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House Democrats have proposed an inheritance tax change that would require more households to pay each year.
But how many people actually pay the tax, and how might the proposal change that share?
The short answers: not many people are paying it now, and the share would not increase much.
“It’s a tiny fraction of those who die who pay inheritance tax,” said Beth Shapiro Kaufman, estate planner at the law firm Caplin & Drysdale.
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The inheritance tax, which is due on death, is a tax on the transfer of assets. Taxes are levied on accumulated property such as stocks and real estate valued at more than a certain level before it is passed on to heirs.
Lawmakers created the federal estate tax in 1916. Since then, Congress has changed things like the tax rate and the size of the estate to which the tax applies.
Currently, a 40% federal tax applies to estate values ââexceeding $ 11.7 million for singles and $ 23.4 million for married couples.
According to IRS data, 6,409 tax returns were filed in 2019. About 40% of them (2,570 returns) were taxable. They owed $ 13.2 billion in net property taxes.
The shares held by the public represented the largest part of the property held by taxable estates. It represented $ 23 billion, or 30%, of taxable estates.
Historically, between 1% and 2% of American adults who die each year owe inheritance taxes, Kaufman said.
But the share fell to around 0.2% per year from 2011 to 2016, according to the latest IRS available. The data. This is the lowest percentage on record, dating from 1934.
Democrats on the House Ways and Means Committee proposed and passed a plan to reduce the threshold for taxable assets to $ 5 million per individual, the same level as in 2010. (The measure is part of a $ 3.5 trillion budget plan that Democrats weigh.)
In the short term, the change would likely increase the taxable share to around 0.3% or 0.4% of deceased adults, Kaufman said.
While the House Democrats’ proposal does not significantly increase the share of people subject to inheritance tax, the policy would raise $ 52.3 billion over the next five years, according to one estimate. of the Joint Committee on Taxation, Congress’ non-partisan tax pointer. This is about four times more than tax revenue from 2019 returns.
The record share of estates owing tax each year is largely due to an increase in the threshold for taxable assets. This increase effectively reduces the number of estates that owe taxes.
For example, estates over $ 1 million were taxable in the early 2000s. In 2009, this threshold increased to $ 3.5 million, then to about $ 5 million for several years over the course of the decade. last decade. In 2017, Republicans passed a tax law that doubled the asset threshold to about its current level.
As a result, the number of inheritance tax returns filed each year decreased by nearly 60% from 2010 to 2019, according to to the IRS.
The asset threshold would be halved after 2025, even without Democrat action, due to a provision in Republican tax law.
Tax revenues from wealthy estates have also been low by historical standards in recent years.
The $ 13.2 billion in net estate tax for returns filed in 2019 was about 0.4% of federal tax Receipts in 2018 (i.e. the corresponding year of death).
By comparison, federal inheritance and gift tax revenues have typically hovered between 1% and 2% of federal budget revenues since World War II, with a few exceptions, according to one. Account of inheritance tax by IRS economists.
The income share peaked at post-war 2.6% in 1972. (There was a federal tax rate of 77% on estates from 1942 to 1976; estates over $ 60,000 were subject to tax, according to the IRS account.)
House Democrats may not be able to get more estate taxes to pay. President Joe Biden did not propose such a measure as part of his tax plan released earlier this year. Senate Democrats have yet to unveil their plan to raise taxes for wealthy Americans to help fund the $ 3.5 trillion budget measure.
Republicans in Congress have generally been loath to cut parts of their 2017 tax law.
“Advocates have often argued that these taxes are effective tools to prevent the concentration of wealth in the hands of a relatively small number of powerful families, while opponents believe that transfer taxes discourage the accumulation of capital, curbing national economic growth, “according to IRS economists.