Federal Budget and Tax Policy

RE: Oppose legislation that will permanently repeal the estate tax

June 5, 2002

Dear Representative:

In the next few days the full House of Representatives is expected to consider legislation to permanently repeal the estate tax. Taxpayers for Common Sense Action, an independent budget watchdog, strongly urges you to oppose this legislation.

Last year's tax bill increased the threshold, or point before which any inheritance tax liability begins, to $1 million in 2002 ($2 million per couple), and, in increments, to $3.5 million in 2009 ($7 million per couple). Only two estates out of every 100 pay any tax liability whatsoever. Nearly one-half all inheritance taxes are paid by the wealthiest 0.1 percent of estates. The great bulk of family businesses and farms face little to no inheritance tax under current law. By 2009, it is estimated that less than one-half of one percent of Americans will be subject to the estate tax.

Repeal of the estate tax comes with a big price tag. According to the Joint Committee on Taxation, permanent repeal legislation would cause $56 billion in lost revenue in 2012 and reduce revenues over the next decade by nearly $800 billion. Those revenue losses will grow quite large in the out-years and will come as the first wave of baby boomers retire and receive Social Security and Medicare benefits. At that point, the lost revenues and the baby boomers' draw on benefits will send the federal budget deficit as a percentage of gross domestic product to potentially new highs if this legislation is enacted.

In the short time since the tax bill was enacted, significant federal budget surpluses have evolved into multi-year budget deficits. By Taxpayers for Common Sense calculations, the federal budget deficit this fiscal year (2002) is already $130 billion and growing. Assuming only baseline growth in spending, we believe budget deficits will be at least $50 billion each year for the next decade and could be significantly greater if economic conditions change.

The nation cannot afford this legislation at this time. Even if the lost revenues could be offset, the long-term revenue losses will cause significant future economic problems, all in the name of assisting a very small number of wealthy families to escape inheritance tax liability.

Taxpayers for Common Sense urges you to oppose this legislation. Congress may want to revisit the Estate Tax law in the future when adjustments can be done in a way that will not increase the budget deficit or create further inequities. Please be advised that Taxpayers for Common Sense Action may use votes on or in relation to this measure for our 2002 Congressional Scorecard.

Sincerely,

Joe Theissen
Executive Director