Brief History of the Death Tax

The Death Tax has been imposed on American taxpayers five distinct times over the last 200 years.  The first three times it was repealed shortly after the conflict ended.

The First Three Death Taxes

A stamp tax was imposed on wills and estates in 1797, to help collect funds for the Undeclared War with France, and repealed in 1802.  In 1862, an inheritance tax with rates of 0.75% to 5% was imposed to collect funds for the Civil War, and was repealed in 1870.  In 1898 an estate tax with a top rate of 15% was imposed on all assets above $1 million to collect funds for the Spanish-American war, and was repealed in 1902.[1] 

The Fourth Death Tax

  The fourth Federal Estate Tax was imposed in 1916, to support the U.S. involvement in World War I.  That war ended over 90 years ago, yet the tax was only finally repealed on January 1, 2010.  Over the course of the last 94 years, the estate tax rate changed several times.  The initial top rate was 10 percent, and then increased to 25 percent, and ultimately climbed as high as 77 percent.[2]

In 1976 Congress enacted legislative changes designed to make it impossible for a person to transfer substantial assets without being taxed by either the estate tax, the gift tax, or the generation skipping tax.  The gift tax applies to any gifts above $12,000 in a year (and any gifts in a lifetime over $1 million) and the generation skipping tax applies to any gifts that “skip” the first generation (children) and go to grandchildren.  Together, these taxes prevent any large transfer of assets from escaping the IRS.

The 2001 Death Tax Repeal Law

In 2001, President Bush signed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA).  EGTRRA reduced the estate tax from 55 percent in 2001 to 45 percent in 2009 and repealed the estate tax on January 1, 2010.  However, due to complex Senate budget rules, the EGTRRA tax relief was not permanent.  In 2011, all of the EGTRRA tax relief “expired” and the applicable tax rates were set to return to their pre-tax relief rates.  Consequently, the death tax would have “come back to life” in 2011 at the rate of 55 percent.

The 2009 Death Tax Fight

Speaker of the House Nancy Pelosi, Senate Majority Leader Harry Reid, and their allies in Congress tried to stop the 2010 repeal.  They attempted to make the estate tax permanent at the rate of 45 percent – if not higher.   When that failed, they tried to temporarily extend the tax through 2010…without addressing the tax’s looming return to 55 percent in 2011.

AFBI exposed their strategy and shifted public opinion against it.  AFBI’s work created bipartisan opposition to a permanent, 45 percent estate tax.  We stopped the death tax from being included as a revenue-raiser in healthcare legislation, and we gathered dozens of allied organizations to tell Congress to keep the death tax repealed in 2010.  As a result, Congress did not extend the death tax past 2009, and as a result the tax was temporarily repealed in 2010. 

The 2011 Temporary Death Tax 

On December 17, 2010, President Obama signed H.R. 4853 into law, which temporarily prevents the tax from returning at the scheduled 2011 rate of 55 percent and exemption of $1 million.  It set the death tax at the rate of 35 percent with an exemption of $5 million.  However, this law will only last for two years and on January 1, 2013, the tax returns at the rate of 55 percent with a $1 million exemption.

See “The Current Fight” to learn what is happening right now in Washington.

Will you join the fight for repeal?  

           [1] “Cost and Consequences of the Federal Estate Tax,” Joint Economic Committee, May 2006, http://www.house.gov/jec/publications/109/05-01-06estatetax.pdf.

           [2] Gary Robbins, “Estate Taxes: An Historical Perspective,” Heritage Foundation, January 16, 2004, http://www.heritage.org/research/taxes/bg1719.cfm.