Americans Are Gravely Mistaken About The 'Death Tax'

The estate tax only applies to the richest 0.2 percent of households.

WASHINGTON ― Whenever a small business owner dies, a cruel tax man swoops in on his mourning family with a hefty bill, forcing the children of farmers and mom-and-pop shops to sell off the family business to pay the government.

That’s the story Republicans have been telling for years about the “death tax” ― their scary name for the estate tax. In reality, this longstanding part of the tax code only affects multimillionaires. And as President Donald Trump and Republicans in Congress make yet another run at eliminating the tax, a HuffPost poll suggests their fearmongering works.

“We are going to protect thousands of family businesses by ending the crushing, horrible, and unfair estate tax, sometimes known as the death tax,” Trump said in a speech last week in Harrisburg, Pa. “That’s a tax that has destroyed so many businesses and kept those businesses out of your family, your children, your grandchildren. It’s very sad.”

Just like the claim that American businesses pay the highest taxes in the world, the notion that the estate tax cripples legions of small businesses is highly dubious. For starters, the tax is levied only on individual estates worth more than $5.4 million after deductions and credits. The one-time tax rate on the estate above that threshold is 40 percent.

The nonpartisan Tax Policy Center has estimated that only 5,460 individuals who die this year will have to pay. The vast majority hail from the top 10 percent of income earners ― and very few are farmers or small business owners. The inclusion of an estate tax repeal is partly why the richest 1 percent of households would be the primary beneficiaries of the Republican tax plan.

This is not to say that there are no small businesses or family farms in the U.S. that could end up needing to sell off assets or take out a loan to pay an estate tax bill ― just that it’s a lot, lot less common than Trump and other Republicans would have you believe. The Tax Policy Center estimates that only 80 small farms and closely held businesses will pay the estate tax for this year, or about 1 percent of all taxable estate tax returns in the country.

Still, many Americans are under the impression that the estate tax is something they’ll have to pay. In a recent HuffPost/YouGov survey, 30 percent of respondents said they think most families have to pay the tax, and nearly a third that it was at least somewhat likely their own family would have to pay.

That misperception has a significant effect on their feelings about the tax itself, as the survey shows. Poll respondents were split into two groups. Half were asked simply whether the estate tax should be kept in place or eliminated. They said by a 14-point margin that it should be scrapped. The other half were first told that the tax affects only estates worth more than $5 million. That group said by a 17-point margin that the tax should stay.

In what is probably a testament to the power of dishonest political rhetoric ― or maybe to the failure of political journalism ― 28 percent of respondents with annual household incomes beneath $50,000 said their family would be likely to have to pay the tax at some point. While hardworking Americans may be optimistic about their prospects to one day own large estates, nearly two-thirds of estates expected to pay the tax for this year are worth more than $20 million, according to the Tax Policy Center.

Republicans point to examples of small businesses that might be hurt by the tax, though it is often difficult to verify whether those businesses would be affected by the tax at all, much less crippled by it. In his speech last week Trump used the example of Calvin Ewell, owner of H.R. Ewell, Inc., a food transportation company based in East Earl, Pennsylvania.

“The Ewells has been a trucking business and in the trucking business since 1946,” Trump said. “Trucking runs in their blood, and Calvin wants to pass his company along to his children, just as it was passed down to him by his father.”

Trump implied that the “death tax” would prevent Ewell from passing the business to his son. Ewell said in a statement on the American Trucking Association’s website that cutting business taxes would benefit his company and that eliminating the estate tax would keep the business in the family.

“Trucking is a low-single-digit-margin business, and family-owned companies aren’t flush with cash, but they have millions in capital tied up in trucks and facilities, so eliminating this tax will preserve our small family trucking businesses as a small family business,” Ewell said.

Ewell did not respond to HuffPost’s requests for more information about how the estate tax would affect his company.

In order to know whether a given business would be subject to the tax, one would have to look at the firm’s organizational structure, the value of ownership interest held by each member of the firm, and whether the company has debt or other investments, said Neil Harl, an estate tax expert at Iowa State University.

“It would be almost impossible without access to the books of the firm” to tell if its owners would have to pay the estate tax, Harl said in an email.

The notion that the estate tax destroyed small businesses might have made more sense back when the tax applied to smaller fortunes. Before the George W. Bush tax cuts of the early 2000s, the tax kicked in for estates worth just $675,000. But even then, most taxable estates were able to pay.

In a 2005 analysis of estates that had been subject to the tax at its lower level, the Congressional Budget Office found that only small numbers of the estates faced a bill that exceeded the value of the assets that could be easily used for payment.

“The vast majority of estates, including those of farmers and small-business owners, had enough liquid assets to pay the estate taxes they owed,” the CBO said.

Frank Luntz, a Republican pollster and strategist, encouraged Republicans in the 1990s to call the “estate tax” a “death tax” instead.

“It’s the same tax, but nobody really knows what an estate is,” Luntz told PBS in 2004. “But they certainly know what it means to be taxed when you die. I argue that is a clarification; that’s not an obfuscation.”

Use the widget below to further explore the results of the HuffPost/YouGov survey, using the menu at the top to select survey questions and the buttons at the bottom to filter the data by subgroups:

The HuffPost/YouGov poll consisted of 1,000 completed interviews conducted Sept. 29-Oct. 2 among U.S. adults, using a sample selected from YouGov’s opt-in online panel to match the demographics and other characteristics of the adult U.S. population.

HuffPost has teamed up with YouGov to conduct daily opinion polls. You can learn more about this project and take part in YouGov’s nationally representative opinion polling. More details on the polls’ methodology are available here.

Most surveys report a margin of error that represents some, but not all, potential survey errors. YouGov’s reports include a model-based margin of error, which rests on a specific set of statistical assumptions about the selected sample rather than the standard methodology for random probability sampling. If these assumptions are wrong, the model-based margin of error may also be inaccurate. Click here for a more detailed explanation of the model-based margin of error.

Ariel Edwards-Levy contributed to this story.

CORRECTION: A previous version of this story incorrectly reported that taxable estates face a graduated tax rate, when in fact they face a flat 40 percent rate. The sub-headline of a previous version of this story also misstated the percentage of households subject to the estate tax. It is 0.2 percent, not 0.02 percent.

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