What is the Estate Tax?
The federal estate tax is a tax on the transfer of assets at death. When someone dies, his or her assets (the person's estate) are distributed to heirs. The first $1.5 million ($3 million for couples) of an estate is exempt from the estate tax. This exemption level will gradually rise to $3.5 million ($7 million for a couple) by 2009. The rate at which the non-exempt portion of an estate is taxed is 45 - 48%.

Who Pays the Estate Tax?
In 2001, over half of all estate taxes were paid by 3,502 people with estates larger than $5 million — representing the top 0.14% of all Americans.

Current Situation
Before 2001 the exemption level for the estate tax was $650,000 for an individual ($1.3 million for a couple) and the tax rate was 55%. In 2001, Congress enacted legislation (The Economic Growth and Tax Relief Reconciliation Act of 2001) that gradually lowers the rates for estate taxes through the year 2010, when the estate tax will be repealed for one year after which the rates would revert back to present law in the year 2011. This year, the House passed a bill that would make the estate tax repeal permanent beginning in 2010.

The Senate had planned take up the House-passed bill (HR 8) in September.  However, the timing of the vote is uncertain because funding for Hurricane Katrina relief and nominees to the Supreme Court will be considered first. Estate tax repeal is still a priority for the Senate leadership. In order to consider the bill, the Senate first needs to adopt a motion to proceed to the bill. This "cloture" motion requires 60 votes.  Defeating cloture is a key step in blocking efforts to repeal the estate tax.

The Impact of the Estate Tax on the Federal Budget and Charitable Giving
It is estimated that repealing the estate tax would reduce federal revenue by $1 trillion over the next 20 years and remove a strong incentive for charitable bequests. A 2004 Congressional Budget Office study reported that eliminating the estate tax would result in an estimated 22% decline in charitable bequests. A report issued by the Brookings Institution indicates that a repeal of the estate tax would result in a total loss of about $10 billion in charitable giving each year.

In recent testimony before the Senate Banking, Housing and Urban Affairs Committee, Federal Reserve Chairman Alan Greenspan reiterated his opposition to tax-cut proposals that increase the deficit and made clear that this opposition applies to proposals that repeal or drastically reduce the estate tax without fully offsetting the costs.

Every time the Senate voted on this issue in the past, the federal budget was projected to be in surplus. Now we are facing large deficits, and Congress will vote this year on cuts to important programs, such as Arts in Education. The first ten years of repeal would cost nearly $1 trillion. Such costly changes to the estate tax would put even more pressure on the rest of the budget.

Recommendation
The American Arts Alliance supports reasonable reform of the estate tax and opposes permanent repeal.