Close Close

Life Health > Life Insurance > Life Planning Strategies

CBO Estate and Gift Tax Info You (and D.C. Insiders) Should Know

Your article was successfully shared with the contacts you provided.

What You Need to Know

  • The CBO says the most complete numbers it has are for 2016.
  • About 2.7 million people died in 2016.
  • Only 5,500 estates paid estate taxes, and only 2,000 taxpayers paid gift taxes.

Few Americans pay estate taxes, and estates valued at $50 million or more accounted for 42% of the assets reported by taxable U.S. estates in 2018.

Analysts at the Congressional Budget Office have included those figures in a new guide to understanding federal estate and gift taxes.

Why the CBO Guide Matters

The CBO guide may be critical to shaping U.S. tax policy, because some lawmakers, and congressional aides, will go into budget and tax policy debates knowing little about estate taxes.

For some policymakers, the CBO guide to gift taxes may be the only neutral explanation of how gift taxes work that those policymakers ever see.

For financial professionals, the guide may be a helpful source of copyright-free estate tax and and gift tax data.

Affected People

The CBO analysts emphasize that the impact of estate and gift taxes is narrow.

They note that the latest complete figures they have come from 2016, before changes in the Tax Cuts and Jobs Act of 2017 took effect.

In 2016, only about 13,000 of the people who died had to file estate tax returns.

Only 5,500 estates owed estate taxes. CBO analysts estimate that only about 2,800 estates will pay estate taxes this year.

About 236,000 taxpayers filed gift tax returns in 2018, and only 2,000 of those filers owed gift taxes, according to the analysts.

The analysts include a table showing that financial assets and real estate account for more than 80% of the value of the taxable estates.

Only about 10% of the value is related to businesses that people who have died want to pass down to heirs.

The Estate Tax and Federal Revenue

The CBO analysts note that they have trouble projecting how estate and gift tax proposals will affect federal revenue, because of factors such as uncertainty about the degree of estate planning.

“Tax planning can affect the size and composition of an estate’s assets,” the analysts write. “People may have varying ideas about future tax legislation and about how the law will be applied to their estate. Those factors can affect the degree to which they engage in estate tax planning and other behaviors to minimize their tax liability. For example, some people may set up trusts so that their assets can be transferred to a beneficiary without incurring estate and gift taxes while allowing the donor to receive income from those assets. Other people may decide to sell an asset and realize a capital gain if they anticipate that tax rates on capital gains will rise in the future (or, conversely, they may delay realizations if they believe that rates are likely to be lower in the future.”

The analysts add that, because so few large estates file estate tax returns, they are not sure how well they understand the top end of the wealth distribution.

The Estate Tax and Saving

The CBO analysts say that, in theory, a high estate tax could cause people to spend more money while they are alive, to save and spend less, and to leave less money to heirs.

“Overall, however, the empirical evidence on the effect of the estate tax on savings is inconclusive,” the analysts write.

One reason is that some taxpayers may save and invest more, to offset the effects of the estate tax on the size of the bequests they leave to heirs, the analysts write.

The Estate Valuation Section

The administration of President Joe Biden has proposed trying to increase federal estate tax revenue by include the value of asset appreciation in the size of an estate.

The CBO analysts have included a discussion of how inherited assets are valued for capital gains taxes in the new guide.

“If accrued capital gains were taxed at death, then estates might need to liquidate assets to pay the tax liability due,” the analysts write.

One administrative wrinkle would involve helping taxpayers who were not sure how to calculate the level of capital gains on the assets in an estate.

“Policymakers would need to consider what basis to use to value a decedent’s assets if the original basis could not be determined,” the analysts write.

(Image: Andrey_Popov/Shutterstock)