Estate Tax Revenue Drops More Than Expected

The following excerpts are from Robert Frank, The Wealth Report: Death Certain; Taxes, Not So Much; Bush’s Cuts Can’t Explain Fall in Estate-Tax Haul; Have Rich Stopped Dying?, Wall St. J., Feb. 2, 2007:

Amid an explosion of American millionaires, the IRS has released a surprising statistic: The number of U.S. citizens who filed returns stating they owe estate tax fell to 18,431 in 2005, down by more than one-third from 2004. During the past decade, the Internal Revenue Service estimates, the number of estates slated to pay the tax has fallen by more than 60%.

Much of the drop was expected. After the Bush-administration tax cuts of 2001, which gradually raised the minimum wealth level required to trigger the tax to the current $2 million from $675,000, many estates that used to be subject to the tax now fall below the threshold. * * * Yet the rising exemption doesn’t explain the entire drop.

Edward Wolff, an economics professor at New York University, believes the drop is due in part to what the wealth-management industry refers to as “tax-efficient estate planning.” In other words, the wealthy — and their sophisticated accountants and trust-and- estate lawyers — are getting better at finding legal ways around the tax. * * *

There may be a second, less visible reason for the drop in estate taxes: The rich are getting younger.

Special thanks to Prof. Joel C. Dobris of the University of California-Davis for bringing this article to my attention.