Saige's excellent writeup raises some interesting points. The amount of an individual's estate
that may be exempted from estate taxes
is actually $675,000 for 2000
, and this number is currently slated to increase each year until it reaches $1 million
. This figure may be reduced if you make any taxable lifetime gifts
(generally, any amont more than $10,000 given to one individual in any one year).
According to data from the Congressional Budget Office (CBO), it's estimated that estate taxes will account for 1.54% of the federal government's revenue in 2000. Fewer than 2% of estates will have any estate-tax liability--this amounted to about 100,000 estate-tax returns in 1998.
Proponents of the estate tax say that it encourages charitable giving, as wealthy individuals may give away a great deal to lower the total value of their taxable estate before they die. It's also considered to be a very progressive tax, falling on the shoulders of those that can afford it most.
However, the Republican position is much more complex, in my opinion, than Saige believes. First, $675,000 is frankly not a lot of money if you operate a business or farm, where the value of land, buildings, and equipment may more than reach this sum. For these people, charitable giving will not really address the issue, and the idea of selling the family farm is not an appealing one. Estate planners may recommend that owners of such businesses obtain life insurance in order to pay any eventual tax, but the extra cost may be a burden for some families. And the fact that the tax only falls on a few families is of no comfort to those who are, as Saige says, right on the edge.
Second, estabilishing an estate plan that involves complex trusts and charitable arrangements (such as a charitable remainder trust) is difficult and expensive. Maintaining a trust often entails ongoing costs for the grantor of the trust.
Third, estate taxes reduce the ability of individuals to pass what they've earned on to their heirs. The principle of inheritance is well rooted in our culture and should not be hampered by the actions of the government.
Finally, and on a more philosophical level, taxing an estate at death is a form of double taxation--the government already had an opportunity to tax assets as they were earned, and taxation at death gives them a second bite at the apple.
The question of whether repealing the estate tax will reduce charitable giving is an interesting one. I don't believe this would be the case, as Americans have proven themselves to be very generous. But to address this question, George W. Bush has proposed that all taxpayers, regardless of whether they itemize their income-tax deductions, should be allowed to deduct charitable gifts. Bush has also pledged to repeal the estate tax by 2009. In contrast, Al Gore has proposed that small farms and family businesses should get tax relief by raising the exemption threshold to $6 million per individual.
My feeling, if I may be so bold, is that it should be repealed, largely on the philosophical grounds discussed above. In any event, it represents a small fraction of the government's overall revenue, so it will not be an extravagant tax-cut measure.