Estate and Gift Tax Revenues: Past and Projected
Order Code RL34142
Estate and Gift Tax Revenues: Past and Projected
August 24, 2007
Nonna A. Noto
Specialist in Public Finance
Government and Finance Division
Estate and Gift Tax Revenues: Past and Projected
Summary
Large increases in the prevailing estate tax exemption — from $675,000 to $1.5
million — led the number of taxable estate tax returns to fall by half between 2002
and 2005, from about 45,000 to about 22,000. Measured as a percent of deaths,
taxable estates fell from 1.86% to 0.93%, or 9.3 per thousand deaths.
Notwithstanding the steep decline in taxable returns, net estate tax receipts remained
around $21 billion annually.
Gift tax revenues fell by roughly half after the possibility of repeal of the estate
tax in 2010 was introduced by the enactment of the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA). Gift taxes accounted for 14% to 17% of
combined estate and gift tax revenues from FY1999 through FY2001, but only 6%
to 9% over the FY2002-FY2006 period. Gift tax revenues fell from $3.9 billion to
$4.7 billion per year in FY1999-FY2001, down to $1.4 billion to $2 billion in
FY2002-FY2006.
The standard 10-year forecasts of either revenue from the estate tax or revenue
losses from permanent repeal of the estate tax should be interpreted with caution.
The forecasts should not be used to approximate revenues for a different 10-year
period. This is because of the changes scheduled in the estate tax exemption and top
tax rate over the next five years. The exemption is $2 million for decedents dying in
2007 and 2008 but $3.5 million for 2009. There is no estate tax in 2010. If
EGTRRA is permitted to sunset at the end of 2010, the estate tax will be reinstated
in 2011 with an exemption of $1 million and the top tax rate will revert from 45%
to 55% (with a 5% surtax in a certain range).
Net collections from estate and gift tax taxes totaled $28 billion in FY2006,
contributing 1.2% of total federal revenue. The Congressional Budget Office (CBO)
projects that revenue from these taxes will fall to $21 billion in FY2010 and $22
billion in FY2011, accounting for 0.7% of federal revenue in both years. CBO
projects that, if the estate tax is reinstated in 2011 as currently scheduled, revenue
from the estate and gift taxes would climb steadily by about $6 billion per year, from
$50 billion in FY2012 , contributing 1.5% of total revenue, to $79 billion in FY2017,
contributing 1.8% of total revenue.
President Bush’s budget for FY2008 has again proposed to make permanent
most of the tax cuts enacted in 2001 and 2003. Although estate and gift taxes
account for less than 2% of total federal revenue, the proposal to permanently repeal
the estate tax after 2010 accounts for one-quarter of the projected cost of this set of
proposals. Permanent estate tax repeal is estimated to cost slightly over half as much
as the proposal to permanently reduce the marginal individual income tax rates.
This report will be updated when new data concerning the estate tax become
available. This report is a partial sequel to CRS Report RL32768, Estate and Gift
Tax Revenues: Several Measurements, by Nonna A. Noto.
Contents
Changes in Estate Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Maximum Tax Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Which Law is Reflected in Revenue for a Particular Year? . . . . . . . . . . . . . . . . . 4
Unexpected Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Increase in Exemption and the Number of Taxable Returns . . . . . . . . . . . . . 4
Number of Taxable Returns and Total Taxes Paid . . . . . . . . . . . . . . . . . . . . 7
Gift Tax Revenues Fell After 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Estate and Gift Taxes Are a Very Small Percent of Federal Revenue . . . . . . . . . 10
CBO Revenue Projections Show Rebound After FY2011 If EGTTRA Sunsets . 11
Treasury and JCT Estimates of Revenue Loss from Permanent Repeal . . . . . . . 12
Reduced Gift Taxes and Income Taxes Also Expected . . . . . . . . . . . . . . . . 13
Ten-Year Forecast May Be Misleading Because of Changing Law . . . . . . 15
Estate Tax Repeal Accounts for 26% of the Cost of Making the
2001 and 2003 Tax Cuts Permanent . . . . . . . . . . . . . . . . . . . . . . . . . . 15
List of Tables
Table 1. Estate Tax Exemption and Maximum Tax Rate, 1988-2011 . . . . . . . . . 2
Table 2. Exemption, Taxable Returns in Number and as a Percent of Deaths,
and Net Estate Tax Paid, for Returns Filed in 1998-2005 . . . . . . . . . . . . . . . 6
Table 3. Percentage Change from Previous Year in Prevailing Exemption,
Number of Taxable Returns, and Net Estate Tax Paid . . . . . . . . . . . . . . . . . 7
Table 4. Net Collections of Estate Taxes and Gift Taxes and
Their Percentage Breakdown, FY1999-FY2006 . . . . . . . . . . . . . . . . . . . . . . 9
Table 5. Estate and Gift Tax Revenues Combined, Dollar Amount
and as a Percent of Total Federal Revenue, FY1999-FY2006 . . . . . . . . . . . 10
Table 6. CBO Projections of Combined Estate and Gift Tax Revenues from
FY2007 through FY2017 under Current Law: Dollar Amount, Percent of
Total Revenue, and Percent of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Table 7. Treasury and JCT Estimates of Revenue Changes in FY2007-FY2017
from Acting in 2007 to Permanently Repeal the Estate and Generation-
Skipping Transfer Taxes and Modify the Gift Tax Effective in 2010 . . . . . 14
Table 8. Treasury and JCT Estimates of Revenue Loss from
Making Permanent Certain Tax Cuts Enacted in 2001 and 2003,
Cumulatively for FY2008-FY2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Estate and Gift Tax Revenues: Past and
Projected
Changes in Estate Tax Law
The years 1997 through 2011 encompass a time of change in estate tax law. The
modest changes brought about by the Taxpayer Relief Act of 1997 (TRA, P.L. 105-
34) were followed by large changes made by the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA, P.L. 107-16). Both laws provided for
increases in the applicable exclusion amount, commonly called the estate tax
exemption, as shown in the first column of Table 1. EGTRRA also gradually
decreases the maximum marginal estate tax rate, from 55% (plus a 5% surtax in a
certain range) to 45%, as shown in the second column of Table 1.
Exemption
The estate tax exemption plays two important roles. First, it serves as the filing
threshold for the estate tax. A federal estate tax return must be filed if a U.S.
decedent’s gross estate1 (before deductions) equals or exceeds the exemption for the
year of the decedent’s death. Second, the transfer of an amount of assets up to the
exemption is free from federal tax for every estate. Each estate tax return receives
a unified credit2 against the estate tax equal to the tax that would be due on the
amount of the exemption.
The value of the exemption is not indexed for inflation. Nor is it set in relation
to any definition of wealth. Instead, Congress has intermittently raised the dollar
amount.
From 1987 through1997 the exemption remained at $600,000, under provisions
of the Economic Recovery Tax of 1981 (ERTA, P.L. 97-34). The Taxpayer Relief
Act of 1997 (TRA, P.L. 105-34) provided for a gradual increase in the exemption
over nine years. Under TRA, the exemption rose to $625,000 for 1998, $650,000 for
1999, and $675,000 for 2000 and 2001. It was scheduled to reach $1 million in 2006.
Before the provisions of TRA were fully phased in, however, they were
superseded for tax years 2002-2010 by much larger changes made by EGTRRA.
EGTRRA raised the exemption to $1 million beginning immediately in 2002 and
2003. It further increased the exemption in large increments, to $1.5 million for 2004
and 2005, $2 million for 2006 through 2008, and $3.5 million for 2009. It repealed
1 Technically, the gross estate plus adjusted taxable gifts.
2 The unified credit is applied against both estate and gift tax obligations.
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the estate and generation-skipping transfer taxes entirely for the estates of decedents
dying in 2010.
Table 1. Estate Tax Exemption and Maximum Tax Rate,
1988-2011
Calendar Year
(2)
(1)
(in which death of
Maximum Tax Rate for Taxable
Exemption
decedent occurs)
Estate Values Over (in $ millions)
1988-1997
$600,000a
55% over $3.0 plus 5% surtax from
over $10.0 to $21.040d
1998
$625,000b
55% over $3.0 plus 5% surtax from
over $10.0 to $17.184e
1999
$650,000b
"
2000
$675,000b
"
2001
$675,000b
"
2002
$1,000,000c
50% over $2.5c
2003
$1,000,000c
49% over $2.0c
2004
$1,500,000c
48% over $2.0c
2005
$1,500,000c
47% over $2.0c
2006
$2,000,000c
46% over $2.0c
2007-2008
$2,000,000c
45% over $1.5c
2009
$3,500,000c
"
2010
Estate tax repealed for 2010 onlyc
2011 and thereafter
$1,000,000b
55% over $3.0 plus 5% surtax from
over $10.0 to $17.184e
Notes:
a. Provision of the Economic Recovery Tax Act of 1981 (ERTA, P.L. 97-34). The exemption was
$600,000 in 1987 as well.
b. Provisions of the Taxpayer Relief Act of 1997 (TRA, P.L. 105-34). TRA had also provided for
the exemption to increase to $700,000 for 2002 and 2003, $850,000 for 2004, $950,000 for
2005, and $1 million for 2006 and beyond.
c. Provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L.
107-16).
d. The Revenue Act of 1987 (P.L. 100-203) provided for a 5% surtax to offset the benefits of both
the graduated tax rates on taxable estate values below $3 million and the unified credit
(exemption), such that the effective rate of tax on the entire estate was 55%.
e. As the result of a clerical error in the final text of TRA of 1997, later adopted by Congress, the
surtax was intended to offset the benefits of only the graduated tax rates, and not the unified
credit (exemption) as well.
For detailed schedules of the marginal estate tax rates by year, see CRS Report RL33718, Calculating
Estate Tax Liability: 2001 to 2011 and Beyond, by Nonna A. Noto.
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But the provisions of EGTRRA are scheduled to sunset on December 31, 2010.
Unless new legislation governing the estate tax is enacted beforehand, in 2011 the
law will revert to the law in effect prior to June 7, 2001. The estate tax will be
reinstated with an exemption of $1 million, the amount that TRA had provided for
2006 and beyond, and the family-owned business deduction will be reinstated.3
Maximum Tax Rate
From 1988 through 1997 the maximum marginal tax rate was 55% on taxable
estate values over $3 million.4 In addition, there was a surtax of 5% on taxable
values over $10 million up to $21.040 million. From 1998 through 2001 the
maximum rate remained at 55% on taxable estate values over $3 million; but, under
TRA of 1997, the 5% surtax applied from over $10 million only up to $17.184
million.5
In addition to raising the exemption in large increments, EGTRRA significantly
reduced the top marginal estate tax rate, over a period of six years (column 2 of
Table 1). At the outset, EGTRRA eliminated the 5% surtax and reduced the
maximum tax rate from 55% to 50% effective in 2002. It subsequently reduced the
top tax rate by one percentage point per year, from 49% in 2003 to 45% in 2007,
where it is scheduled to remain for 2008 and 2009.6 For decedents dying in 2010,
there is no estate tax. For 2011 and beyond, adhering to pre-EGTRRA law, the
maximum tax rate would revert to 55%, the 49% and 53% marginal rate brackets
would be restored, and the 5% surtax on taxable estate values from $10 million up
to $17.184 million would be reinstated.
3 The Taxpayer Relief Act also created a new exclusion from the estate tax for qualified
family-owned businesses that was in effect from 1998 through 2003. The exclusion was
limited to a total of $1.3 million in combination with the applicable exclusion amount. The
family-owned business exclusion was converted to a deduction by the Internal Revenue
Service Restructuring and Reform Act of 1998 (P.L. 105-206). Under EGTRRA, the family-
owned business deduction was repealed in 2004, when the applicable exclusion amount for
all estates was increased to $1,500,000. For more information, see CRS Report 95-444, A
History of Federal Estate, Gift, and Generation-Skipping Taxes, by John R. Luckey.
4 Under ERTA of 1981, the top marginal estate tax rate was scheduled to fall to 50% in
1985. The Deficit Reduction Act of 1984 (P.L. 98-369) froze the top tax rate at the 1984
level of 55% until 1988. The Omnibus Budget Reconciliation Act of 1987 (P.L. 100-203)
extended the maximum rate of 55% through 1992. The Omnibus Reconciliation Act of 1993
(P.L. 103-66) extended the maximum rate of 55% retroactively, from December 31, 1992,
onward. See CRS Report 95-444, A History of Federal Estate, Gift, and Generation-
Skipping Taxes, by John R. Luckey.
5 For an explanation of the surtaxes, see notes d and e of Table 1.
6 For additional information on these changes in federal estate tax law, see CRS Report
RL31061, Estate and Gift Tax Law: Changes Under the Economic Growth and Tax Relief
Reconciliation Act of 2001, by Nonna A. Noto and CRS Report 95-444, A History of
Federal Estate, Gift, and Generation-Skipping Taxes, by John R. Luckey.
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Which Law is Reflected in Revenue
for a Particular Year?
The tax law that applies to an estate is the law in effect in the year of the
person’s death. However, the estate tax return is not due until nine months after the
person’s death, and an extension of six months is not uncommon. Complex returns
may be granted a longer extension.
It follows that estate tax returns filed in any given calendar year will include a
few returns of people who died in that year, mostly the returns of people who died
in the previous year, and some returns from deaths in prior years that are filing under
an extension. It has been estimated that of the estate tax returns filed for decedents
dying in a given calendar year, roughly 5% are filed in the same calendar year, 75%
to 80% the next year, and the remaining 15% to 20% in later years.7
For example, most estate tax returns filed in 2003 will have an exemption of $1
million, reflecting the law in effect for decedents dying in both 2002 and 2003. Most
estate tax returns filed in 2004 will have the $1 million exemption in effect for deaths
in 2003, but a few will have the $1.5 million exemption in effect for deaths in 2004.
Most estate tax returns filed in 2005 will have the $1.5 million exemption in effect
for deaths in both 2004 and 2005. In each of these years, returns filed under an
extension will have the lower exemptions that applied to deaths in earlier years.
Revenue in a particular fiscal year is most likely to reflect the estate tax law in
effect in the previous-number calendar year. Recall that the estate tax return is not
due until nine months after the date of death and that the fiscal year runs from
October 1 of the previous calendar year until September 30 of the same-numbered
calendar year. So, for example, deaths in calendar 2006 would be reflected in estate
tax returns filed in the last three months of 2006 and the first nine months of 2007,
which comprise fiscal year 2007.
Unexpected Relationships
An increase in the exemption would be expected to reduce the number of estate
tax returns filed, the number of taxable returns, and the total amount of estate tax
paid with those returns. But this is not always the case. Whether these numbers
decline depends on whether the increase in the exemption outpaces the growth in the
value of estates held by decedents.
Increase in Exemption and the Number of Taxable Returns
For each filing year from 1998 to 2005, the first column of Table 2 shows the
exemption for decedents dying in the preceding year. Table 3 refers to this as the
“prevailing exemption” for the filing year, for reasons explained in the preceding
7 David Joulfaian, Estate Taxes and Charitable Bequests: Evidence from Two Tax Regimes,
unpublished research paper, December 2004, p. 10.
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section. The second column of Table 2 shows the number of taxable estate tax
returns filed, the third the number of taxable returns expressed as a percent of deaths
in the preceding year (a common standardized measure), and the fourth the total net
estate taxes paid on those taxable returns. To help highlight the relationships among
them, Table 3 shows the percentage change from the previous year for the prevailing
exemption, the number of taxable returns, and the total net estate tax paid.
From 1998 through 2000, when the prevailing exemption was rising in annual
increments of $25,000 or about 4% — from $600,000 in 1998 to $625,000 in 1999,
and $650,000 in 2000 — the number of taxable returns continued to rise modestly.
The rising pattern holds whether measured as absolute number of returns or as tax
returns as a percent of deaths. The number of taxable estate tax returns rose from
47,475 or 2.05% of deaths in 1998, to 52,000 or 2.17% of deaths in 2000. This
suggests that value of estates held by decedents was generally rising more rapidly
than the exemption from 1997 to 1999. (The stock market, for example, was
generally rising over this period.)
The number of taxable returns declined very slightly, by half a percent, in 2001
when the $675,000 exemption first took effect. This suggests that the level of the
exemption had caught up with the value of estates held by wealthy decedents in 2000.
Between 2001 and 2002 the number of taxable estate tax returns dropped moderately,
by 13%, even though the exemption remained at $675,000. This suggests that the
value of estates held by decedents fell between 2000 and 2001. (The stock market,
for example, peaked in March 2000 and stock prices continued to fall until October
2002.) Not until 2002, the second year that the $675,000 exemption prevailed, did
the number of taxable returns (45,018) and taxable returns measured as a percent of
deaths (1.86%) fall below their levels in 1998 when the prevailing exemption was
$600,000.
In contrast, the number of taxable returns dropped significantly, by 26%, when
the exemption rose by 48%, from $675,000 to $1 million, for most returns filed in
2003. This suggests that at the $1 million level the exemption amount had outpaced
the growth in the value of estates generally held by decedents in 2002. The number
of taxable returns dropped further, by a modest 6%, between 2003 and 2004 as the
$1 million exemption continued to prevail. The number of taxable returns again
dropped significantly, by 29%, from 31,329 in 2004 to 22,250 in 2005, after the
exemption amount rose by $500,000, or 50%, to $1.5 million.
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Table 2. Exemption, Taxable Returns in Number and as a
Percent of Deaths, and Net Estate Tax Paid, for Returns Filed in
1998-2005
(1)
(2)
(3)
(4)
Year
Exemption in
Taxable
Taxable Returns as Net Estate Tax Paidb
Filed
Preceding Year
Returns
Percent of Deaths in
(in $ billions)
($)
Preceding Yeara
1998
600,000
47,475
2.05
20.3
1999
625,000
49,863
2.13
22.9
2000
650,000
52,000
2.17
24.4
2001
675,000
51,736
2.15
23.5
2002
675,000
45,018
1.86
21.4
2003
1,000,000
33,302
1.36
20.8
2004
1,000,000
31,329
1.28
21.6
2005
1,500,000
22,250
0.93
21.7
Sources: Data on number of taxable returns and net estate tax paid from Internal Revenue Service,
Table 1. Estate Tax Returns Filed in [year]: Gross Estate by Type of Property, Deductions, Taxable
Estate, Estate Tax and Tax Credits, by Size of Gross Estate. Unpublished data from the Statistics of
Income (SOI) for the years 1998 to 2005. Available on the IRS website [http://www.irs.gov/taxstats]
visited July 9, 2007. IRS revised the tables for estate tax returns filed in 2001 through 2005 in March
2007. Taxable returns as a percent of deaths in prior year were calculated by CRS based on the
mortality numbers shown in note a below.
Deaths in 1997-2001 from U.S. Department of Commerce, Economics and Statistics
Administration, U.S. Census Bureau, Statistical Abstract of the United States, annual editions from
2000 to 2003. Deaths in 2002 from National Vital Statistics Reports, Deaths: Final Data for 2002,
vol. 53, no. 5, October 12, 2004, p. 1. Deaths in 2003 and 2004 from U.S. Department of Health and
Human Services, Centers for Disease Control and Prevention, National Center for Health Statistics,
Deaths: Final Data for 2004, posted Nov. 24, 2006, Table 1, available at
[http://www.cdc.gov/nchs/products/pubs/pubd/hestats/finaldeaths04_tables.pdf].
Notes:
a. The total number of deaths in the United States rose slightly from year to year from 1997 through
2003 and fell in 2004, as follows:
1997
2,314,245
1998
2,337,256
1999
2,391,399
2000
2,403,351
2001
2,416,425
2002
2,443,387
2003
2,448,288
2004
2,397,615
b. Net estate tax refers to the estate tax due after claiming permitted tax credits.
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Table 3. Percentage Change from Previous Year in Prevailing
Exemption, Number of Taxable Returns, and Net Estate Tax
Paid
Year
Prevailing
Taxable
Net Estate
Filed
Exemption
Returns
Tax Paid
1999
4.2
5.0
12.6
2000
4.0
4.3
6.5
2001
3.8
-0.5
-3.6
2002
0
-13.0
-9.1
2003
48.1
-26.0
-2.8
2004
0
-5.9
3.9
2005
50.0
-29.0
0.3
Source: Calculated by CRS from data presented in columns (1), (2), and (4) of Table 2.
Taxable returns measured as a percentage of deaths in the prior year reflect the
same pattern (Table 2, column 3). The measure fell below 1%, to 0.93% or 9.3 per
thousand deaths, in 2005 when the prevailing exemption rose to $1.5 million. It can
be expected that both the number of taxable returns and taxable returns measured as
a percentage of deaths will drop substantially in 2007, when the prevailing exemption
rises to $2 million, and again in 2010, when the prevailing exemption will rise to
$3.5 million. The number of taxable estate tax returns is projected to drop far below
the typical historical range of 1% to 2% of adult deaths.8
Number of Taxable Returns and Total Taxes Paid
As shown in the last columns of Tables 2 and 3, total estate taxes paid moved
in the same direction as the number of taxable returns from 1998 through 2003. Both
measures rose from 1998 to 2000 and fell from 2000 to 2003. Filing year 2003 is
also the first year that the reduction in the top marginal estate tax rate was likely to
affect revenues. Somewhat surprising, estate tax payments rose slightly (by 4%),
from $20.8 billion in 2003 to $21.6 billion in 2004, despite a decline of nearly 2,000
(or 6%) in the number of taxable returns. Even more surprising, net estate taxes paid
rose very slightly (by 0.3%) to $21.7 billion in 2005, even though the number of
taxable returns dropped by 29%.
8 For estimates by the Urban-Brookings Tax Policy Center of the number of taxable estate
tax returns, and calculations by CRS of taxable returns as a percent of adult deaths, under
the higher exemptions scheduled under current law through 2009, see CRS Report RL33501,
Indexing the Estate Tax Exemption for Inflation, by Nonna A. Noto, Table 2; for the
historical series from 1934 through 2002, see Table 1.
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Although the number of taxable estate tax returns filed in 2005 was less than
half that in 1998, whether measured in absolute numbers or as a percent of deaths,
essentially the same amount of estate tax was paid for both years — $21.7 billion in
2005 compared with $20.3 billion in 1998 — measured in nominal dollars (not
adjusted for inflation).
Gift Tax Revenues Fell After 2001
The gift tax is levied on the taxable transfer of assets during the donor’s
lifetime. A gift tax return is due by April 15 of the year after a taxable gift is made.
Under the Taxpayer Relief Act of 1997 (TRA), the “unified” applicable exclusion
amount or exemption — for lifetime taxable gifts together with bequests — rose
gradually from $600,000 in 1997, to $675,000 in 2001. The same graduated tax rate
structure that applied to estates applied to cumulative taxable lifetime gifts9 in excess
of the exemption amount.
Under provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001 (EGTRRA), the exemption for taxable lifetime gifts is scheduled to remain
at the $1 million level established in 2002, even as the combined exemption for
estates and gifts rises in large steps to $3.5 million in 2009. Furthermore, the gift tax
is scheduled to remain in effect when the estate tax is repealed in 2010. At that time,
the maximum gift tax rate will be capped at 35% (equal to the maximum individual
income tax rate under EGTRRA) on cumulative lifetime taxable transfers over
$500,000. This is substantially lower than the maximum rate of 45% scheduled to
apply to estates and gifts in 2007 through 2009. This gift tax would remain in place
after 2010 under the bills that would permanently repeal the estate tax by simply
repealing the sunset provision of EGTRRA.
Through FY2001, gift taxes accounted for a significant percentage of combined
estate and gift tax revenues.10 Since the adoption of EGTRRA in 2001, with its
announcement of estate tax repeal in 2010, there has been a substantial decline in the
revenue collected from the gift tax. The last column of Table 4 shows that gift taxes
accounted for 14% to 17% of combined estate and gift tax revenues from FY1999
through FY2001. In contrast, over the FY2002-FY2006 period, gift taxes accounted
9 Under the gift tax there is an annual exclusion per donor per donee. This exclusion amount
is indexed for inflation and rounded down to the nearest $1,000. The exclusion is $12,000
in 2007, the same as in 2006. Gifts up to this limit are not counted as taxable gifts. In
addition, there is an unlimited exclusion for gifts to pay for tuition or medical expenses or
for transfers to a political organization for the use of the organization. There is also an
unlimited marital deduction for most gifts between spouses. For more information, see CRS
Report 95-444, A History of Federal Estate, Gift, and Generation-Skipping Taxes, by John
R. Luckey, and CRS Report 95-416, Federal Estate, Gift, and Generation-Skipping Taxes:
A Description of Current Law, by John R. Luckey.
10 The revenue numbers cited in the remainder of this report differ from those in the previous
section in at least three ways. They include gift taxes in addition to estate taxes. They are
on a fiscal year rather than calendar year basis. And they are based on revenue collections
data, rather than on a sampling of estate tax returns.
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for only 6% to 9%. Gift tax revenue fell by more than half, from the range of $3.9
billion to $4.7 billion per year in FY1999-FY2001, down to the range of $1.4 billion
to $2 billion in FY2002-FY2006 (second column of Table 4).
Table 4. Net Collections of Estate Taxes and Gift Taxes and
Their Percentage Breakdown, FY1999-FY2006
Estate and
Estate Taxes
Gift Taxes
Percent
Percent
Gift Taxes
Fiscal Year
Estate
Gift
Taxes
Taxes
(in $ billions)
1999
23.0
4.7
27.7
83
17
2000
24.9
4.0
28.9
86
14
2001
24.4
3.9
28.3
86
14
2002
24.8
1.6
26.4
94
6
2003
20.0
1.9
21.9
91
9
2004
23.4
1.4
24.8
94
6
2005
22.7
2.0
24.7
92
8
2006
25.9
1.9
27.8
93
7
Sources: Internal Revenue Service Data Book for the fiscal years 1999-2006, Table 1: Internal
Revenue Collections and Refunds, by Type of Tax. Available on the IRS website [http://www.irs.gov]
under SOI Tax Stats. Net collections are equal to gross collections minus refunds. Percentage
calculations by CRS.
A possible explanation for the decline in gift taxes is that many wealthy people
chose to forgo the certainty of gift taxes if they transferred assets while they were
alive, in the hope that the estate tax would be repealed permanently and they would
then be able to pass the assets along to beneficiaries tax-free upon their death.
Recipients are also likely to owe less in capital gains taxes when they sell a capital
asset received from a bequest after death, rather than from a lifetime gift.11
Forecasters predict that revenue from the gift tax will remain low in the years
11 This is because, under both EGTRRA and prior law, assets transferred by gift receive a
carryover basis (the donor’s purchase price), in contrast to a step-up in basis (the value at
the time of the transfer). Under the law in effect through 2009 while the estate tax remains
in effect, recipients of assets transferred at death receive a step-up in basis. This cancels
potential capital gains tax liability on the increase in the value of the asset during the
decedent’s period of ownership. Under EGTRRA, assets transferred at death during years
when the estate tax is repealed (2010 and possibly subsequent years if extended) will receive
a modified carryover basis. There is a step-up allowance of $1.3 million per decedent plus
$3 million for a surviving spouse, both indexed for inflation after 2010. These step-up
allowances are likely to shelter most capital gains in small estates from income tax when the
heirs sell the assets.
CRS-10
remaining prior to FY2011 but will be higher in FY2011, reflecting gifts made in
2010 before the scheduled return of the estate tax in 2011.
Estate and Gift Taxes Are a Very Small Percent of
Federal Revenue
Revenues from estate and gift taxes combined accounted for 1.5% of total
federal revenue in FY1999 (column 2 of Table 5).12 Their contribution remained at
1.4% for FY2000-FY2002, even though the absolute dollar amount fluctuated first
above and then below its FY1999 level of $27.8 billion. Ever since the effects of
EGGTRA began to register in FY2003, the relative contribution of estate and gift
taxes has remained below 1.4%. From FY2003 through FY2006 it fluctuated within
the range of 1.1% to 1.3% of total revenue, even though the dollar amount rebounded
from $22 billion in FY2003 to $27.9 billion in FY2006. (The percentage share is
influenced by fluctuations in other revenue sources as well as estate and gift taxes.)
Table 5. Estate and Gift Tax Revenues Combined,
Dollar Amount and as a Percent of Total Federal Revenue,
FY1999-FY2006
Estate and Gift Tax Revenues
Fiscal
As a Percent of
Year
In
Total Federal
$ Billions
Revenue
1999
27.8
1.5
2000
29.0
1.4
2001
28.4
1.4
2002
26.5
1.4
2003
22.0
1.2
2004
24.8
1.3
2005
24.8
1.1
2006
27.9
1.2
Sources: Revenue data from U.S. Executive Office of the President, Office of Management and
Budget, Historical Tables, Budget of the United States Government, Fiscal Year 2008 (Washington:
GPO, 2007), Table 2.1, p. 30 (total receipts), Table 2.5, p. 45 (estate and gift taxes). Percentage
calculations by CRS.
12 For information on state revenues from these types of taxes, see CRS Report RS20853,
State Estate and Gift Tax Revenue, by Steven Maguire.
CRS-11
CBO Revenue Projections Show Rebound After
FY2011 If EGTTRA Sunsets
In January 2007 the Congressional Budget Office (CBO) released its
projections, under current law, of estate and gift tax revenues through FY2017, as
shown in Table 6. CBO assumed growth in the value of assets over time, reflecting
both real economic growth and inflation. Starting from actual revenues of $28 billion
in FY2006, CBO projected that revenues would drop to $24 billion in FY2007 and
then rise slowly to $26 billion in FY2009. In all three years, estate and gift taxes
were estimated to account for 0.9% of total federal revenue and 0.2% of gross
domestic product (GDP). This is based upon an estate tax exemption of $2 million
for decedents dying in 2006-2008.
Reflecting the large increase in the exemption to $3.5 million for 2009 and the
repeal of the estate tax for decedents dying in calendar year 2010, CBO projected that
estate and gift tax revenues would fall to $21 billion in FY2010 and $22 billion in
FY2011. This corresponds to 0.7% of total federal revenue and 0.1% of GDP for
both years.
Reflecting the reinstatement of the estate tax in 2011 with an exemption of $1
million, CBO projected that estate and gift tax revenues would rise markedly to $50
billion in FY2012. That represents 1.5% of projected federal revenue (the share they
previously held in FY1999) and 0.3% of GDP. CBO projected that estate and gift tax
revenues would remain at 0.3% of GDP for the subsequent three fiscal years, rising
steadily in nominal dollars from $56 billion in FY2013 to $67 billion in FY2015.
That represents 1.6% of projected total revenue for FY2013 and 1.7% for FY2014
and FY2015.
Because the $1 million exemption amount is not indexed for inflation, and
because the wealth of individuals is assumed to grow faster than inflation, CBO
projected that estate and gift tax revenues would rise to 0.4% of GDP, reaching $73
billion in FY2016 and $79 billion in FY2017.13 At these levels, estate and gift taxes
account for 1.8% of projected federal revenue.
The cumulative revenue projection for the standard 10-year forecast period,
FY2008-FY2017, is $481 billion. There is a big difference, however, in the revenue
expected for the first half of the 10-year period versus the second half. This is
because of the large changes in the exemption, plus smaller changes in the top tax
rate, from calendar year 2007 through 2011. CBO’s revenue forecast for the first
five-year period, FY2008-FY2012, is $144 billion. This reflects two calendar years
when the exemption is $2 million, one when it is $3.5 million, one when there is no
estate tax, and one when the exemption is $1 million. The revenue projection for the
second five-year period, FY2013-FY2017, is $337 billion. This projection is based
on the assumption that the estate tax will be in effect for all of those years with an
13 U.S. Congress, Congressional Budget Office, The Budget and Economic Outlook: Fiscal
Years 2008 to 2017, Washington, January 2007, pp. 95-97.
CRS-12
exemption of $1 million and that the top tax rate will be restored (from 45%) to 55%,
as provided under current law.
Table 6. CBO Projections of Combined Estate and Gift Tax
Revenues from FY2007 through FY2017 under Current Law:
Dollar Amount, Percent of Total Revenue, and Percent of GDP
Revenue in
As a Percent of
As a Percent
Fiscal Year
$ Billions
Total Revenue
of GDP
Actual 2006
28
1.2
0.2
2007
24
0.9
0.2
2008
25
0.9
0.2
2009
26
0.9
0.2
2010
21
0.7
0.1
2011
22
0.7
0.1
2012
50
1.5
0.3
2013
56
1.6
0.3
2014
62
1.7
0.3
2015
67
1.7
0.3
2016
73
1.8
0.4
2017
79
1.8
0.4
First 5-year subtotal 2008-
144
1.0
0.2
2012
Second 5-year subtotal
337
1.7
0.3
2013-2017a
10-year total
481
1.4
0.3
2008-2017
Source: U.S. Congress, Congressional Budget Office, The Budget and Economic Outlook: Fiscal
Years 2008 to 2017, Washington, January 2007, Table 4-1: CBO’s Projections of Revenues by Source,
p. 81. Percent of total revenue calculated by CRS.
Note: a. The second five-year subtotal for FY2013-FY2017 was added by CRS.
Treasury and JCT Estimates of Revenue Loss
from Permanent Repeal
Among the revenue proposals in its FY2008 budget document, the Bush
Administration once again proposed to permanently extend the provisions of
CRS-13
EGTRRA that are scheduled to sunset on December 31, 2010. Removing the sunset
provision of EGTRRA would make permanent the modifications to the gift tax and
the repeal of both the estate tax and the generation-skipping transfer tax now
scheduled to be in effect for 2010 only.
In February 2007, the Treasury Department published its estimates of changes
in federal receipts expected each year from FY2007 through FY2017 if legislation
to repeal the sunset provision of EGTRRA — with respect to the estate and gift taxes
— were enacted in 2007, to take effect in 2010. The Joint Committee on Taxation
(JCT) released its estimates in March 2007. Both sets of estimates are presented in
Table 7.
Reduced Gift Taxes and Income Taxes Also Expected
The relatively modest estimated revenue losses from FY2007 through FY2010
stem primarily from a projected decline in gift taxes. The estimates are based on the
assumption that taxpayers would immediately begin to reduce taxable gifts during
their lifetimes if they knew that the estate tax would be permanently repealed in
2010. (This was explained previously at the end of the section on “Gift Taxes Fell
After 2001.”)
In addition, it is expected that an enactment in 2007 of permanent repeal of the
estate tax (effective in 2010) would modestly affect revenues from the individual
income tax, in two opposite ways. First, lifetime charitable donations and
accompanying tax deductions would fall, thereby increasing income tax revenues.
Second, and larger in effect, capital gains realizations by the elderly would fall as
they wait to pass on their assets tax-free after death, thereby decreasing current
income tax revenue. For each year from FY2008 through FY2010 Treasury projected
that net reductions in income taxes would add to the decrease in revenue from gift
taxes. For FY2011 and beyond, the loss in income taxes would add to the decrease
in revenue from estate as well as gift taxes.14 The expected losses in income tax
revenue are reflected in the fact that each year from FY2011 on, the total revenue
losses projected by both Treasury and JCT from permanent repeal of the estate tax
shown in Table 7 exceed CBO’s estimates of estate and gift tax revenues under
current law, shown in Table 6.
14 These conclusions are based on a comparison of two sets of revenue change estimates for
the estate tax for FY2007-FY2012 published in the U.S. budget for FY2008. See U.S.
Executive Office of the President, Office of Management and Budget, Analytical
Perspectives, Budget of the United States Government, Fiscal Year 2008 (Washington:
GPO, 2007), Table 17-3, p. 266, and Table 17-4, p. 270. According to conversations with
Treasury Department analysts, the estimates in Table 17-3, Effect of Proposals on Receipts
— for making permanent the repeal of estate and generation-skipping transfer taxes and
modification of gift taxes — include the projected negative effects on income tax revenue,
in addition to the effect on estate and gift tax revenue. These estimates (presented out to
FY2012) are the same as those shown in Table 7 of this report for the Treasury Department.
In contrast, the estimates in Table 17-4, Receipts by Source — of the effects of proposed
legislation on receipts, under the heading for estate and gift taxes — include only the effects
on estate and gift tax receipts. The difference between the two series represents the
estimated associated loss of income tax revenue.
CRS-14
Table 7. Treasury and JCT Estimates of Revenue Changes in
FY2007-FY2017 from Acting in 2007 to Permanently Repeal the
Estate and Generation-Skipping Transfer Taxes
and Modify the Gift Tax Effective in 2010
Joint
Treasury
Committee on
JCT Relative to
Department
Treasury
Fiscal Year
Taxation
(Percent)
(millions of dollars)
2007
-156
— —
2008
-1,373
-2,111
154
2009
-2,290
-1,401
61
2010
-3,067
-3,074
100
2011
-26,845
-36,030
134
2012
-57,652
-59,824
104
2013
-60,012
-67,415
112
2014
-65,184
-73,514
113
2015
-70,077
-79,217
113
2016
-75,385
-84,970
113
2017
-80,605
-91,233
113
2008-2012
-91,227
-102,440
112
2013-2017a
-351,263
-396,349
113
2008-2017
-442,490
-498,789
113
Sources: Column 1: U.S. Department of the Treasury, General Explanations of the Administration’s
Fiscal Year 2008 Revenue Proposals (referred to as the Bluebook), Washington, February 2007, p.
119. Column 2: U.S. Congress, Joint Committee on Taxation, Description of Revenue Provisions
Contained in the President’s Fiscal Year 2008 Budget Proposal, 110th Cong., 1st sess., JCS-2-07
(Washington: GPO, March 2007), p. 301. Column 3: Percentage ratios were calculated by CRS by
dividing column 2 (JCT estimate) by column 1 (Treasury estimate) and multiplying the result by 100.
Notes: These estimates for permanent estate tax repeal include the projected accompanying loss of
individual income tax revenue, in addition to estate and gift taxes.
a. The second five-year subtotal for FYs 2013-2017 was added by CRS.
CRS-15
Ten-Year Forecast May Be Misleading
Because of Changing Law
The Treasury Department and Joint Committee on Taxation prepare a revenue-
change forecast for 10 fiscal years out whenever they evaluate a tax proposal.
Similarly, in its budget outlook publications, CBO makes projections of specific
revenue sources for the next 10 fiscal years. Because of the big changes in estate tax
law scheduled over the next four calendar years, from 2008 through 2011, the
standard 10-year forecast starting in FY2008 gives a misleading measure of the
revenue — or revenue loss — that would be expected if the same tax law were in
effect for each of the 10 years. In the case of legislating in 2007 to make estate tax
repeal permanent for 2010 and beyond, the expected revenue losses are far lower for
FY2008 through FY2011 than they are for FY2012 through FY2017, when repeal
would be in full effect.
For the years prior to full repeal of the estate tax, the Treasury Department
estimated revenue losses ranging from $1.4 billion in FY2008 to $3.1 billion in
FY2010. FY2011 reflects a period of transition from estate taxes for decedents dying
in 2009 to no estate taxes in 2010 and beyond. For FY2011, Treasury estimated a
revenue loss of $26.8 billion, about half of what it expects for FY2012. For the years
reflecting full repeal of the estate tax, Treasury estimated a revenue loss of $57.7
billion for FY2012, rising annually to $80.6 billion in FY2017. Consequently, the
revenue loss estimate of $351 billion for the second five-year period, FY2013-
FY2017, is more reflective of the true cost of the permanent repeal proposal than is
the estimate of $91 billion for the first five-year period, FY2008-FY2012.
For FY2008-FY2012, the JCT’s projections fluctuate above, below, and equal
to the Treasury’s. For FY2013 and beyond, when repeal would be in full effect, the
JCT’s revenue loss estimates are consistently 13% higher than the Treasury’s. The
same 13% difference applies to both the individual years and the five- and 10-year
totals.
Estate Tax Repeal Accounts for 26% of the Cost of Making
the 2001 and 2003 Tax Cuts Permanent
According to estimates by both the Treasury Department and the Joint
Committee on Taxation, repeal of the estate tax accounts for one-quarter of the
revenue losses associated with making permanent most of the tax cuts enacted in
2001 and 2003. This may seem surprising given that estate and gift taxes account for
less than 2% of federal revenue (see Tables 5 and 6). The projected revenue loss
from permanent repeal of the estate tax is just over half the size of the most costly
component of the package, extending the reductions in marginal individual income
tax rates.
Table 8 lists, in decreasing order of projected revenue loss, the proposals within
the category labeled by Treasury and the JCT as “Make Permanent Certain Tax Cuts
CRS-16
Enacted in 2001 and 2003.”15 Despite differences in their dollar estimates of revenue
loss for particular provisions, Treasury and JCT agree on the size of the revenue
losses from estate taxes relative to both the total package and its largest component.16
Table 8. Treasury and JCT Estimates of Revenue Loss from
Making Permanent Certain Tax Cuts Enacted in 2001 and 2003,
Cumulatively for FY2008-FY2017
$ Billions
Percent of Total
Tax Proposal
Treasury
JCT
Treasury
JCT
Lower marginal individual income
-794
-852
46.8
45.5
tax rates
Estate tax repeal
-442
-497
26.1
26.5
Increase child tax credita
-206
-216
12.1
11.5
15% dividend rate
-90
-152
5.3
8.1
15% capital gains rate
-79
-64
4.7
3.4
Marriage penalty reliefa
-50
-52
3.0
2.8
Increase small business expensing
-20
-19
1.2
1.0
Education incentives
-10
-12
0.6
0.6
Other incentives for families and
-5
-6
0.3
0.3
children
Total
-1,697
-1,872
100.0
100.0
Sources: U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal Year
2008 Revenue Proposals (referred to as the Bluebook), Washington, February 2007, p. 119. U.S.
Congress, Joint Committee on Taxation, Description of Revenue Provisions Contained in the
President’s Fiscal Year 2008 Budget Proposal, 110th Cong., 1st sess., JCS-2-07 (Washington: GPO,
March 2007), p. 301. Percentage calculations by CRS.
Note: a. The estimates for the child tax credit and marriage penalty relief also include outlays for
refundable tax credits associated with these proposals.
15 For additional information, see CRS Report RS21992, Extending the 2001, 2003, and
2004 Tax Cuts, by Gregg A. Esenwein.
16 For estimates of the revenue loss relative to total repeal for a variety of estate tax reform
proposals considered during the 109th Congress, see CRS Report RL32818, Estate Tax
Legislation in the 109th Congress, by Nonna A. Noto, Table 2, p. 22. Revenue estimates for
those proposals were made by the Urban-Brookings Tax Policy Center.