New Data Shows Only a Handful of Pennsylvania Families Would Benefit From Repeal of the Estate Tax

Estate Tax Repeal Would Drain $1 Trillion From Federal Treasury

HARRISBURG, Pa., June 8 /PRNewswire/ -- New data just released by the Internal Revenue Service show that very few Pennsylvanians would benefit if the federal estate tax is repealed. Ninety-nine out of 100 Pennsylvania estates worth over $1 million paid no federal estate tax in 2004, according to data released on June. While there were 129,749 deaths in Pennsylvania in 2003, only 1,218 estates paid any federal estate tax at all in 2004.

The U. S. Senate is scheduled to vote this week on bills that would repeal or reform the estate tax beginning in 2010. The cost of repeal nationally is estimated at $1 trillion between 2010 and 2021. If this cost translated to reduced federal revenues to the states based on their population, Pennsylvania would lose approximately $42 billion. This would be about $3.5 billion less per year for Pennsylvania's health care, education, environmental protection, and other services.

"This data confirms that repealing the federal estate tax and draining nearly $1 trillion from the federal treasury will benefit very few Pennsylvanians," said Sharon Ward, Director of the Pennsylvania Budget and Policy Center. "The tax being eliminated is paid by people inheriting a family yacht not a family farm."

The new data shows the impact of the estate tax under 2003 exemption rate of $3 million per couple. In 2006, the standard exemption increases to $4 million per couple. The percentage of Pennsylvania estates paying the tax has declined from 1.9% in 2000 to 0.9% in 2004. It is expected that, nationwide only 0.5% of all estates will pay the tax next year.

Estate tax proponents have argued that the tax is unfair to small businesses, forces family farms out of existence and represents "double taxation." The facts suggest otherwise.

-- According to a 2005 report by the Congressional Budget Office study,
if 2006 exemption rates had been in effect in 2000, only 123 farms
and 135 small businesses, nationwide, would owe any estate tax at
all.

-- Since 2001, estate tax proponents have not been able to identify one
family farm that has been sold to pay estate taxes.

-- The value of most estates has never been taxed. A 2000 study by the
Brookings Institution suggests that 56% of estate value has never
been taxed. A study by Pittsburgh-based CONSAD Research Group --
consulting for the American Family Business Institute -- estimated
that 70% of the value of estates is unrealized capital gain.
Accountants in the field believed it could be as high as 90%.

"I have a problem with people who use family farmers like me to try to scare people into supporting this harmful proposal," said Donna Hall, a dairy farmer from Williamsport in Lycoming County. "The few individually owned farms that may be subject to the tax are often owned by wealthy individuals who have horse farms or getaway 'farms' that are hardly their main means of support. We are more threatened by big corporate-owned farming operations which are not subject to the estate tax," she continued.

The estate tax debate comes at a time when average Pennsylvanians are feeling the pinch from increased gasoline costs to commute to work, growing insecurities related to skyrocketing health care costs, and when there is a growing distance between middle class and upper class incomes. A recent report from the Federal Reserve Bank shows that the richest 1% of Americans, those who would benefit most from estate tax repeal, own 33% of the wealth nationwide, more than the poorest 90% Americans put together.

An emerging concern is the expected effect on charitable giving. The estate tax is a strong incentive for wealthy individuals to create foundations and make substantial donations to churches, arts and culture and community- based foundations and non-profits. Research from the Urban Institute suggests that repeal of the estate tax would reduce charitable bequests between 22% and 37% annually, a loss of $3.6 to $6 billion each year.

"The estate tax has long served as an incentive for wealthy Americans to generously give to a variety of community charities and interests, assuring a tax benefit for the donor while positively contributing to the strength and well-being of society overall," said David Ross, Public Policy Officer for the Pennsylvania Association of Nonprofit Organizations.

The bulk of the benefits will fall upon a handful of the country's most wealthy families. A recent study by Public Citizen highlighted the extensive, and hidden, lobbying activities to eliminate the estate tax of 18 of the country's billionaire families (http://www.faireconomy.org/).

"It should come as no surprise that one of the biggest winners in the estate tax repeal effort would be the Walton (Wal-Mart) Family," said Ward. "They shift their health care costs onto taxpayers, then look to avoid paying tax themselves."

A compromise proposal authored by Oklahoma Senator John Kyl is equally detrimental. The proposal would reduce the top rate on estates of over $5 million to 15%, less than the 28% income tax rate that many Pennsylvanians pay on part of their earnings. Its sponsor argues it is the same as a repeal, and its price tag would be 84% of the cost of full repeal.

"This compromise would also undercut the nation and state's ability to invest in education, roads, and other foundation investments in a strong economy," said Ward. "It will saddle our children and grandchildren with exploding deficits and inadequate resources to pay for our most basic services."