August 2, 2006
NEW HOUSE ESTATE TAX PLAN FEATURES SAME
LOW EFFECTIVE TAX RATES AS EARLIER VERSION
Proposal’s Benefits Would Go Primarily to Largest Estates
By Aviva Aron-Dine and Joel Friedman
Just five weeks after approving drastic reductions to the estate tax, the House of Representatives
has passed another piece of legislation that would make essentially the same changes (H.R. 5970).
New data from the Urban Institute-Brookings Institution Tax Policy Center confirm that the new
proposal reflects no significant change in policy. The data show that the new plan still would lower
effective estate tax rates to low levels, yielding very large revenue losses. The data also show that the
cost of the proposal would go primarily toward tax breaks for the wealthiest estates.
• TPC estimates that, once the House proposal was fully in effect, the fraction of an estate that
would actually be paid in taxes — known as the effective tax rate — would average just 8.5
percent. 1 This is less than one-third the top estate tax rate, which the House plan would set at
30 percent. It is only slightly more than half the capital gains rate, to which the bottom estate
tax rate would be tied, and it is well below the income and payroll tax rates that workers
typically face. (The effective tax rate
would be much lower than the top estate
tax rate partially because, once the
proposal was fully in effect, the first $10
million of a couple’s estate would be
entirely exempt from tax.)
• The House proposal would raise the
exemption level and lower the estate tax
rate beyond the levels they would already
reach under current law in 2009. The
benefits of these costly additional
reductions would go entirely to the 3 in
1,000 estates that would owe any tax if
2009 estate tax law were made permanent.
• Even within this small group of wealthy
estates, the distribution of the benefits of
1 As discussed below, this assumes that the current capital