Democrats: Keep Estate Tax Change Out Of Deal One line item in President Obama's compromise with Republicans over taxes is a proposal for the estate tax. Republicans have proposed a 35 percent rate for estate taxes rather than the 45 percent rate that Democrats have favored. Republicans also want to exempt more money from the estate tax, raising the number where the tax kicks in from $3.5 million to $5 million. A number of Democrats have indicated they will fight to keep that provision out of final legislation. NPR's Guy Raz talks with Joe Rosenberg of the Tax Policy Center about what the cost to the Treasury might be if the rate ends up where the Republicans want it.
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Democrats: Keep Estate Tax Change Out Of Deal

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Democrats: Keep Estate Tax Change Out Of Deal

Democrats: Keep Estate Tax Change Out Of Deal

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GUY RAZ, host:

One of the quieter parts of the tax deal is an agreement to phase in a new estate tax. This year, 2010, there was no estate tax because Congress allowed it to lapse. The tax was supposed to rise to a maximum rate of 55 percent next year. That will not happen.


As part of the new deal, for the next two years, any estate worth less than $5 million would not be taxed. Estates worth more than $5 million would be taxed at 35 percent.

RAZ: It's a compromise that's infuriated Democrats who call it a tax break for the rich. But it's delighted Republicans who claim the estate tax is a so-called death tax. Well, joining us now for more on how it will work is Joe Rosenberg from the Tax Policy Center here in Washington, D.C. Welcome.

Mr. JOE ROSENBERG (Tax Policy Center): Thanks for having me.

RAZ: Joe, give us a little context here. As we said, this deal, you know, sort of starts the estate tax at $5 million and a rate of 35 percent. How does that compare to previous years?

Mr. ROSENBERG: So, the history of the estate tax is a complicated one. As part of the original tax legislation in 2001, the estate tax was phased out. The last time we had estate tax was in 2009. The exemption level was $3.5 million at a 45 percent rate. As you mentioned, the estate tax - yeah, there's no estate tax this year, but if Congress were to do nothing, it would come back, as you said.

RAZ: How much do you estimate that these changes to the estate tax will cost the federal government in terms of revenues?

Mr. ROSENBERG: So we estimate that this tax deal will cost the federal government about $55 billion.

RAZ: A year?

Mr. ROSENBERG: No. Over the two years.

RAZ: Over the two years.

Mr. ROSENBERG: Over the two-year period, relative to if the estate tax was allowed to revert to its 2000 level. That is about $20 billion in less revenue than the estate tax that was originally proposed by President Obama.

RAZ: Obviously a significant amount of money, but not a huge part of the overall budget. So, I mean, so will this deal have any real impact on, you know, say, the deficit or the government's ability to spend money?

Mr. ROSENBERG: You are correct. I mean, that works out to be a percentage or two of total federal revenues. However, that is still a sizeable chunk of money and money that would need to be raised in some other way.

RAZ: So, Joe, if this deal goes through, the vast majority of estates in the country would not pay any tax over the next two years because presumably the vast majority of estates in America are not worth more than $5 million.

Mr. ROSENBERG: Right. The number of affected estates could be measured in the thousands.

RAZ: So, just a few thousand estates may pay any tax at all.


RAZ: And then it maxes out at 35 percent.

Mr. ROSENBERG: Correct.

RAZ: Joe, as you know, many congressional Democrats are upset over this compromise, but if it doesn't generate a particularly large part of the overall budget, what is the argument that Democrats are making?

Mr. ROSENBERG: Part of it may be symbolic in that this is a sort of fundamental difference in approach to tax policy. You're right that the estate tax is small in terms of revenue. However, it is born by a very small number of very wealthy individuals and does contribute significantly to the overall progressivity of the federal taxes.

RAZ: Joe Rosenberg, thank you.

Mr. ROSENBERG: Thank you.

RAZ: That's Joe Rosenberg. He's with the Tax Policy Center here in Washington, D.C.

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