The Estate Tax Only Impacts the Wealthy. Repeal It Anyway
When the White House unveiled its intent to repeal the estate tax in September, critics were quick to the microphone. Senator Bernie Sanders dismissed the proposal as “absurd” and Senate Minority Leader Chuck Schumer called it an “egregious” tax cut for the rich. But Republicans have stuck to their guns so far, and on Thursday the official reveal of their tax plan showed that they intend to phase out the estate tax over the next six years. But more Democratic attacks are sure to test their resolve.
Under so much pressure from the left, President Trump was never going to let his detractors go unanswered. He has promised that the tax plan will “protect low-income and middle-income households, not the wealthy and well connected.” When it comes to the estate tax, this couldn’t be further from the truth. Our president and the wealthiest Americans are the only ones who would benefit from repealing the estate tax — but we should do it anyway.
The current tax, which applies a 40 percent levy on inheritances past $5.49 million, obviously only affects the estates of wealthy individuals. This will be even more true if the GOP’s new plan is implemented, because it would double the pre-tax exemption to $11 million. Even Trump’s Secretary of the Treasury, Steve Mnuchin, admitted that repealing the estate tax “disproportionately helps rich people.” Yet that hasn’t stopped many conservatives from trying to paint the tax in a different light.
The president lambasted the tax as a “tremendous burden” for family farms, and promised that he will no longer allow it to “crush the American Dream.” This is either a lie or willful ignorance. In 2016, only 153 out of 38,285 farms paid the tax — that’s just 0.4 percent. It only burdens a handful of family farms, and the only dream it’s crushing is Trump’s.
Still, liberals can’t imagine getting rid of the estate tax, because it’s so progressive. But just because a tax is redistributive doesn’t mean that it’s a good idea.
Under its current form, the estate tax results in a double or even a triple tax. Earners with estates large enough to qualify for the tax are likely in the top tax bracket, and many are already paying rates of up to 39.6 percent on much of the taxable income that will eventually form their estate. Heirs must then pay the 40 percent estate tax. What’s more, how they choose to spend their inheritance may be subject to sales or excise taxes as well. After the state is done chipping away, some of the most successful entrepreneurial and wealth-creating families are only allowed to keep a relatively small fraction of their own money. They might be rich, but that isn’t fair.
Our system regularly taxes transfers of wealth, but usually when a good or service is being exchanged — as when a boss pays his or her employee. But leaving your life’s earnings to your children after you die? The idea that anyone, even the wealthiest among us, should have to pay such a large tax even after income taxes strikes the majority of Americans as fundamentally unfair. A 2016 Gallup poll found that 54 percent of Americans supported repealing the tax.
Still, proponents of the estate tax insist that wealthy Americans shouldn’t be allowed to leave millions or billions just so their kids can live lavish lives. It’s easy to see why a tax system where everybody starts on a level playing field and has an incentive to be a productive member of society may be appealing in theory. But this view of property is actually rather troubling. When you own something, it’s yours; you aren’t just borrowing it from the government while you’re alive. If you can’t decide what happens to your property after you die, did you ever really own it?
There’s no denying that in our society some own a lot more than others. Democratic socialists such as Senator Sanders rally against the 1 percent, calling on them to pay their fair share. But in 2014, Americans with incomes over $250,000 contributed 51.6 percent of all income taxes, even though they made up only 2.7 percent of tax return filers. Repealing one tax won’t shift the tax burden overnight, especially since the estate tax only accounts for less than 1 percent of federal revenue.
Even if taxing the rich is a political imperative, there are fairer and more efficient ways to do it than the death tax. The estate tax isn’t even very difficult to avoid. Through legal maneuvering, charitable donations, and accounting tricks, many wealthy people have found ways to maneuver around or at least minimize the tax. That’s why Gary Cohn, President Trump’s chief economic advisor, proclaimed that “Only morons pay the estate tax.”
Widespread avoidance efforts are an obvious inefficiency — resources are put toward shirking taxes that could be used for something more productive. By contrast, the Tax Foundation, a right-leaning nonprofit that focuses on tax policy, found that repealing the estate tax would create 139,000 new jobs and increase investment by 2.2 percent.
It’s true that the estate tax only affects society’s top tier. But that alone isn’t justification for its existence. If Republicans are serious about making our tax system fairer for all Americans, a repeal of the estate tax is non-negotiable.
Brad Polumbo is a Young Voices Advocate and a student at the University of Massachusetts Amherst. He writes about civil liberties, free speech, and economic policy. His work has appeared in the Boston Globe and Spiked Online. He can be found on Twitter @Brad_Polumbo