impact on charitable giving. This is because the Estate Tax incentivizes charitable giving.
But we now know that when the estate tax was temporarily repealed, charitable giving plunged by 37%. Yes, 37% according to the Huffington Post. And when the tax returned in 2011, charitable giving doubled. So if extremes on the right get the 100% repeal (which won’t happen since many Republicans support the Estate Tax), the charitable effects can be devastating to charities across the country and world. And some of these charties like univeristies who receive donations use it to give back to middle class & low income students by giving out scholarships and cancer reasearch centers who recieve the money use it to advance our understanding and get closer to a cure. So although many may argue that .6% of revenue we receive may seem low, the effects of a total repeal can be seen throughout the whole country and world.
But one of the true purposes of the Estate Tax was to fight massive dynasties forming who may use their incredible strength, power, and extreme wealth formation over time to corrupt the political process and government.
Now many opponents of the tax do not address the federal estate tax rather the state estate tax. It is true that tons of wealthy families move from states who have the estate tax to states that don’t and that compliance costs are a burden on state economies, but again this article is addressing the federal not the state tax.
But the economic effects of eliminating this tax are not too great. The Heritage Foundation, a conservative think tank, estimate that eliminating this tax would increase the economy by $46 Billion over a 10 year period and create 18,000 jobs over a 10 year period. The US economy is well worth over $20 Trillion so a meager $4.6 Billion per year in economic growth — again a claim not proven and remember this think tank may have some bias since they are a right wing think tank — would have barely any effect. And remeber, that claim was made in 2014, now in 2018 the estate tax exemption was doubled so the economic growth is probably much less than that figure.
Another claim is that small businesses are hurt with this tax. It is not clear any more will be hurt since the exemption was doubled this year, but there are some businesses who should not have been hurt by this tax and I think it is unacceptable some were.
When I researched this tax and looked at both sides, it was clear the benefits outweighed the negatives by far. It is important to remember when discussing whether a federal estate tax should exist or not, although the revenue may be very little, effects can be seen throughout the whole world and country.