Death Tax Fact Center

The Fact Center is your one-stop shop for responding to common estate tax myths.  See the list below for fact-based answers to the common inaccuracies.

• Federal Revenue Myth
• Charitable Contributions Myth
• Income Inequality Myth
• Small Business Impact Myth

Federal Revenue Myth

MYTH: The estate tax provides substantial federal revenue and repealing it would result in a larger deficit.  

TRUTH: The estate tax provides very little revenue and repeal would probably increase total tax revenues, shrinking the deficit.

The estate tax historically provides roughly one percent of the federal budget.  Further, research shows that the meager revenue it does provide (24.8 billion in 2008, the last year for which IRS data is available)if offset by the impact it has on the economy and tax revenues from other sources.  When you consider the full economic effect of the death tax and its impact on the income, payroll and capital gains taxes, a former U.S. Treasury economist projects that repeal would increase net revenues by $23.3 billion. ¹

Federal Revenue One-Page Brief

back to top

Charitable Contributions Myth

MYTH: Estate tax Repeal would reduce charitable contributions, due to the charitable exemption loophole.

TRUTH: Repeal of the estate tax would have no negative impact on giving, and would likely increase total charitable giving.

This myth is based on the simplistic assumption that tax avoidance is the only motivation for charitable giving, while ignoring the non-material motivations for philanthropy.  Studies have found that the spiritual-moral-altruistic motivations for giving are the most significant factor in giving.  In fact, a Boston College survey of donors found that wealthy Americans would give 10% more to charity, on average, absent the estate tax.²   

Charitable Giving One-Page Brief

back to top

Income Inequality Myth

MYTH: The estate tax prevents “income inequality” by confiscating the life-earnings of the “rich” and redistributing to the “poor.”

TRUTH: Income is highly mobile in America and the estate tax is more likely to prevent the poor from moving up the economic ladder than it is to break up any “monopoly” of wealth. 

This myth is the result of a failure to distinguish between economic unfairness and economic mobility.  Wealth in America is highly fluid.  People who are poor and middle-income are constantly moving up, while the rich rarely stay at the top for long.   A recent Treasury Department study found that over the last 10 years, over half of the lowest income earners have moved up into a higher income bracket.³    Inheritances, according to a Clinton administration economist, are a major source of economic mobility and help reduce inequality.⁴

Economic Inequality One-Page Brief

back to top

Small Business Impact Myth

MYTH: Small businesses are not impacted by the estate tax.

TRUTH: Thousands of small businesses are impacted by the estate tax.

This myth rests upon a straw man definition of “small business.”  Some pundits define “small business” as an organization with less than $5 million in total assets.  As defined, most small businesses are able to avoid the death tax with the 2009 estate tax exemption of $3.5 million ($7 per couple), which was the law in 2009.  Yet this definition has no basis in reality.  In fact, the Small Business Administration defines “small business” to be as large as $175 million in gross assets and 1,500 employees (the average small business is 500 employees).⁵   

For many of these small businesses, the death tax is a very real threat that ties up capital, prevents growth and hiring, and often results in the sale of assets at death.

Small Business One-Page Brief

back to top

1 Stephen Entin “Economic Impact of the Estate Tax: Effects of Various Possible Reform Options,” (Washington, D.C: American Family Business Foundation, 2009), 4.

² Paul G. Schervish and John J. Havens. “Extended Report of the Wealth with Responsibility Study.” Social Welfare Research Institute. Boston College (March 2001). 27.

³ “Income Mobility in the U.S. from 1996 to 2005,” Department of the Treasury, November 13, 2007, http://www.treas.gov/offices/tax-policy/library/incomemobilitystudy03-08revise.pdf.

⁴ Joseph E. Stiglitz, “Equality, Taxation and Inheritance,” in Personal Income Distribution: Proceedings of a Conference Held by the International Economic Association, Noordwijk aan Zee, Netherlands, April 18.

 ⁵ Table of Small Business Size Standards, U.S. Small Business Administration, November, 2010, http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf.