Views expressed in opinion columns are the author’s own.
In President Trump’s first speech before Congress, he reiterated a campaign trail promise to provide “massive tax relief for the middle class.” The president hasn’t elaborated much on his plan, but the details released so far seem to dramatically favor America’s most affluent families. President Trump has remained fairly consistent on his intention to eliminate the estate tax.
The modern estate tax in the United States traces its origin to 1916. In its simplest form, it serves as a tax on an individual’s right to transfer property after death. It consists of an assessment of one’s “gross estate,” which is the combined value of all property and assets owned by an individual at the time of death. The tax is then levied on the portion of an estate’s value that is inherited by an heir, so long as the value of that estate exceeds the threshold set by Congress. Throughout U.S. history, this threshold has varied. Lately, however, the existence of an estate tax itself is under discussion.
During the 107th Congress, the Economic Growth and Tax Relief Reconciliation Act passed, bringing broad changes to the U.S. tax code. A portion of this bill aimed at the estate tax, gradually increasing the threshold subject to exemption until it was repealed altogether in 2010, only to be reinstated in 2011. Today, the top tax rate stands at 40 percent for estates valued at $5.49 million, $10.9 million for married couples, and there is strong indication that the estate tax itself is once again on the chopping block. America’s wealthiest families are already taxed at the lowest rates, with the largest amounts of exemptions, in over a decade. Outright repealing the estate tax would run counter to American ethics and lack any sort of fiscal sense.
Trump’s proposed plan involves replacing the estate tax with a capital gains tax on the sale of property or investments left to heirs. But under the capital gains tax, heirs are only taxed on the difference between the value of the asset at the time of inheritance and when they finally sell it. For simplicity’s sake, if the heir’s deceased relative bought a share of a company worth $1 million and it appreciates to $10 million by the time it’s passed down, then that $9 million difference is exempt from taxation when the heir sells the asset. This is a result of the stepped-up basis that inherited assets receive when later sold. Put clearly by Jonathan Blattmachr, a New York City estate lawyer, to Forbes, “If you’re rich, you want to get rid of the estate tax even if you have to pay a capital gains tax.”
An estate tax repeal would be a questionable decision for a president who campaigned on the promise of helping America’s middle class. The Center on Budget and Policy Priorities, a progressive think tank, notes that only 0.2 percent of Americans actually pay any estate tax at all. Hardly a problem for working-class Americans, the estate tax is more of a concern for the president and his rich cabinet members. Still, that doesn’t stop people like Senate Finance Committee Chairman Orrin Hatch from routinely pushing the estate tax as a “death tax” that cripples family farms and hard working rural families.
While it’s true the estate tax does evaluate all assets to include land and farm equipment, this applies to an incredibly small number of farms. Only 50 small farms are estimated to pay an estate tax in 2017, according to the Tax Policy Center, a nonpartisan think tank. This is projected to amount to only 0.001 percent of the total estate tax revenue. Additionally, there are provisions in the tax code to help farmers pay the estate tax in installments, and more exceptions could always be added rather than force an outright repeal. These numbers don’t support the idea that the estate tax is a burden on small, family-owned farms. So, the argument becomes more of an ethical one.
Rather than calling the estate tax a “death tax,” NPR notes that it would be more appropriate to call it a “Paris Hilton tax.” Wealth has become ridiculously concentrated in the top 1 percent of Americans. When the estate tax is implemented, it’s overwhelmingly focused on the inheritors of huge fortunes. It serves an important purpose in a society by preventing the accumulation of land and wealth within a small group at the top. An estate tax serves to counter the problem of a landed gentry, wherein the repeated bequeathal of large fortunes enables a blessed class to continuously amass wealth without new contributions to society. The massive gaps in wealth inequality we’re already experiencing will only be further exacerbated if newly implemented tax policies continue to favor America’s wealthiest.
Kyle Rempfer is a sophomore government & politics and Russian major. He can be reached at krempfer@terpmail.umd.edu.
