‘Death tax’ claim hits pay dirt
Ripping the sweeping tax reforms pushed by President Donald Trump and other leading Republicans, U.S. Rep. Mark Pocan (D-Madison) singled out the provision to eliminate the “death tax.”
In an Oct. 18 appearance on a talk show on Janesville’s WCLO radio, Pocan said:
They (Republicans) go about getting rid of the estate tax — which, to me, is the one that I wish more people would really understand. They’ve done a good job of marketing it as a “death tax” — you die and you get taxed. But the reality is, it’s a tax on the ultra-wealthy that the vast majority of people will never, ever, ever see in their life. Last year, two out of every 1,000 people paid an estate tax. So it’s not like a common tax that’s out there.
With the overall reform gaining momentum from a Senate vote the day after Pocan’s claim, and a House vote a week later, let’s see if his statistic is correct. Aimed at the rich?
There is debate about how the rich are treated by the reform proposal, which at this stage is considered only a framework, since it lacks details.
We’ve rated as Mostly False a claim by House Speaker Paul Ryan, a Janesville Republican who represents the congressional district that borders Pocan’s. Ryan said the framework, which he supports, is focused on tax breaks for the middle class “and not about people who are really high-income earners getting a tax break.” The framework does offer some benefits for the middle class, but what’s more clear is
there are specific provisions benefiting the wealthy.
As for what is conventionally known as the estate tax, the Trump administration uses the term “death tax” (as do Ryan and other Republicans) in promoting how the framework would repeal the tax.
Trump himself claimed ending the tax would “protect millions of small businesses and the American farmer.” But PolitiFact National’s rating was Pants on Fire: Only 5,460 estates even pay the tax each year, with only 80 being small businesses or farms. Pocan’s figure
The Internal Revenue Service tells us the estate tax “is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death” — including cash and securities, real estate, insurance, trusts, business interests and other assets.
In 2016, the year cited in Pocan’s claim, an unmarried individual’s estate was potentially taxable only if the estate’s value exceeded $5.45 million. (The value had to exceed $10.9 million to be taxable, if there was a surviving spouse.) After deductions, such estates generally are taxed at 40%.
IRS figures show there were 12,411 estate tax returns filed in 2016 — but a tax was owed on only 5,219 of them. That smaller figure aligns with what PolitiFact National found. And the non-profit Urban InstituteBrookings Institution Tax Policy Center makes a similar estimate for 2017: 5,460 estates owing a tax.)
In 2016, those 5,219 estates paid a total estate tax of $18.3 billion.
Since annual estate tax filings include deaths that occur in previous years, the Tax Policy Center says that each year, there are roughly 5,000 estates that pay the federal estate tax out of roughly 2.6 million deaths each year.
That comes to 2 of every 1,000. Point of view on the tax
While he doesn’t dispute the statistics, Chris Edwards, director of tax policy studies at the libertarian-leaning Cato Institute, told us there are other points to consider regarding the estate tax, saying:
The estate tax affects far more people than the relatively small number who pay. Many people who own businesses and/or investments have to spend a lot of time and money on lawyers/accountants planning to avoid it. A substantial portion of the life insurance industry exists only to PolitiFact on TODAY’S TMJ 4 You can watch PolitiFact Wisconsin segments on Wednesday and Friday evenings during the TODAY’S TMJ 4 Live at 6 newscast. avoid the estate tax. And, indeed, that is an important criticism: it is one of the most inefficient taxes in the sense that the ratio of paperwork/avoidance to tax collections is very high …
The estate tax is anti-saving and anti-investment. It encourages wealthy folks to consume their wealth before death because, if the rate is high, they don’t want the government to grab it. For the rest of us, it would be better if wealthy people kept their money invested in the economy, because that spurs growth. It’s better for us if the wealthy hold large pools of savings rather than going out and buying expensive cars and yachts. A high estate tax rate encourages them to go out and buy expensive cars and yachts, which does nothing for long term economic growth. Our rating
Pocan says that what Republicans call the “death tax” is the estate tax “on the ultra wealthy” which, in 2016, was paid by only “two out of every 1,000 people.”
Republicans who are proposing to eliminate the estate tax do use the “death tax” term. In 2016, the tax, generally 40%, applied only to estates worth $5.45 million or more. After deductions, the tax was paid by only about two out of every 1,000 people who died.
We rate the statement True.