Revised October 11, 2007
THE ESTATE TAX: MYTHS AND REALITIES
The estate tax has been an important source of federal revenue for nearly a century. It also
encourages billions of dollars in charitable donations each year (http://www.cbpp.org/6-7-
06tax.htm), since donations substantially reduce the tax on large estates. Despite these benefits, a
number of misconceptions continue to surround the tax.
Myth 1: Repealing the estate tax wouldn’t significantly worsen the deficit because the tax
doesn’t raise much revenue.
Reality: Repealing the estate tax would add trillions of dollars to future deficits.
Permanent repeal of the estate tax would cost more than $1 trillion over the first ten
years in which its cost would be fully felt, 2012-2021. This cost includes $859 billion
in lost revenue and $251 billion in increased interest payments on the national debt.
(The official ten-year cost estimate is much lower: $499 billion. But that estimate is
misleading because it covers an earlier ten-year period, 2008-2017, that captures the
full cost of only six years of extending repeal.) (http://www.cbpp.org/6-5-06tax.htm)
Given the current fiscal situation — and, more importantly, the looming budgetary
challenges posed by the baby boomers’ retirement — it would be extremely unwise for
the federal government to forgo such large revenues.
Myth 2: The estate tax forces estates to turn over half of their assets to the government.
Reality: The few estates that pay any estate tax at all generally pay less than 20
percent of the value of their estate in taxes.
Today, more than 99 percent of estates pay no estate tax at all. Among the few estates
that do owe taxes, the "effective" tax rate — that is, the percentage of the estate that is
paid in taxes — averaged about 20 percent in 2005 (the latest year for which IRS data
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