Who Actually Pays the Estate TaxPosted by William on Aug 9, 2012 in Estate Planning, News | 0 comments
In an article in the Washington Post, entitled “No One Pays the Estate Tax”, the writer argues that very few people pay the estate tax every year. With the current debate about the estate tax rates returning to the 2001 levels he notes that 2.26% of the people who died in 1998 paid any estate tax. Further, he notes that the highest rate (55% in 1998) was only paid by 5,000 people. He concludes by saying “It’s simply not that big part of the tax code, and idea that ‘millions’ of families and small businesses would be affected by a return to the Clinton rates are just plain wrong” (Matthews).
However, what the author fails to realize is that merely breaking down the numbers of people who had to pay or who paid at the highest level does give an accurate picture of those “affected”. A far larger number are those people who created an estate plan with the intent of not being in the 55% bracket. They cannot control when they die, however any changes to the tax code facilitate changes to their estate plan. Certainly, many people would have to make some substantial changes to their estate plan if the 2001 rates came back into effect. The author does not address the costs that the estate tax places on these individuals who attempt to limit the amount tax due upon their death.
Millions of small business would have to address how they were going to pass the business on to future generations. Any estate tax paid on these businesses, eventually reduces the value of the business. The cost of compliance with the estate tax on business and ranches can be great. The author does not even mention these or give them any consideration.
He does not even address the fiscal impact of the estate tax. Because technically, any estate tax return must be audited, that increases the cost of collecting the estate tax. Even if the estate is not taxable, the IRS still must invest resources into verifying this fact. Because the estate tax is based on death — something human beings are unable to control — the amount of revenue is speculative at best. Further, there have been years where the estate tax does not generate revenue — because of the cost of audit returns for non-taxable estates and the battles over taxable estates which are not uncommon. With the highest rate at 55%, individuals will do more to try to avoid paying the tax — the author does not even contemplate if this is better use of resources.