Today, for the first time in ten years, the U.S. House of Representatives has voted to repeal the federal estate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. . The final vote on HR 1105 was 240-179, with 233 Republicans and 7 Democrats voting yea. The bill was introduced by Rep. Kevin Brady (R-TX) with original co-sponsors Rep. Sanford Bishop (D-GA) and Rep. Kristi Noem (R-SD), and grew to a co-sponsors list of 135.
This is good news. Our March 2015 report on the estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. shows that the United States has the fourth highest death tax in the world, and thirteen countries or jurisdictions have repealed their estate or inheritance taxAn inheritance tax is levied upon an individual’s estate at death or upon the assets transferred from the decedent’s estate to their heirs. Unlike estate taxes, inheritance tax exemptions apply to the size of the gift rather than the size of the estate. es since 2000. As the table below shows, our Taxes and Growth model projects that repealing the estate tax would grow the economy by 139,000 additional jobs and 0.08 additional percentage points of GDP in the decade after elimination. Repeal of the estate tax is slightly revenue positive because of the severe distortions in the economy that would be corrected.
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Table 1: The Effect of Estate Tax Elimination |
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Economic and Revenue Change Estimates for Estate Tax Elimination vs. Current Law Projection (Billions of 2015 Dollars) |
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Change in Level of GDP |
0.8% |
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GDP Change in Terms of Today’s Economy |
$137 |
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Change in Private Business GDP |
0.8% |
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Change in Private Business Stocks (Machines, Equipment, Structures, etc.) |
2.2% |
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Change in Wage Rate |
0.7% |
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Change in Private Business Hours of Work |
0.1% |
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Full-time Equivalent Jobs (in Thousands) |
139 |
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Annual Static Federal Revenue Estimate in Steady State |
-$20 |
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Annual Dynamic Federal Revenue Estimate after GDP Gain or Loss |
$8 |
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Source: Tax Foundation Taxes and Growth Model. |
It’s also worth mentioning that despite some of the rhetoric around the tax, it is a very small portion of federal revenue. In 2014, the tax brought in just 0.6 percent of the pie. These collections have been on the decline as well—though in 1990, the tax brought in just 1 percent of federal revenues.
It’s for these reasons and others that many notable figures left-of-center have increased calls to abolish the estate tax in recent years. For example, economist Joseph Stiglitz, who served on as chairman of the Council of Economic Advisors under President Clinton, argues that the estate tax increases inequality by driving up returns to capital and reducing savings.
While the bill is not a slam dunk (the Senate would need 60 yeas to be filibuster-proof, and the president has expressed he would not sign the bill into law), it’s good to see the conversation percolating.
More on the estate tax here.
Be sure to check out Tax Foundation data cited in USA Today in two op-eds published today here and here.
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