Tax plan revives wealth debate

President’s reform plan would eliminate the estate tax, which is abhorred by the rich.

The estate tax amounts to a rounding error in the federal budget, but the levy paid by precious few taxpayers plays an outsized role in the debate over growing income inequality and tax reform.

Opponents decry the estate tax as a wealth-sapping “death tax,” a form of double taxation that punishes hardworking Americans for their financial success. Proponents say it’s an appropriate way to tax the wealthy, and a useful barrier to creating a new American aristocracy.

President Donald Trump in late September unveiled a tax proposal that includes eliminating the estate tax, although it’s no sure thing that he’ll persuade Congress to go along.

Politically, killing the estate tax is a tough sell because it’s paid only by the rich: It applies exclusively to individual taxpayers who die with a nest egg of $5.49 million or more. The limit for married couples is $10.98 million.

Fewer than 1 in 500 Americans who die in a given year are wealthy enough to pay the tax, according to the nonpartisan Tax Policy Center. It estimates that just 5,460 Americans will owe the estate tax in 2017.

Few Americans pay the estate tax — imposed at a rate of 40 percent — because few manage to accumulate millions. Those who are wealthy enough to worry about the estate tax often hire teams of accountants and estate-planning attorneys to create trusts, buy life insurance policies and employ other strategies to minimize the bill.

“It’s an optional tax,” said Timothy Speiss, a tax partner at EisnerAmper, a firm with offices in Miami and Fort Lauderdale. “If you’re really hyper-focused on this, there are lots of techniques — perfectly legal — that you can use to move assets to the next generation during your lifetime.”

Richard Rampell, a CPA in Palm Beach, said one of his clients has

a $150 million fortune. With no tax planning, the client’s heirs would lose 40 percent — or $60 million — to the estate tax. By employing a variety of tax tactics, Rampell whittled the tax bill down to $20 million.

Rampell said his client has issued a standing order to reduce the estate tax bill to zero — an antipathy toward the death tax that’s common among wealthy taxpayers.

“They don’t like it,” Rampell said. “They feel like they’ve worked really hard, and they want to keep it in the family.”

Rampell acknowledges mixed feelings about the estate tax.

“It’s a hard question whether you think this is good for society,” Rampell said. “As a revenue raiser, it does not raise a lot of revenue. But should there be aristocratic families that are able to hand down their wealth from generation to generation?”

Warren Buffett, one of the world’s richest men, calls Trump’s proposal to end the estate tax a “terrible mistake,” and he has seized on the aristocracy argument.

“I sure don’t think it’s good for society, where there’s a ton of inequality to start with,” Buffett said during an interview with CNBC Tuesday. “The wealthy are so much wealthier now than they were 25 years ago. We’re talking about the 400 (richest) now having $2.4 trillion against $90 billion — 25 times as much money.”

The estate tax last came under attack when George W. Bush was president. In 2001, the amount of estates subject to tax was just $650,000. However, that limit rose sharply under Bush’s tax cuts. In 2010, during a oneyear hiatus, the estate tax didn’t exist at all.

The estate tax generates an estimated $20 billion a year, and opponents say it serves as a disincentive to accumulating wealth. However, independent observers dispute that notion.

“It’s possible some people work a little less hard,” said Roberton Williams, an analyst at the Tax Policy Institute. “But there’s no strong evidence that having the estate tax retards economic activity.”

Democrats already have seized on ending the estate tax as a boon to Trump’s children. If the president were to leave an estate worth $1 billion to his heirs, they’d owe $400 million in estate taxes under current tax policy.

Even before Congress votes on Trump’s tax proposal, the president has moved to take the bite out of the estate tax. Treasury Secretary Steven Mnuchin said Wednesday that he was reversing Obama-era rules that would have boosted estate taxes on family-owned businesses.

Charities fret that the end of the estate tax would remove a powerful incentive for wealthy donors. Philanthropists often time major contributions to coincide with their deaths, a move that eases fears of outliving their money. As an additional incentive, donations aren’t subject to the estate tax, essentially creating a 40 percent discount on large gifts.

Palm Beach County fundraisers declined to comment on Trump’s proposal, but tax experts say ending the estate tax could force charities to work harder for donations.

“With no tax benefit,” Speiss said, “you’ll truly have to be reliant upon benevolence.”