By Josh Hoxie
Right-wing Republican lawmakers will soon renew their push for a full repeal of the federal estate tax, an effort many years in the making. Beneath the façade of estate tax repeal is an income tax cut excusing heirs of the fabulously rich from all taxation on unearned, inherited wealth.
The impact of a multi-decade repeal effort has rendered an estate tax system so porous that it has become effectively voluntary. Through the creative use of trusts, the upper echelons of America’s wealth hierarchy can avoid the estate tax outright. In recent years, trillions and trillions of dollars of wealth has been placed by the super-wealthy in giant trusts, safely beyond the reach of the estate tax not just for this generation, but for generations to come.
[Tweet “In 2012, the estate tax generated just $8.5 billion in rev. out of the estimated $1.2 trillion that was passed to heirs that year”] For those of you trying to find the trillion symbol on your calculator, that’s an effective rate of less than one percent. If we had a functioning estate tax system, there are individual Americans, like Sheldon Adelson or Alice Walton, whose individual estate tax bills would approach the $8.5 billion collected for the entire country. And if no changes are made, future estate tax receipts will continue to decline.
So if the estate tax is effectively dead, why are conservative Republicans like House Ways and Means Chairman Dave Camp so steadfast in pushing for its repeal?
The answer has little to do with estate tax and much to do with income tax. You see, the historic trade-off for those paying the estate tax has been that the assets held at death would receive a step-up in basis, allowing the estate to avoid paying income tax on the capital gains. However, in utilizing the exotic estate planning strategies necessary to circumvent the estate tax, the super-wealthy have had to give up the basis step-up.
Republicans in Congress have jumped to the billionaires’ aid and introduced legislation, euphemistically named the “Death Tax Repeal Act,” which would ensure that they can both avoid the estate tax and receive the step-up in basis, meaning that the capital gains generated over the long-term holding of a productive asset are effectively never taxed.
The bill, which currently has enough co-sponsors to pass the House, will enable generations of billionaires to pass boundless fortunes like manna from heaven for their heirs to enjoy free of the hindrances of taxation reserved for the rest of Americans forced to make their money by working for it.
Rather than repeal the estate tax, Congress should restore it by passing the Responsible Estate Tax Act recently introduced by Senator Bernie Sanders (I VT). This bill is a strong step towards addressing economic inequality through fixing the shortfalls in our current estate tax.
The only break we have on the concentration of wealth occurs when huge estates are trimmed substantially at the passing of each generation. If Washington doesn’t restore that mechanism, wealth will continue to concentrate at the top. Before long, we’ll be paying homage to trillionaires instead of mere billionaires.
Thomas Piketty outlined in his recent book, Capital in the Twenty First Century, that wealth inequality is at its highest point since the lead up to the Great Depression and there is no reason to believe wealth concentration will stop growing on its own. Piketty, using data going back centuries, upended the widely held assumption that markets will somehow self-correct widespread inequality. Rather than work to reduce inequality, our tax code for the past thirty years has widened the wealth gap by shifting wealth-based taxes to labor-based taxes with the diminished estate tax as just one example.
Restoring a robust estate tax, free of loopholes and gimmicks for estate planners to exploit, would check the build-up of unearned aristocratic wealth dynasties while also generating significant revenue to enable all Americans to have the opportunity to succeed.
Repealing the estate tax would constitute nothing more than a huge gift to the Paris Hiltons of tomorrow.