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How Many People Pay the Estate Tax?

Aug 09, 2016

During his first big economic address, in Detroit Monday, Republican presidential nominee Donald Trump again made the push for the end of the federal estate tax.

"American workers have paid taxes their whole life, they shouldn't be taxed again when they die," Trump declared.

The estate tax—aka the "death tax" to its detractors—is a perennial political football, but exactly how many American workers would benefit if it were to be repealed?

The tax applies to estates of individuals with combined gross assets and prior taxable gifts exceeding $5.45 million (double that for estates of married couples) in 2016, as stipulated by the IRS. That includes things like stocks, bonds, real estate holdings, small businesses, and retirement assets, among others.

While calling it a death tax suggests that the estates of all people who die will be taxed, the reality is that given that the size of the exemption, very few Americans are affected. According to a 2015 report from Congress's Joint Committee on Taxation, 4,700 estate tax returns reporting tax liability were filed in 2013, out of 2.6 million total deaths in the United States. That means the estate tax hits roughly 0.2% of Americans, or 1 out of every 500 people who die.

In fact, households affected fall somewhere between the 95th and 99th percentile of all U.S. households: According to the Wall Street Journal, the top 1% of households have a net worth of at least $6.8 million, while the top 5% have a net worth of at least $1.9 million.

And what about Trump's claim that small firms and family farms are being driven "out of business" by the tax? The Tax Policy Center found that in 2013, 20 small businesses and farms paid any estate tax nationwide.

The decrease in estates affected has occurred because the tax threshold has risen significantly over the years. In 2003, for example, the exemption stood at $1 million, and more than 73,000 returns were filed.

The tax rate on estates above the exemption level is 40%, up from 35% last year. However, according to the Tax Policy Center, the average effective tax rate for those who paid the estate tax in 2013 was 16.6%.

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