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1 Understanding Federal Estate and Gift Taxes 1 (June 9, 2021)

handle is hein.congrec/cboufde0001 and id is 1 raw text is: state and gift taxes are a linked set of federal taxes that apply to transfers of wealth. In 2021, estates face a 40 percent tax rate on their value above $11.7 million, although various deductions reduce the value subject to the tax. The same threshold and tax rate apply to gift taxes. In 2020, revenues from federal estate and gift taxes totaled $17.6 billion (equal to 0.1 percent of gross domestic product, or GDP). In recent years, changes to estate and gift tax laws have reduced the revenues raised by the taxes and the number of taxpayers who incur that liability. In this report, the Congressional Budget Office describes estate and gift taxes, the people who pay them, the types of assets that make up taxable estates, and the model the agency uses to project estate and gift tax revenues in its baseline. Here are the report's main findings: - Relatively few people pay estate and gift taxes. Of the 2.7 million people who died in 2016 (the most recent year for which complete data were available when this analysis was done), only about 5,500 had estates that were taxable. That is about 0.2 percent of all estates in that year. In 2018, about 2,000 taxpayers paid the gift tax. The estate tax also affects people who do not directly owe the tax, including heirs and people who engage in estate planning to avoid or lessen the tax. - The estate tax may act as a tax on saving by making it more expensive for people to leave money to their heirs. The empirical evidence on the effect of the estate tax on saving is inconclusive, though. - The composition of taxable estates has remained stable over the past decade even as the exemption amount has risen substantially. Financial and real estate assets have accounted for more than 80 percent of the value of taxable estates. - Wealth is concentrated in a small number of the largest estates. Estates valued at $50 million or more accounted for 6 percent of all taxable estates in 2018 and held 42 percent of assets reported by taxable estates in that year. To project estate and gift tax liability for a represen- tative sample of households under current law, CBO uses information from estate tax returns, the Survey of Consumer Finances, and its own economic and demo- graphic projections. What Are Estate and Gift Taxes? Estate and gift taxes are often considered together because they are subject to the same rate and share the lifetime exemption amount. However, one main dif- ference is that the estate tax applies to transfers of the decedent's property at death, whereas the gift tax applies to transfers made during his or her life.1 Over the past 40 years, estate and gift taxes have been changed many times; they are scheduled to change again in 2026 under current law. Estate Tax When people die, their assets become the property of their estate. Everything a decedent owned or had a financial interest in at the time of death-from stocks and buildings, for example, to jewelry and artwork-is 1. A related provision, the generation-skipping transfer tax, applies to certain transfers made directly to a recipient more than one generation younger than the donor. That provision is intended to limit the amount of estate and gift taxes that can be avoided. It is not examined in this report. Notes: Numbers in the text and table may not add up to totals because of rounding. In this report, revenues are reported on a fiscal year basis. (Federal fiscal years run from October 1 to September 30 and are designated by the calendar year in which they end.) All other years referred to in this report are calendar years.

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