The truth about the “death tax”

Yesterday, the Senate passed the tax cut deal by a whopping vote of 81-19, and the House is poised to consider the measure today. While it likely has the votes to pass, few observers expect the lopsided support that it received in the Senate. Too many House Democrats are still furious over the extension of Bush-era tax cuts to the wealthiest two percent of Americans.
Indeed, Democrats are poised to mount a last-ditch protest — by way of an amendment — over the estate tax, which Republicans commonly refer to as “the death tax.” A Gingrich-era manipulation of the language (and a brilliant one), the phrase “death tax” has led many Americans to believe that a corpse is taxed. It isn’t.
Here’s the truth about the estate tax:

According to a study published by the Federal Reserve Bank of Cleveland, only 1.6% of Americans receive $100,000 or more in inheritance. Another 1.1% receive $50,000 to $100,000. On the other hand, 91.9% receive nothing (Kotlikoff & Gokhale, 2000). Thus, the attempt by ultra-conservatives to eliminate inheritance taxes — which they always call “death taxes” for P.R. reasons — would take a huge bite out of government revenues (an estimated $1 trillion between 2012 and 2022) for the benefit of the heirs of the mere 0.6% of Americans whose death would lead to the payment of any estate taxes whatsoever (Citizens for Tax Justice, 2010).

That’s worth keeping in mind the next time you hear about the “death tax.”

However, that doesn’t make the Democrats’ amendment worthwhile. Republicans have made clear they will brook no changes whatsoever to the tax deal that passed the Senate, so, if the Democrats’ amendment were to pass, it would risk blowing up the deal — killing tax breaks for the middle-class and unemployment benefits. Besides, as the WaPo’s Ezra Klein makes clear, the House Democrats’ amendment would not make a dramatic change from the compromise:

There are basically three versions of the estate tax on the table. If we do nothing, it’ll exempt the first $1 million of estates and tax the value above that at 55 percent. That would affect 2 percent of estates and raise about $700 billion over the next 10 years. The version in the tax deal — also known as the Lincoln-Kyl rates — would exempt $5 million and tax the rest at 35 percent. That’d affect 0.25 percent of estates and raise closer to $300 billion.

And then there’s what House Democrats are fighting for: A $3.5 million exemption and a 45 percent tax rate. Chris Van Hollen calls this “the common sense compromise,” but it really isn’t. It’s the same level as the Bush tax cuts set in 2009. It would raise about $400 billion and affect 1 percent of estates. It’s much closer, in other words, to the Republican vision than to what’ll happen if we do nothing
I could see the argument for getting the estate tax back down to its 2001 levels. The rich have gotten richer since then, and their taxes have gone lower. But I can’t see the argument for blowing up the tax deal over the difference between George W. Bush’s 2009 rates and the Lincoln-Kyl rates. Over the next two years, the difference between those bills is $10 billion. If House Democrats are willing to risk the whole deal to fix the estate tax, they should actually fix the estate tax. Simply affirming the Bush rates isn’t worth it and is arguably worse than just taking a hardline on the necessity of the 2001 levels when the Lincoln-Kyl levels expire in 2012.

-by Cynthia Tucker

588 comments Add your comment

LoserButtheadBurnout

December 16th, 2010
8:48 am

Well at least we might be able to tax the crap out of the regressives after they are dead LOL

Shawny

December 16th, 2010
8:52 am

Everything that was left to an heir was purchased with dollars that have already been taxed as income. In addition, the items that are left to an heir were purchased, likely, with sales tax and in some counties, self-imposed SPLOST taxes.
To be required to pay even more tax buy leaving after tax items to your kinfolk is double taxation and should not be allowed.
Your problem with it is that you want redistribution, as do many ultra liberals. You would not want to use your after tax dollars, buy a car, pay sales tax on it, then get taxed again when you give it to your child would you?

Peadawg

December 16th, 2010
8:52 am

Yawn.

What about that ominous bill or whatever it’s called with 6,000 earmarks? No comment on that Cynthia?

Keep up the good fight!

December 16th, 2010
8:53 am

America needs to pay its bills. Time we made sure we have the tax revenues to do so and charge those who seemingly benefit the most with bailouts and pork deals. Reinstating the estate tax is a smart move.

Georgian

December 16th, 2010
8:53 am

What “truth” does Cynthia exactly tell us here?

Need we remind her Obama came to this agreement with Repubs, so essentially he is promoting the idea too.

Finn McCool

December 16th, 2010
8:54 am

It’s funny that even Andrew Carnegie spoke in front of Congress in favor of the estate tax when it was first being considered.

The “death tax” is just another way the Republican tools get their middle and lower class voters to support legislation that is against their best interest.

If you read Matt Taibbi from Rolling Stone he did an expose on the “death tax” a year or so ago. Well worth the read.

Georgian

December 16th, 2010
8:54 am

Keep,

America needs to pay its bills or the wealthy needs to pay America’s bills for everyone?

Jimmy62

December 16th, 2010
8:55 am

Here’s one of my problems. Your father dies, leaves you the family farm that is worth over $100k, so you get the farm, but now owe 1/3 of your assets to the tax man, even though it’s already been taxed through income and property taxes. So you sell the family farm, transferring yet another family owned business to a big corporation.

carlosgvv

December 16th, 2010
8:56 am

It should be clear to everyone by now that Republicans will stop at nothing to protect their wealthy sponsors. That they make no attempt to hide this shows their true opinion of the average American intellect.

Finn McCool

December 16th, 2010
8:56 am

Georgian, you should learn the difference between supporting something and compromising on something.

These intelligence capabilities should be learned before people graduate high school.

Nothing's homie.

December 16th, 2010
8:57 am

American voters deserve what they get when they are so easily rallied by words like death panels and death tax.

Keep up the good fight!

December 16th, 2010
8:57 am

Georgian…you confuse compromising with “promoting”. They are not the same.

B Cosby

December 16th, 2010
8:57 am

So, people have worked hard, established wealth, want to leave something for their family, but the dumbocraps think they should be entitled to it. All of my money, real estate, stocks & bonds will be distributed before I die. The government takes enough already, I’ll be damned if they are going fine me for dying.

Georgian

December 16th, 2010
8:58 am

Finn,

According to you libs, you are the champions of the middle and lower class. How does Repubs have a hold on that? Maybe you should do your research.

How did Obama get elected?

Those voters and minorities.

Why are Dems fighting immigration reform? Why do they want tax increases? Why do they want free health care?

Answer is simple. To trick poor unsuspecting Americans into voting for their liberal agendas.

Peadawg

December 16th, 2010
8:58 am

“So, people have worked hard, established wealth, want to leave something for their family, but the dumbocraps think they should be entitled to it.”

Yup. Sucks, don’t it?

Finn McCool

December 16th, 2010
8:59 am

Jimmy62, so the person couldn’t sell 1/3 of the farm assets they inherited?

Senior Citizen Kane

December 16th, 2010
8:59 am

Here’s another truth about the death tax: It’s money and property that have been taxed already.

detritusUSA

December 16th, 2010
8:59 am

I do have sympathy for the unemployed, but this is a bad bill, loaded with ear marks and should not pass. The egregious part is the reduction in social security tax for one year. The republicans have been trying to kill social security from its beginning and this is the largest nail in its coffin, so far. The terrible irony is that it is being hammered by a president from the democratic party. It seems that the working class no longer has any champions in washington, d.c.

Peadawg

December 16th, 2010
9:02 am

” It’s money and property that have been taxed already.” – But it’s not enough for liberals. They need more money to redistribute.

Georgian

December 16th, 2010
9:02 am

Keep and Finn,

OH! So Obama “compromised” so even if the plan was crafted by him with Repubs his name can’t be linked with it because he “compromised”.

Not so fast, my friend!

Obama accepted this and promotes this because he knows its what is best for the country. He even has said it is the plan that will create the most growth. He also has said if the cuts are not extended as agreed on IT IS THE END OF HIS PRESIDENCY.

Don’t cheapen your great leader by saying he does not promote this deal. He told Dems this was the only plan they would get. HE is the author of this tax cut plan. Don’t fool yourselves.

Finn McCool

December 16th, 2010
9:03 am

Kyle had the opportunity with his column last night to expose exactly where those earmarks were targeted for and the dollar amounts involved. But he stopped short by only talking about the number of earmarks with no comments about the dollar amounts.

Keep up the good fight!

December 16th, 2010
9:06 am

Well of course the wingnuts forget that there are spousal exemptions and exemptions for chartiable donations…And of course, much of the actual tax is based on unrealized gains in stocks, land and other investments that has NOT been taxed previously. But once again, we see arguments from the right that are devoid of facts and lost to reality…..

The lunacy of the right continues.

Finn McCool

December 16th, 2010
9:06 am

The death tax is probably the only time a Republican can discuss “wealth redistribution” without sounding totally ignorant.

The reason the estate tax was initially proposed was to keep wealth from being confined to a small number of families.

Keep up the good fight!

December 16th, 2010
9:08 am

Georgian…please provide a direct quote from the President and not some claim of quote from a questionable source…..

You fool yourself if you think promoting a compromise means that any person agrees with all of the concept in the compromise. I know these are hard distinctions for you but do try to keep up.

Finn McCool

December 16th, 2010
9:08 am

OH! So Obama “compromised” so even if the plan was crafted by him with Repubs his name can’t be linked with it because he “compromised”. Not so fast, my friend!

Fail.

Georgian

December 16th, 2010
9:09 am

Keep,

What was our founders reasons for declaring independence from Great Britian?

Finn McCool

December 16th, 2010
9:10 am

So, if the bill passes then all the other Senators agree with and promote the 300+ earmarks that some of those Senators have included in the bill? And, by extension, we can assume that since you voted Republican, you too agree with and promote those 300+ earmarks by those senators who aren’t from your state?

Keep up the good fight!

December 16th, 2010
9:11 am

Georgian….play your games elsewhere. Let’s deal with reality not your wild wingnuttery.

Senior Citizen Kane

December 16th, 2010
9:13 am

“And of course, much of the actual tax is based on unrealized gains in stocks, land and other investments that has NOT been taxed previously.”

Wrong. Those gains will be paid by the person inheriting the money when those gains are realized. Same as inheriting an IRA. That money can be placed into a “stretch IRA” that will be taxed as it is paid out. But the recipient must begin taking distributions immediately. That is separate from the inheritance tax. As usual, a liberal spreads false information.

B Cosby

December 16th, 2010
9:15 am

Keep,
So, for you to shut your whiny, I want mine, welfare, government subsidized housing, food stamp collecting, reparations now mouth, the people who have worked their whole lives just need to write your liberal kind a check, give you the keys to their house and fortune and that will be almost enough. Then when they die you can have what’s left. I think all of the working people should quit their jobs & stop paying taxes all together. Then who pays the bills, D.A.?

TnGelding

December 16th, 2010
9:16 am

Cynthia, THINK!

Leaving the estate to the rightful heirs would produce government revenue at all levels for all eternity. They’ll either spend it, invest it or save it. And the fact that the family has been so successful would indicate they are well educated and capable people with an entrepeneurial spirit. And besides, it just isn’t fair or American to punish success. Let’s end the class envy and become part of the investor and saving class ourselves.

Good Grief

December 16th, 2010
9:17 am

I love how a 1924-page, $1.1 trillion spending bill is thrown up before Congress, and CT istrying to teach us about the Estate Tax. Classic change of direction. Both she and the WaPo article sling out some pretty good ‘wealth envy.” ‘The rich have gotten richer…’ Those jerks, we should take their money away from them, they didn’t do anything to earn it, it was jsut given to them, so we should forcibly take it and give it to those that we deem deserve it.

Keep up the good fight!

December 16th, 2010
9:18 am

Kane…. Nice try but you forgot about the step up in tax basis. Of course, if you were correct, then you are accepting the concept of the estate tax and arguing for a lower rate and a timing issue.

Senior Citizen Kane

December 16th, 2010
9:20 am

Keep, the step-up in basis is paid as INCOME TAX when it is taken by the recipient.

Keep up the good fight!

December 16th, 2010
9:21 am

Cosby…a little meltdown today? Must be related to a few other posters here. Now hoof it over to your little corner for children.

TnGelding

December 16th, 2010
9:21 am

Just say no to the estate tax! We’re cutting off needed future revenue and economic activity for a one-time bonanza. In the grand scheme of things the amount raised now is miniscule.

emmysmom

December 16th, 2010
9:27 am

My family is getting what I have now while I can still decide who gets what I have worked hard for and already been taxed. The wasteful federal government has no right to anything I have earned myself and wish to give to others.

B Cosby

December 16th, 2010
9:28 am

Keep,
No melt down. Just facing the facts. Hoof, what the hell does that mean? Childrens corner, is that where you sat while waiting to see your dad in prison?

Nothing Is Free

December 16th, 2010
9:28 am

Every dime of that money has already been taxed.

This isn’t a tax. It is a government seizure of property.

STOP SPENDING MONEY YOU DON’T HAVE and then thinking of ways to rob people to pay bills that should have never occurred.

Georgian

December 16th, 2010
9:28 am

Finn,

Who is responsible for those add-ons to the orginal deal? DEMOCRATS. Because House Dems hated the bill, they started throwing in perks for themselves.

Georgian

December 16th, 2010
9:29 am

Keep,

Where are my games? Where is anything I said not reality. Please prove your allegations!

Independent J

December 16th, 2010
9:30 am

I love it …take take take!!! thats the Dems for ya…Hey Libs do you think the estate tax will line your pockets with money…do you think you will ever see it? Its not the govt’s money… and still they SPEND!!! taxing the republicans is what this all about…cuz ALL REPUBLICANS ARE RICH..lol!!!

Nothing Is Free

December 16th, 2010
9:31 am

Finn Not Cool

- -The reason the estate tax was initially proposed was to keep wealth from being confined to a small number of families.- -

That’s called redistribution. Didn’t work for Stalin and it won’t work here.

Good Grief

December 16th, 2010
9:32 am

I fall more on the conservative side, obviously. So let’s do some research into earmarks.

When a spending bill is established, the amount of money in the bill is set at a certain point in time. Then, Senators and Representatives can go through and tag certain portions of the already decided amount to be used for special projects in their home states and districts. This does not mean that more money was added to the bill.

But earmarks can cause the amount of spending to change. Our example here is the 2007 Water Resources Development Act. Both the House and the Senate passed their own versions of the bill, totaling $14B and $15B respectively. When trying to reconcile the difference in desired appropriations, a compromise was struck that sent the cost of the bill up to $23 billion, a $8 billion increase, all as a result of earmarked appropriations. President Bush vetoed the bill, but Congress overrode his veto. Bush cited the increase in funds as unnecessary to accomplish the desired goal of the bill.

So, yeah, earmarks can cause the value of a bill to go up, but it’s not as simple as saying Senator So-and-so added a $20 million earmark, so that means he added $20 million to the bill. That might not be the case.

Tychus Findlay

December 16th, 2010
9:33 am

The death tax is double jeopardy at its finest. Someone already paid the taxes on the money when it was earned/accrued, so for the Fed to steal another 35% upon transition of inheritance is akin to robbery.

granny godzilla

December 16th, 2010
9:33 am

bottom line….the gozillion billion trillion dollars I leave my girls will be income to them and as such should be taxed.

james

December 16th, 2010
9:34 am

the death tax- think about the term- the death tax. you die, we tax you. the death tax

the only folks who live for taxing folks when they die are bitter liberals, attorneys, and the ultra rich who plan around it anyway.

the death tax…..very nice

Georgian

December 16th, 2010
9:34 am

Nothing,

Thats the Big Government/Democrat way, spend our money, spend money they don’t have, and then say oh we can make it up by over taxing the wealthy because it is their duty to carry this nation. They don’t need it anyway. And while we’re at it, lets throw in a little something for the do-nothings out there put ourselves further in debt. And lets not forget those big auto companies with all those Unions. They give us support too. And who cares that the illegals are taking our assistance and don’t pay taxes! They support us too, we can handle going further into debt because we can just tax those “rich” Americans.

I just love a Democrats definition of “rich”!!!

Peadawg

December 16th, 2010
9:34 am

“the gozillion billion trillion dollars I leave my girls will be income to them and as such should be taxed.” – I didn’t know the gov’t taxed Monopoly money.

Nothing Is Free

December 16th, 2010
9:36 am

Keep Up

- -Cosby…a little meltdown today? Must be related to a few other posters here. Now hoof it over to your little corner for children.- -

Another day of temper tantrums from you? Pal, you need to grow up.

Do you have the ability to control those emotions? So far, no one has seen it. Why don’t you at least make an attempt today?