Federal Estate Tax: Examining the Impact on Small Farms and Businesses in Washington

What is the impact of the federal estate tax on mom and pop shops and small family farms? This question has been central to the debate around changes to estate tax law likely to be taken up by Congress later this year. According to new analysis from the Tax Policy Center, a joint project of the Urban Institute and Brookings Institution, only one hundred small farms and businesses across the country would owe any estate taxes in 2011. This would be under President Obama's proposal to freeze the estate tax at 2009 levels ($3.5 million exemption per individual and a 45 percent tax rate).

The Center also did a rough state-by-state analysis using IRS data on estate tax returns filed in 2007 to provide a gauge for how those 100 family-owned farms and businesses would be divided. (This isn’t a perfect measure because the exemption was $2 million in 2007.) What is Washington's share? Assuming a freeze at current levels, roughly two small farms and businesses in Washington State would owe estate tax in 2011.

The Senate Budget Resolution, which was passed on April 2, includes an amendment that would raise the exemption to $5 million per individual and lower the tax rate to 35 percent. Under this proposal, the Tax Policy Center estimates that the number of small businesses and farms would be reduced to 40 nationwide in 2011.

If enacted into law, this policy change would cost the federal government close to $100 billion in lost revenue over ten years.* Any action on the estate tax this year will play an important role in budget considerations because the estate tax provides a substantial revenue stream to the federal government.

*This is an updated figure. See this paper from the Center on Budget and Policy Priorities.