Strengthening the Estate Tax

Strengthening the Estate Tax 

 As the debate about whether to repeal the Estate Tax rages on, we in the NCTC free tax preparation field are presented with some interesting tax policy questions.  For instance, whether preserving the Estate Tax is fair and progressive?  Or could repealing the Estate Tax create jobs, boost investments, and stimulate economic growth?  Simply put, the estate tax is a tax on your property at death. It consists of an accounting of everything you own or have interests in at the date of death. Since 2001, the estate tax has gradually decreased; and this year it has been temporarily suspended.  In some instances, the suspension has allowed people to pass along an entire estate worth $9 billion without paying a single cent in federal estate tax. 

 The Responsible Tax Act (S.3533) is a bill that seeks to preserve the Estate Tax and its much needed revenue, while at the same time protecting small businesses and family farms.  The Responsible Tax Act further recognizes that revenue from the estate tax can be used to help struggling families, provide college access to lower to moderate income students, and reduce the growing federal deficit.   Proponents of the bill argue that this is an irresponsible time for Congress to reduce revenue.

The Responsible Tax Act also takes a progressive approach to instituting the estate tax; it exempts the first $3.5 million of an individual's estate ($7 million for couples) from federal taxation. Admit tingly, even supporters of the bill would like a lower exemption for couples. Under the Responsible Tax Act:

• An estate valued above $3.5 million but less than $10 million would be taxed at 45 percent.

• An estate valued between $10 million and $50 million would be taxed at 50 percent.

• An estate valued above $50 million would be taxed at 55 percent. 

The American Family Business Foundation takes an opposing view.  In a recent report, the AFBF claims that repealing the estate tax would create 1.5 million jobs and encourage people to save and invest more. The report goes on to say that the estate tax would disproportionally impact small businesses and slow our economy by as much as $100 billion dollars annually. 

A report from the Center on Budget and Policy Priorities addresses the AFBF arguments.  First, the CBPP cites that repealing the estate would actually increase our national deficit and slow our economic growth costing over 798 billion dollars in revenue deficits over the next decade. Secondly, the CBPP goes on to state the only a very small number of family farms have assets worth over $3.5 million and would thus be exempt from the estate tax.       

NCTC advocates for a tax system that is simple, fair, and progressive. Although the Responsible Tax Act can be improved by lowering the exemption for married couples, it is a step towards fairness. The bill helps to ensure revenue from the estate estate tax is preserved to help stabilize our economy and assist our working families.  For these reasons NCTC has recently endorsed a letter by the Americans for a Fair Estate Tax  that calls for the preservation of the Estate Tax.