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227 IRET Congressional Advisory 1 (2007)

handle is hein.taxfoundation/iretcgadv0224 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. September 27, 2007 Advisory No. 227 KILL THE DEATH TAX The Federal unified estate and gift tax (a.k.a. the Death Tax) The Federal government imposes a unified estate and gift tax on transfers of property by lifetime gift or at death, above certain exempt amounts. (See Chart 1.) The rates are graduated. Prior to the Economic Growth and Tax Reconciliation Act of 2001, the bottom marginal tax rates were offset by a credit (exempting the first $625,000 of an estate in 2001), but once the estate reached taxable levels, the tax rates started at 37%. The estate tax had a flat top rate of 55% on the largest estates. (The lower graduated tax rates on estates below $3 million were offset by a higher rate of 60% - i.e., 55% plus a 5% surtax - applied to estates between $10 million and $17.184 million). Beneficiaries were allowed a step-up in basis for future capital gains on inherited assets. That is, their acquisition price was assumed to be the market value of the assets at the death of the decedent (or at the time of receipt by the beneficiary), rather than the original purchase price of the decedent. This Chart 1 Marginal Tax Rate Schedule Of Federal Estate And Gift Tax Changes in Future Years Estate Tax Gift Tax Year Top Tax Lifetime Top Tax Lifetime Rate Amount Rate Amount Exempted Exempted by Credit by Credit 2001 60% 675,000 60% 675,000 2002 50% 1,000,000 50% 1,000,000 2003 49% 1,000,000 49% 1,000,000 2004 48% 1,500,000 48% 1,000,000 2005 47% 1,500,000 47% 1,000,000 2006 46% 2,000,000 46% 1,000,000 2007 45% 2,000,000 45% 1,000,000 2008 45% 2,000,000 45% 1,000,000 2009 45% 3,500,000 45% 1,000,000 2010 Estate Tax Repealedt 35%* 1,000,000 2011 Old Estate and Gift Tax Returns* Estate Tax Credit reduced by amt of Credit used against Gift Tax. *Gift tax only t Estate Tax repealed but bequests may be subject to capital gains tax. * 2001 Tax Act disappears at end of 2010, unless extended or made permanent. S I g6~ g Agg For 2001 If Taxable Estate/Gift is: The Marginal Over: But not over: Tax Rate is: $ 0 $10,000 18%* 10,000 20,000 20%' 20,000 40,000 22%* 40,000 60,000 24%' 60,000 80,000 26%* 80,000 100,000 28%' 100,000 150,000 30%* 150,000 250,000 32%' 250,000 500,000 34%* 500,000 750,000 37%' 750,000 1,000,000 39% 1,000,000 1,250,000 41% 1,250,000 1,500,000 43% 1,500,000 2,000000 45% 2,000,000 2,500,000 49% 2,500,000 3,000,000 53% 3,000,000 10,000,000 55% 10,000,000 17,184,000 60% Over 17,184,000 55% A Credit offsets the tax on the first $675,000 of lifetime transfers in 2001, effectively making the tax rate zero on transfers below $675,000.

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