Download Locations:
Summary:
Large increases in the prevailing estate tax exemption -- from $675,000 to $1.5 million -- led the number of taxable estate tax returns to fall by half between 2002 and 2005, from about 45,000 to about 22,000. Measured as a percent of deaths, taxable estates fell from 1.86% to 0.93%, or 9.3 per thousand deaths. Notwithstanding the steep decline in taxable returns, net estate tax receipts remained around $21 billion annually. Gift tax revenues fell by roughly half after the possibility of repeal of the estate tax in 2010 was introduced by the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Gift taxes accounted for 14% to 17% of combined estate and gift tax revenues from FY1999 through FY2001, but only 6% to 9% over the FY2002-FY2006 period. Gift tax revenues fell from $3.9 billion to $4.7 billion per year in FY1999-FY2001, down to $1.4 billion to $2 billion in FY2002-FY2006. The standard 10-year forecasts of either revenue from the estate tax or revenue losses from permanent repeal of the estate tax should be interpreted with caution. The forecasts should not be used to approximate revenues for a different 10-year period. This is because of the changes scheduled in the estate tax exemption and top tax rate over the next five years. The exemption is $2 million for decedents dying in 2007 and 2008 but $3.5 million for 2009. There is no estate tax in 2010. If EGTRRA is permitted to sunset at the end of 2010, the estate tax will be reinstated in 2011 with an exemption of $1 million and the top tax rate will revert from 45% to 55% (with a 5% surtax in a certain range). Net collections from estate and gift tax taxes totaled $28 billion in FY2006, contributing 1.2% of total federal revenue. The Congressional Budget Office (CBO) projects that revenue from these taxes will fall to $21 billion in FY2010 and $22 billion in FY2011, accounting for 0.7% of federal revenue in both years. CBO projects that, if the estate tax is reinstated in 2011 as currently scheduled, revenue from the estate and gift taxes would climb steadily by about $6 billion per year, from $50 billion in FY2012 , contributing 1.5% of total revenue, to $79 billion in FY2017, contributing 1.8% of total revenue. President Bush's budget for FY2008 has again proposed to make permanent most of the tax cuts enacted in 2001 and 2003. Although estate and gift taxes account for less than 2% of total federal revenue, the proposal to permanently repeal the estate tax after 2010 accounts for one-quarter of the projected cost of this set of proposals. Permanent estate tax repeal is estimated to cost slightly over half as much as the proposal to permanently reduce the marginal individual income tax rates. This report will be updated when new data concerning the estate tax become available. This report is a partial sequel to CRS Report RL32768, Estate and Gift Tax Revenues: Several Measurements, by Nonna A. Noto.
