A tax break for billionaires
To commemorate Tax Day, House Republicans plan to pass a bill Wednesday that would cut taxes by nearly $270 billion over the coming decade. Don’t break out the champagne, however — the money almost certainly isn’t going into your bank account. Instead, the tax break would benefit fewer than 5,500 households, or about one out of every 20,000 taxpayers, and the recipients would all be multimillionaires.
Why is the GOP, which has adopted so much of the tea party’s populist rhetoric, so eager to cut the elites a break worth an estimated $3 million on average? Because the tax at issue is the estate tax, which has become a Republican symbol for big government’s rapaciousness and Washington’s nasty habit of penalizing success. Senate Republicans called for repealing the estate tax as part of the budget proposal they passed last month; the House bill (HR 1105) seeks to put that repeal into effect, allowing millionaires and billionaires to leave their fortunes to their heirs untaxed. By the sponsors’ reckoning, the estate tax (or “death tax,” as they prefer to call it) is the main reason family farms and businesses aren’t passed on from generation to generation. It’s also, they say, an unfair levy on income that’s already been taxed.
That’s a compelling narrative, but the plot points are either misleading or just plain false. Because of the exemptions already in the law — most notably the one imposing no tax at all on individual estates worth up to $5.4 million (or $10.8 million for a couple) — the Congressional Research Service estimated that less than 0.2% of all estates, and less than 2% of those built around a farm, have to pay estate taxes. The service also estimated that fewer than 100 estates built around small businesses are likely to face the tax in any given year.
In addition, one-third to one-half of the value in the estates worth more than $5 million comes from capital gains that have never been taxed. That puts a hefty dent in the “double taxation” argument. Besides, income is usually taxed twice — once when it’s earned (income taxes) and again when it’s spent (sales taxes and property taxes) or bequeathed (estate taxes).
Critics argue that repealing the estate tax would exacerbate the mounting income inequality in the United States, but sophisticated estate planning already blunts the tax’s ability to counteract that trend. Instead, the one thing repealing the estate tax would surely exacerbate is the federal budget deficit, a gap that Republicans pledged in March that they would close within a decade. It’s hard to see how doling out multimillion-dollar gifts to the wealthiest Americans helps them on that front.