Estate Tax Myths and Facts

Myth: The Estate Tax is a "Death Tax."

Fact: 98% of Americans who die pass their estate on to their heirs completely tax-free In fact, they get a valuable tax break on capital gains. Zero estate tax is charged on assets left to a spouse or to  charity.

Myth: The wealthiest Americans are able to completely avoid paying estate taxes.

Fact: Wealthy Americans most definitely pay estate taxes. In 1998, out of 47,000 taxable estates, there were 374 that were larger than $20 million. Those 374 estates paid over $4.4 billion in estate taxes more than 20% of all estate taxes collected that year.

Myth: The Estate Tax must be repealed because it is forcing family businesses to close.

Fact: This issue has been wildly exaggerated. Only 3 of every 10,000 people who die leave a taxable estate in which a family business forms the majority of the estate. Family businesses can be protected by raising exemption levels. Repealing the entire Estate Tax is unnecessary.

Myth: The Estate Tax must be repealed because it is forcing family farms to sell out.

Fact: As with family businesses, this issue has been distorted. Only 3 of every 10,000 people who die leave a taxable estate in which a farm forms the majority of the estate. Like businesses, family farms can be protected by gradually raising exemption levels. Repealing the Estate Tax will likely encourage the growth of mega-farms, thereby hurting smaller operations.

Myth: The Estate Tax is unfair because it is "double taxation."

Fact: Unrealized capital gains, which form the majority of the value of the largest estates, have never  been subject to taxation as income. Repealing the Estate Tax means that these gains would never be taxed. Thatâ?™s unfair to those who pay capital gains taxes during their lifetimes.

Myth: The Estate Tax takes away over half the value of all estates.

Fact: For 98% of Americans, the Estate Tax takes away nothing, and it actually shields assets from capital gains taxes. For the other 2%, the average effective tax rate is 17%.

Myth: The Estate Tax discourages work and inhibits capital formation.

Fact: There is no hard empirical evidence that U.S. capital accumulation has been held back by the  Estate Tax. There is evidence, however, that large inheritances do reduce work effort and saving among recipients.