Today, an individual can leave an estate worth nearly $14 million and a couple can leave an estate worth nearly $28 million before any estate tax is levied at all.
Editor’s Note: Amy Hanauer isthe executive directorof theInstitute on Taxation and Economic Policy. Naomi Walker isthe executive vice presidentof theEconomic Policy Institute. The views expressed here are their own. Read moreopinionat CNN.
CNN —
The federal estate tax should be an effective tool to slightly level the playing field between those who inherit wealth and those who have to work for a living. It should also ensure thatfamily dynasties who’ve amassed enormous fortunes pay their fair share in taxes.
Amy Hanauer
Naomi Walker
But because policymakers have repeatedly doubled and tripled the immense sums that can be passed on before the tax kicks in, theestate tax todayaffects almost no one.
The estate tax exemption —the value of an estate that a mega-millionairecanown before facing taxes— has grown somuch over the past quarter centurythat just eight of every 10,000people who died in 2019 left behind an estate that was large enough to be subject to the tax, currently at 40%.Today, an individual can leave an estate worth nearly $14 million and a couple can leave an estate worth nearly $28 million before any estate tax is levied at all.
And because the part of the estate that is taxable is usually further whittled down by deductions for charitable bequests, for the small share of estates that are taxed, typically only about 20% of thetotalestategoes toward the federal estate tax.
Now,some particularly inequality-loving members of Congress are pushing to eliminate this tax entirely. Abill to repeal the estate taxhas 166cosponsors.And while the proposal is unlikely to pass in this Congress, it could certainly pass if Republicans take control of a future Congress and the White House, as they did in 2016.
Even leaving aside this preposterous proposal, the current enormous estate tax exemption ensures that the children of the very richest will get ever richer, while regular children starting out — sans inheritance — will fall even further behind.
It didn’t used to be this way. In 1998, an estate’s first $625,000 of assets was exempt from thetax, with only around2%of estates owing anything. That would translate to a little more than $1 million today.
During the Bill Clinton, George W. Bush and Barack Obama presidencies, policymakers dramatically increased theexempted portion: to $1 million in 2002, $2 million in 2006, $3 million in 2009, $5 million in 2011.After 2011 it was also linked to inflation, unlike policies that actually help workers, like the federal minimum wage.
Former President Donald Trump and his supporters in Congress then doubled the estate taxexemption to more than$11 million in 2018, further enriching the ultra-wealthy. It has grown with inflation since, to nearly $14 million today (or nearly $28 million for a couple).
Those who loveenormous inheritances argue that someone who works hard should get to pass some of that along. To be clear: Even the strongest version of the US estate tax always allowed the equivalentof more than $1 million in today’s dollars to go tax-free to privileged heirs. The debate is only over how much of it should go totally untaxed to the kids.
The ever-growing estate tax exemption further enriches the tiniest sliver of the wealthiest mega-millionaires as they pass on intergenerational wealth. By continuously expanding it, policymakers are supercharging extreme inequality.
Our research found that92% of wealthheld byfamilies with a net worth of more than $30 million is owned by White, non-Hispanic households. Of course, a benefit that only goes to eight in 10,000 families leaves out the vast majority of White familiestoo.These enormous intergenerational wealth transferssend us backward onequity, no matter how we define it, andat a time when wealth inequality isalready soaring.
There are better options.Congress could allow the Trump-era changes to the estate tax expire as scheduled at the start of 2026, allowing theexemptionto revert to the level enacted under Obama, (which would be nearly $7 million per spouse today). Better yet, Senator Bernie Sanders and cosponsors seek torestore the estate tax exemptionto $3.5 million per spouse, which would still shield all but0.5% of estates from the tax. Additionally,President Joe Biden’sbudgetproposes closing some of the estate taxloopholes.
Doing so would raise real money. The officialrevenueestimators have said that Sanders’ proposal would raise roughly $400 billion over a decade, which istwice what we’d needto provide paid family leave to all American workers to care for a new baby or a sick family member.
Policymakers should restore a more reasonable estate tax — Sanders‘ proposal andBiden’s proposed loopholeclosures are a good starting point. The children and grandchildren of the uber-wealthy will be just fine. And the billions that would be generated can be directly put toward childcare, housing and education, so that regular kids have a fighting chance at a middle-class life.
