Recently, I read an interesting piece in the Washington Post entitled “People like the estate tax a whole lot more when they learn how wealth is distributed.” The article discusses a survey given to Swedish adults gauging their support for an estate tax. Researchers provided some survey respondents information about the estate tax, including the high level of wealth that is inherited. The respondents who were provided with these facts showed a greater proclivity to support the tax.
Here in the United States, the federal estate tax is again at issue, as is often the case. Republicans have once again introduced legislation to abolish the “death tax.” Personally, I find the term “death tax” to be a disingenuous and emotionally charged label implying that the tax is imposed not upon wealth but, instead, upon the very act of dying. To the contrary, Senator Bernie Sanders has introduced legislation to increase the estate tax rate upon the wealthiest 0.2 percent of estates.
In 2019, the federal estate tax exemption sits at $11.4 million per individual or $22.8 million per couple. Do you have $11.4 million in taxable assets? If not, this tax does not apply to you. Nor does it apply to most of your neighbors. According to the Tax Policy Center, “About 4,000 estate tax returns will be filed for people who die in 2018, of which only about 1,900 will be taxable – less than 0.1 percent of the 2.7 million people expected to die in that year.” Contrary to political rhetoric, the estate tax does not force the kids to sell grandma and grandpa’s corn field in order to pay any federal estate tax obligation. In 2017, “only about 20 small farm and business estates nationwide owed any estate tax.” See: https://www.cbpp.org/research/federal-tax/policy-basics-the-federal-estate-tax. In other words, to be taxed, that has got to be one heck of a nice corn field. Instead, unquestionably, the estate tax is a tax imposed upon the wealthiest individuals in the United States. The current tax rate is 40%. Compare that with the 55% tax rate imposed in 2001 on estates exceeding $675,000. Senator Sanders’s bill would impose a 77% tax rate on estates exceeding $3.5 million. Note that this is not a novel concept. This identical estate tax rate was imposed from 1941-1976. See: https://taxfoundation.org/federal-estate-and-gift-tax-rates-exemptions-and-exclusions-1916-2014/.
Meanwhile, the Congressional Budget Office states, “Debt held by the public, which has doubled in the past 10 years as a percentage of gross domestic product (GDP), approaches 100 percent of GDP by 2028 in CBO’s projections. That amount is far greater than the debt in any year since just after World War II.”
As indicated in the previously mentioned Washington Post article, similar to Sweden, in the U.S., “[t]he dynamics of wealth inheritance are also not widely understood.” What do you think should happen? Should the federal estate tax remain at current rates, be abolished, or tinkered with along the lines of Senator Sanders’s proposal?