10 MOST COMMON MYTHS ABOUT THE ESTATE TAX
Myth 1: The estate tax is best characterized as the “death tax.”
Reality: Everybody dies, but only the richest 2 in 1,000 estates pay any estate tax.
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 generally pay less than one-sixth of the value of the estate in tax.
Myth 3: Weakening the estate tax wouldn’t significantly worsen the deficit because the tax doesn’t raise much revenue.
Reality: Extending the temporary estate tax cut enacted in 2010 rather than restoring the 2009 rules would add billions of dollars to deficits.
Myth 4: The cost of complying with the estate tax nearly equals the amount of revenue the tax raises.
Reality: The costs of estate tax compliance are relatively modest and are consistent with the costs of complying with other taxes.
Myth 5: Many small, family-owned farms and businesses must be liquidated to pay estate taxes.
Reality: Only a handful of small, family-owned farms and businesses owe any estate tax at all, and virtually none would have to be liquidated to pay the tax.
Myth 6: The estate tax constitutes “double taxation” because it applies to assets that already have been taxed once as income.
Reality: Large estates consist to a large degree of “unrealized” capital gains that have never been taxed; the estate tax is the only means of taxing this income.
Myth 7: If policymakers decide to retain the estate tax, the logical top rate would be 15 percent, the same as the capital gains rate.
Reality: To match the effective tax rate on capital gains, the top estate tax rate would need to be about 45 percent.
Myth 8: Eliminating the estate tax would encourage people to save and thereby make more capital available for investment.
Reality: Eliminating the estate tax would not substantially affect private saving, and it would greatly increase government dissaving (i.e., deficits); as a result, it would more likely reduce the capital available for investment than increase it.
Myth 9: The estate tax unfairly punishes success.
Reality: The estate tax affects only those most able to pay, and the funds it raises help support a range of programs that benefit the nation.
Myth 10: The United States taxes estates more heavily than do other countries.
Reality: Measured as a share of the economy, U.S. estate tax revenues are below the international average for taxes on wealth.