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September 22, 2005
AN ESTATE TAX WITH A 15 PERCENT TAX RATE DOES NOT
REPRESENT A REASONABLE COMPROMISE
By Ruth Carlitz and Joel Friedman
Senate Finance Committee Chairman Charles Grassley recently indicated he believes a viable
compromise on the estate tax is within reach. Grassley said on September 7 that he expects a deal
that features an estate-tax exemption of between $4 million and $5 million and a top estate tax rate
of 15 percent. “I think we can get 60 votes to pass that,” he said. “But that's put off now because
of Katrina for a few weeks.”1
Such a proposal, however, would lose more than 80 percent as much revenue as would be lost if
the estate tax were repealed. As a result, it does not represent a middle ground that effectively
balances the desires of some policymakers for a smaller estate tax with concerns about substantially
enlarging mid-term and long-term deficits that already are projected to reach levels dangerous for
the economy.
In addition, proposals to sharply cut the top estate tax rate would provide benefits heavily skewed
toward the nation’s very wealthiest families but provide little or no additional gain for small family
businesses and farms. Only a tiny fraction of small businesses and farms face the estate tax at all.
Those that do are affected to a vastly greater degree by the level of the estate-tax exemption level
than by the top estate tax rate.
At Any Exemption Level, a 15 Percent Estate Tax Rate
Would Lead to Huge Revenue Losses
Under current law, by 2009, the first $3.5 million of an estate will be tax-free ($7 million will be
tax-free for an estate left by a couple), with the rest of an estate taxed at a 45 percent rate. In 2010,
the estate tax will disappear entirely. It is then scheduled to return in 2011, with a $1 million
exemption and a top rate of 55 percent.
An estate tax with the parameters slated to be in effect in 2011 is viewed as undesirable by many
in Congr