Establish a Robust Estate Tax in the Lame Duck Session

Nov 30, 2010

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November 30, 2010

Dear Senator:

The undersigned organizations urge you to establish a robust estate tax during the current lame duck session of Congress. Within the next month, the Senate will consider an extension of the Bush tax cuts; any package must include the permanent extension of a strong estate tax. Americans for a Fair Estate Tax (AFET), a coalition of dozens of national and state organizations, have long advocated for a robust estate tax that can provide our nation with the desperately needed revenue to invest in priorities such as education, health and nutrition, and infrastructure.

We are told repeatedly, however, that increased investments in the American people are not affordable because the federal budget deficit is too great. Yet, Congress has sharply decreased an important revenue source that can help fund these priorities and reduce the budget deficit.

The Bush tax cuts enacted in 2001 set in place the gradual reduction and then temporary one-year elimination of the federal estate tax for 2010. Unfortunately, we have already seen the revenue loss resulting from the one-year repeal. In March, an oil and gas businessman in Texas became the first billionaire in United States history to pass along his entire estate – worth some $9 billion – without paying any federal estate tax.

President Obama has proposed permanently extending the 2009 estate tax. With a $3.5 million exemption for individuals and a $7 million exemption for couples, and a tax rate of 45 percent, this proposal would be more than generous to the wealthiest among us and would not harm small businesses or family farms. Reports in the media that a Bush tax cut extension deal would include an estate tax with higher exemption levels and lower rates are extremely troubling, as such parameters would severely undermine this fair and important revenue source.

Restoring the estate tax to 2009 levels or stronger would affect only the wealthiest one quarter of one percent of estates and would bring in roughly $250 billion in revenue over 10 years. The Brookings/Urban Institute Tax Policy Center estimates that in 2009, only 100 small businesses and small farm estates nationwide owed any estate tax, and those paid an average tax of only 14 percent.

Any proposal that grants a higher exemption level or a lower tax rate than existed in 2009 will virtually eliminate the estate tax and cost our nation much more revenue down the road. Moreover, no proposal should provide a prepayment option or include an unlimited farm exemption, both of which would provide an unacceptable loophole and deprive the Treasury of much-needed federal revenue.

We support re-establishing a permanent robust estate tax because it serves these crucial purposes:
- The estate tax raises revenue that our nation needs to invest in the American people. Continued repeal will deepen the budget deficit by about $800 billion between 2012 and 2021.
- Polls show a clear majority of voters want there to be an estate tax, believing that an exemption of between $2 million and $3.5 million is fair. Voters continually place the estate tax at the bottom of the list of taxes the government should cut. - Because the government does not tax assets bequeathed to a charity, the estate tax encourages charitable contributions. This is especially important in light of the current economic downturn in which charities are struggling to continue providing vital community services.
- The estate tax functions as a backstop for the income tax, taxing capital gains that previously have not been taxed. Over half the value of inherited estates is capital gains income that has never been taxed. Most large estates include assets such as real estate, stocks or bonds. Any increase in the value of these assets is capital gain income that would only be subject to the income tax if the assets were sold during the owner’s lifetime.

A robust estate tax must fairly tax wealth that might otherwise escape taxation entirely, preserve a system that ensures that the very wealthy pay their fair share, and maintain a structure that encourages charitable giving.