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Argument: Exemptions, credits, deductions lower effective estate tax rate

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Center on Budget and Policy Priorities 3/16/05: "The following example illustrates how exemptions and deductions lower marginal rates. Consider an estate tax with a $2 million exemption and a top rate of 45 percent in 2011, as shown in Table 5. Now, consider the case of a $7 million taxable estate. First, the exemption amount is subtracted from the value of the gross estate, which reduces the taxable estate to $5 million. Next, estates are permitted to deduct any estate taxes paid at the state level; for a $7 million estate, state taxes would typically amount to about $635,000. Further, such large estates generally leave a portion to charity. The average charitable contribution for estates of this size, plus other smaller deductions and credits, are estimated to total about $1.1 million in 2011. All of these deductions together reduce the taxable estate to $3.3 million. Applying the 45 percent rate to this amount yields a tax liability of $1.5 million. The effective tax rate is thus 21 percent ($1.5 million divided by $7 million), or less than half the 45 percent top rate."


NYTimes Editorial "Long Live the Estate Tax" 4/15/05: "Another popular argument against the estate tax - that the rate is so high the government is basically confiscating your property - is also a sham. Estate tax rates currently top out at 47 percent. But those rates don't even start to apply until an estate tops the multimillion-dollar exemption. As a result of the exemption and other deductions, the effective tax rate - the percentage that is actually handed over to the government - is much lower than the top stated rate. It was only 18.8 percent, on average, in 2003, according to the Internal Revenue Service."

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