{ "id": "R41203", "type": "CRS Report", "typeId": "REPORTS", "number": "R41203", "active": false, "source": "EveryCRSReport.com, University of North Texas Libraries Government Documents Department", "versions": [ { "source": "EveryCRSReport.com", "id": 375630, "date": "2010-12-23", "retrieved": "2016-04-07T01:17:52.659828", "title": "Estate Tax Options", "summary": "The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16), among other tax cuts, provided for a gradual reduction and elimination of the estate tax. Under EGTRRA, the estate tax exemption rose from $675,000 in 2001 to $3.5 million in 2009, and the rate fell from 55% to 45%. In 2010, the estate tax was eliminated. The estate tax changes, however, were scheduled to sunset in 2011, when the exemption would have become $1 million (as scheduled in pre-EGTRRA law) and the tax rate would return to 55%. \nThere was general agreement that some sort of estate tax would be retained. A proposal to make the 2009 rules ($3.5 million exemption and 45% rate) permanent was included in President Obama\u2019s 2010 and 2011 budget outlines and was passed by the House in December 2009 (H.R. 4154). Senate Democratic leaders supported the plan to enact the 2009 rules permanently (and make them retroactive to 2010). The Senate Republican leadership proposed a $5 million exemption and 35% rate. This latter provision was adopted for a two-year period, through 2012. At that point the exemption will revert to the pre-EGTRRA law. For estates of decedents in 2010, either the 2010 or 2011 rules can be elected. Spouses can inherit unused exemptions.\nWith any of the exemption levels, few estates are affected by the tax. In 2011, the shares of estates taxed are projected by one study to be 1.76%, 0.25%, and 0.14% for the exemption levels of $1 million, $3.5 million, and $5 million, respectively. These numbers would grow to 3%, 0.46%, and 0.23% by 2019. The revenue yield in 2011 is projected to be $34.4 billion, $18.2 billion, and $11.4 billion for the $1 million exemption/55% rate, $3.5 million exemption/45% rate, and the $5 million exemption/35% rate. The estate tax accounts for a small share of revenue.\nThe estate tax is a highly progressive tax; it not only applies to the largest estates, but within the distribution of estates a large share is concentrated in the over $20 million estate level: 72% for the $5 million/35% rate. Because of exclusions, the effective tax rates are smaller than the statutory rate, with an average of 14% for the $5 million exemption/35% rate. When distributed with respect to income, 96% falls in the top quintile of the income distribution, 72% in the top 1%, and 42% in the top 0.1%, under the $3.5 million exemption/45% rate.\nAlthough concerns have been raised about the effects of the tax on small businesses and farmers, estimates indicate that the share of estate taxes paid by small business estates under the proposed revisions would be small (16% to 18%) and the share of estates of small business owners taxed is small (about 0.2% of decedents with at least 50% of their assets in businesses). Evidence suggests that the number of returns with inadequate liquid assets to pay the estate tax is negligible.\nOther effects are likely small. The effects on savings are uncertain but likely small relative to the economy because the tax is small. Moving to either the $3.5 million plan or the $5 million plan would be projected to decrease charitable contributions by a small amount: 1% to 2%. Recent evidence suggests that the costs of administration and compliance are around 7% of revenues. \nStructural reforms that might be considered are inheritance of spousal exemptions, and some reforms directed at abuses. A provision to restrict Grantor Retained Annuity Trusts (GRATS), which can be used to virtually eliminate estate tax by providing an annuity with a remainder, is contained in H.R. 4849. Other provisions in President Obama\u2019s budget outline include restricting discounts for estates left to family partnerships and conforming fair market value for purposes of the estate tax and future capital gains realizations for heirs.", "type": "CRS Report", "typeId": "REPORTS", "active": false, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R41203", "sha1": "e00976b0870bbba451b5f3b4231ce28fc637bb76", "filename": "files/20101223_R41203_e00976b0870bbba451b5f3b4231ce28fc637bb76.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R41203", "sha1": "9e89d0d31b63b30c55be76ace6cd8da735e28e13", "filename": "files/20101223_R41203_9e89d0d31b63b30c55be76ace6cd8da735e28e13.pdf", "images": null } ], "topics": [] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc822688/", "id": "R41203_2010Apr23", "date": "2010-04-23", "retrieved": "2016-03-19T13:57:26", "title": "Estate Tax Options", "summary": "After a brief description of the estate and gift tax and of options, this report compares the alternatives, focusing largely on a $1 million exemption and 55% rate, a $3.5 million exemption and a 45% rate, and a $5 million exemption and a 35% rate. Several policy effects and issues are analyzed: the share of decedents subject to tax, revenue effects, distributional effects, and effects on savings, charitable contributions, and compliance and administration. The report also considers other aspects of the proposals, such as whether the exemptions are indexed for inflation, a proposed inheritance of the exemption for spouses, and proposals to address perceived abuses.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20100423_R41203_67aa42c8cf89934713c6ddf0a5848cf59288dad5.pdf" }, { "format": "HTML", "filename": "files/20100423_R41203_67aa42c8cf89934713c6ddf0a5848cf59288dad5.html" } ], "topics": [ { "source": "LIV", "id": "Taxation", "name": "Taxation" }, { "source": "LIV", "id": "Estate tax", "name": "Estate tax" }, { "source": "LIV", "id": "Gift tax", "name": "Gift tax" } ] } ], "topics": [ "Economic Policy" ] }