Estate tax debate raises questions

WASHINGTON — The estate tax turns 90 this year.

Opponents, who call it the “death tax,” want to abolish it.

However, it’s unlikely they have the 60 votes needed to end a Senate filibuster when the proposal comes up for a vote as early as Thursday. The House voted for full repeal of the estate tax in April 2005, but a Senate vote scheduled for September was postponed because of the aftermath of Hurricane Katrina.

Here are some answers to commonly asked questions about the estate tax:

Question: What is this tax and when was it started?

Answer: “The estate tax is a tax on your right to transfer property at your death,” says the Internal Revenue Service. “It consists of an accounting of everything you own or have certain interests in at the date of death.” It was signed into law in 1916.

Q: Who pays it?

A: Technically, it is the executor of an estate who writes the check to the Internal Revenue Service.

Q: Who qualifies?

A: For people who die this year, the tax is levied at a rate of 46 percent on assets valued at more than $2 million. The tax rate drops to 45 percent next year. In 2009 the exemption level increases to $3.5 million. In 2010, the tax is repealed for one year. Beginning in 2011 the exemption drops back to $1 million.

Q: Is the entire estate subject to the tax?

A: There are a few exemptions. A surviving spouse does not have to pay the tax on jointly held property. Funeral expenses are deductible, as are debts owed at the time of death.

Q: Why do some people call it the death tax?

A: Critics of the estate tax say that a person who has paid taxes his or her entire life is taxed a second time upon death. Other people call it an inheritance tax. But its official name is the estate tax.

Q: How much money does it generate and how many Americans pay it?

A: The IRS reports there were 108,300 estate-tax returns filed for people who died in 2001, of which only 49,845 owed any estate taxes. The filers who owed estate taxes represented about 2.1 percent of all deaths, according to the IRS. They paid $20.8 billion in federal estate taxes.

Q: How are small businesses and farmers affected?

A: Only 6 percent of estate-tax returns filed in 2000 reported farming, forestry or fishing as the occupation of the deceased, according to an analysis by the nonpartisan Congressional Budget Office. And only 1.3 percent claimed to be a qualified family-owned business. Moreover, among those agricultural, fishing and family-owned businesses, only about 5 percent were found not to have liquid assets available to pay the estate tax.

Q: How might Congress change this tax?

A: Senate Republicans and a few Democrats who favor repeal, such as Sen. Max Baucus of Montana, do not have the 60 votes needed to break a filibuster by Democrats, according to Jim Messina, chief of staff for Senate Finance Committee Democrats. There are several compromise proposals under discussion that would drop the tax rate as low as 15 percent and increase the exemption to as high as $10 million.

Q: What’s the likely outcome?

A: It’s uncertain whether a compromise can be brokered. Full repeal is unlikely.