The Distribution of the Estate Tax and Reform OptionsLeonard E. Burman, William G. Gale, Jeff Rohaly The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.
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This paper develops a microsimulation model that estimates the distributional effects of the estate tax and reforms. Consistent with several other studies, we assume the estate tax is borne by the individuals who accumulate the estate. We merge information from several sources to develop household-level data on wealth, demographics, income, and taxes, with special efforts to represent wealth patterns among high-income and high-wealth households, and households with family-owned farms and businesses. With these data, household-specific mortality probabilities, and an estate tax calculator, we estimate the revenue and distributional effects of the estate tax and alternatives.
We find that the estate tax is highly progressive and significantly more progressive than the individual income tax. Under 2001 law, about 98 percent of the estate tax is paid by those in the top quintile of the economic income distribution; almost two-thirds is paid by those in the top 1 percent. By 2009, when the exempt amount is raised to $3.5 million, almost 95 percent of the estate tax would be paid by the top 1 percent and more than half by the top 0.1 percent. We also examine the revenue and distributional implications of numerous reform options and show that it is possible to drastically reduce the already small number of farms and businesses who are subject to the estate tax without repealing the tax altogether.
Note: This report is available in its entirety in the Portable Document Format (PDF).
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