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Democrats in the House of Representatives proposed to change the estate tax, which will result in more families having to pay each year.
But how many people actually paid the tax, and how will the proposal change this ratio?
The short answer: Few people pay now, and the share will not increase too much.
Beth Shapiro Kaufman, estate planner at Caplin & Drysdale law firm, said: “The deceased who pay any estate tax are only a small part.”
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Inheritance tax is owed at the time of death and is a tax on the transfer of wealth. Before being passed on to the heirs, taxes are levied on accumulated property such as stocks and real estate with a value exceeding a certain level.
Legislators instituted a federal estate tax in 1916. Since then, Congress has changed factors such as tax rates and the size of the estate for which taxes are applied.
Currently, 40% of the federal tax applies to singles worth more than $11.7 million and married couples worth more than $23.4 million.
According to data from the US Internal Revenue Service, there were 6,409 inheritance tax returns in 2019. About 40% (2,570 returns) are taxable. They owed $13.2 billion in net inheritance taxes.
Publicly held shares account for the largest portion of the property held by the taxable estate. It represents 23 billion US dollars, which is 30% of the taxable estate.
Kaufman said that historically, 1% to 2% of American adults who die each year owe inheritance taxes.
However, according to the recently released IRS data, from 2011 to 2016, this proportion decreased by about 0.2% every year dataThis is the lowest percentage on record, dating back to 1934.
Democrats on the House Ways and Means Committee proposed and passed a plan to reduce the taxable assets threshold for each person to $5 million, the same level as in 2010. (The measure is part of the $3.5 trillion budget plan that the Democratic Party is weighing.)
Kaufman said that in the short term, this change could increase the taxable share of deceased adults to about 0.3% or 0.4%.
According to the estimates of the Joint Committee on Taxation of Non-Party Tax Scorers in Congress, although the House Democrats’ proposal will not significantly increase the number of people levying inheritance taxes, the policy will raise $52.3 billion in the next five years. This is approximately four times the tax revenue in 2019.
The share of inheritance tax owed every year hits a record low, mainly due to the increase in the threshold of taxable assets. This increase has effectively reduced the number of inheritances that owe taxes.
For example, in the early 2000s, estates of more than $1 million were taxable. By 2009, this threshold jumped to 3.5 million U.S. dollars, and then jumped to approximately 5 million U.S. dollars in the past ten years. In 2017, Republicans passed a tax law that doubled the asset threshold to the current level.
As a result, from 2010 to 2019, the number of estate tax declarations filed each year has been reduced by nearly 60%. according to To the Internal Revenue Service.
Due to the provisions of the Republican tax law, even if the Democrats do not take action, the asset threshold will be roughly halved after 2025.
In recent years, the tax revenue of wealthy estates has also been very low by historical standards.
The $13.2 billion net inheritance tax filed in 2019 represents approximately 0.4% of federal taxes Receipt 2018 (the corresponding year of death).
In contrast, according to historical data, since World War II, federal estate tax and gift tax revenues have generally hovered between 1% and 2% of federal budget revenue, with a few exceptions. account The views of the IRS economists on inheritance tax.
The income share reached a post-war high of 2.6% in 1972. (From 1942 to 1976, the federal estate tax rate was as high as 77%; according to the IRS account, estates over $60,000 were taxed.)
Democrats in the House of Representatives may not be able to successfully include more inheritances in taxes. President Joe Biden did not propose such a measure in the tax plan released earlier this year. The Democrats in the Senate have yet to announce their plan to impose higher taxes on wealthy Americans to help fund the $3.5 trillion budget measure.
Republicans in Congress are generally unwilling to reduce any part of the 2017 tax law.
“Proponents often argue that these taxes are an effective tool to prevent wealth from being concentrated in the hands of a relatively small number of powerful families, while opponents believe that transfer taxes will hinder capital accumulation and inhibit national economic growth,” said an economist at the U.S. Internal Revenue Service. .