Elizabeth Brown: More on Estate Tax

Elizabeth Brown, of the University of St. Thomas Law School, continues the thread on the estate tax with these additional thoughts:

"It is important to keep in mind just how few people in the US are subject to the estate tax. For returns filed in 2003 (when the tax exemption was $1 million), only 3% of the estates of all decedents had to file a tax return and only 1.5% of the estates of all decedents owed any estate tax.

The estate tax is one of the most progressive taxes used by government. According to a report done by the Tax Policy Center, which is a joint venture by the Urban Institute and the Brookings Institution, almost 99% of the estate tax falls on the top 5% of estates subject to the estate tax and over 33% is paid by the richest 0.1%.

Greg in his posts defending estate tax repeal has repeatedly talked about its effects on small family businesses and family farms. He has never quantified these costs either in terms of estate planning costs to minimize the estate tax burden, the amount of the assets that estates containing small businesses had to sell to pay the tax, or the number of small businesses or farms that were sold or ceased to exist because of the estate tax. Instead, he has cited conversations with small business owners to support his position that small businesses and family farmers are harmed by the estate tax. It is unclear that these conversations consitute a representative sampling of a majority of small business owners and family farmers and their concerns. In a poll conducted by Penn, Schoen & Berland Associates, Inc. in 2005, 56% of those polled who owned a business or farm opposed repeal or reform of the estate tax while only 36% favored repeal or reform.

As previously noted on MoJ, the number of businesses and farms affected by the estate tax is very small. In 2004 (when the tax exemption had increased to $1.5 million), it was estimated that 19,000 estate tax returns would owe any estate tax. Only 440 of those returns, or about 2% of all taxable estates, were primarily made up of farm and business assets. Those 440 returns included estates with large family businesses and farms. Those 440 estates accounted for only 6% of all estate tax liabilities.

In 2004, estates containing small farms and businesses (defined as those valued less than $5 million), however, made up only 0.5% of estate tax liabilities, or roughly $8.8 million. The total revenue from the estate tax in 2004 was estimated to be $17.6 billion.

I do not see how Catholic Social Thought can support repealing the estate tax and having the federal government give up as much as $17.6 billion in revenues annually so that a handful of small businesses and farms can avoid paying $8.8 million when there has been no verifiable evidence presented that a majority of these small businesses or farms have been harmed in any significant way from having to pay this tax.

Finally, taxation and charitable fundraising have a lot in common, even though taxation relies on compulsory payments and charitable fundraising relies on discretionary payments. Both are based on the idea that a little money taken from a wide range of sources can be pooled to achieve a worthwhile objective. So for example, suppose that 1000 people participate in an bike fundraiser to get $1,000,000 for Alzheimers research. Each rider raises $1,000 by getting pledges of $100 from each of their friends and family. The $100 donations have a minimal impact on each of the 10,000 donors. The $1,000,000, however, has a significant benefit for the Alzheimers researcher.

Similarly, the estate tax takes a portion out of the income and assets of about 19,000 estates annually (which represent roughly the wealthiest 1.5% of all estates). It has some impact on these estates, but in certainly the overwhelming number of cases, it does not have a significant negative impact on the estates. By negative impact, I am referring to the sale of a family farm or business, which have been the subject of so much discussion on MoJ. The $17.6 billion, however, was significant for the US federal government. It reprensented 90% of the total U.S. government's spending on official development assistance (ODA) in 2004. ODA is the primary way that the U.S. government provides disaster relief as well as long-term development assistance throughout the world. ODA is clearly supported by CST as it directly addresses CST's preferential option for the poor."