| Testimony Submitted
for the Record
Ryan Ellis
Tax Policy Director
Americans for Tax Reform
1920 L Street NW Ste 200
Washington, DC 20036
United States Senate
Committee on Finance
Washington, DC 20510
“Federal Estate Tax: Uncertainty in Planning Under Current
Law”
November 14, 2007
Chairman Baucus and Ranking Member Grassley:
Thank you for holding a hearing today on issues surrounding
the federal estate tax, or the “death tax.” Perhaps
no area of federal taxation cries out for greater certainty.
Certainly no area of the tax code causes so much economic
distortion and raises so little tax revenue.
History of the Issue
The last decade has witnessed continued efforts by Congress
to kill the death tax. On August 5, 1997, President Clinton
signed H.R. 2014, the “Revenue Reconciliation Act of
1997.” This bill raised the death tax exemption from
$600,000 to $1,000,000 by 2006 ($1.3 million in the case of
certain family-owned businesses).
On August 5, 1999, Congress passed H.R. 2488, the “Taxpayer
Refund Act of 1999,” which would have fully-repealed
the death tax (as well as the gift tax and the generation-skipping
transfer tax) by 2008. This bill was vetoed by President Clinton.
On July 14, 2000, Congress passed H.R. 8, the “Death
Tax Elimination Act of 2000.” This bill would have fully-repealed
the death tax (as well as the gift tax and the generation-skipping
transfer tax) by 2009. This bill was vetoed by President Clinton.
On June 7, 2001, President Bush signed H.R. 1836, the “Economic
Growth and Tax Relief Reconciliation Act of 2001” (EGTRRA).
This bill slowly-reduced the top death tax rate and increased
the exclusion amount according to the following schedule:
| |
Top Death Tax Rate |
Death Tax Exclusion Amt |
| 2001 |
55% |
$675,000 |
| 2002 |
50% |
$1,000,000 |
| 2003 |
49% |
$1,000,000 |
| 2004 |
48% |
$1,500,000 |
| 2005 |
47% |
$1,500,000 |
| 2006 |
46% |
$2,000,000 |
| 2007 |
45% |
$2,000,000 |
| 2008 |
45% |
$2,000,000 |
| 2009 |
45% |
$3,500,000 |
| 2010 |
0% |
N/A |
Due to the rules of the Congressional Budget Act, the tax
relief of EGTRRA expires beginning in 2011. At that time,
the death tax rate reverts back to 55%, and the exemption
level would revert to $1,000,000 (since the schedule of the
Revenue Reconciliation Act would then be the controlling law.
Since the passage of EGTRRA, the United States Senate has
attempted several times to make the death tax repeal permanent,
a position that death tax proponents have chosen to delay
via points of order and filibusters.
In June of 2002, the Senate considered and voted on amendments
related to H.R. 8, the “Death Tax Elimination Act.”
While neither cloture nor final passage was voted upon, the
lengthy consideration demonstrated the support present in
the Senate for it.
On August 3, 2006, the U.S. Senate failed to invoke cloture
on H.R. 5970, the “Estate Tax and Extension of Tax Relief
Act of 2006.” Nonetheless, 56 Senators expressed support
for significant reductions in the death tax.
Revenue Impact
The Joint Committee on Taxation (JCT) has consistently scored
death tax repeal as a massive revenue-loser.
On May 26, 2001, the JCT scored the death tax provisions
of EGTRRA as costing $138 billion over the 2001-2010 period.
On July 28, 2006, the JCT scored the death tax provisions
of H.R. 5970, the “Estate Tax and Extension of Tax Relief
Act of 2006” as costing $268 billion over the 2007-2016
period.
However, it seems clear that there is, in fact, a great deal
of gamesmanship by wealthy families to avoid paying the death
tax. According to the Congressional Budget Office, tax revenue
from estate and gift taxes have averaged only 0.3% of GDP
from 1962-2006, a period where federal revenues averaged 18.2%
of GDP. In other words, tax revenue from the estate and gift
tax accounted for less than 2 cents out of every federal tax
dollar.
Additionally, revenues from the estate tax have remained
relatively stable this decade, despite a ten-point reduction
in the rate and a tripling of the exemption amount:
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