The estate tax repeal plan is a lot worse than you think
Suppose Donald Trump dies.
Doesn’t matter how. God decides the planet is worth saving after all. A Hot Pocket breaks free from his left ventricle and lodges in his aorta. Autoerotic asphyxiation. Whatever. Let your imagination run wild.
The point is Donald Trump dies, and several days later someone notices after his skin mysteriously starts turning a natural human color.
Who will benefit the most? Well, thanks to decisions Trump is making as president, it will very likely be his kids, because they’ll be able to inherit more of the fortune their father amassed as a result of his own inheritance and singular lack of shame.
You’ve probably heard that the estate tax — which Republicans are eager to repeal — affects a minuscule number of estates in this country (just 5,500 this year). Why? Because there’s a huge exemption for multimillionaires. Individuals can shield up to $5.49 million from the estate tax, and married couples can pass on nearly $11 million tax-free.
Furthermore, even if your estate exceeds the $5.49 million threshold, your heirs will be taxed only on the amount they receive in excess of that number. So if your estate is $5,490,001, they’ll be taxed only on the $1 that exceeds the amount of your exemption — or 40 cents total.
So it’s a pretty good deal for heirs. For example, if you’re one of two kids in your immediate family and your father leaves you and your sib his $5 million estate, you’re going to walk away with a $2.5 million windfall.
Which is why complaining about the estate tax — and advocating for its repeal — is so unseemly. By and large, the tax’s “victims” are “victimized” on the most prosperous day of their lives.
Oh, but it gets worse.
What few people probably know — and what Paul Ryan, et al., definitely won’t tell you — is that you could amass a huge fortune in this country and, if Republicans succeed in permanently repealing the estate tax, neither you nor your kids would ever pay tax on it.
The big lie that Republicans trot out every time the estate tax is debated is that it’s an unfair tax. It’s wrong, the argument goes, to tax people while they’re alive and then tax them again on the same income after they die.
But to a substantial degree, that’s not what’s happening.
Imagine this scenario. Suppose you were gutsy, shrewd, and wealthy enough to invest in the stock market back in 1980. Now suppose you bought $20,000 of Apple stock during the company’s initial public offering. If you’d died last week having never touched that stock, it would be worth $7.974 million today.
Now suppose the House Republican tax-reform bill that Trump is so eager to sign were law right now. None of those capital gains — $7.954 million worth — would ever be taxed. They would pass directly to your heirs without a penny ever going to the federal government to pay for housing, health care, badly needed infrastructure improvements, national defense, or even a xenophobic border wall.
That’s because those assets would all be subject to a stepped-up basis. What does that mean? It means that, because you died, the government treats those assets as if you’d just acquired them last week, rather than in 1980.
Here’s a good summary of the potential tax implications of the House bill, from Forbes staff writer Ashlea Ebeling:
President Donald Trump got his way on the estate tax in the tax cuts bill released today by the U.S. House of Representatives Committee on Ways and Means. The bill, H.R. 1, the Tax Cuts and Jobs Act, doubles the basic exclusion amount for gift and estate taxes from $5 million to $10 million per person, indexed for inflation, as of Jan. 1, 2018 (a couple could shield $22.4 million in 2018), and it repeals the estate tax and the generation skipping tax in six years, as of Jan. 1, 2024, while maintaining a full stepped-up basis for inherited property.
That’s incredible. Say you die with a $100 million portfolio of highly appreciated stocks, with a cost basis of just $10 million. There would be no estate tax, and your heirs could sell the stock right after your death and owe no capital gains taxes on the $90 million gain.
So that’s what House Republicans think is fair. Ponder that for a moment.
Not only that, while the estate tax affects a vanishingly small cohort of extremely rich heirs, its contribution to the U.S. Treasury is nonetheless substantial. According to the Joint Committee on Taxation, the weakening and eventual repeal of the estate tax under the Republicans’ tax-reform bill would blow a $172 billion hole in the budget over the next 10 years.
For comparison’s sake, the federal CHIP program, which provides low-cost health insurance to 9 million kids, costs $13.6 billion per year. And lo and behold, Republicans in Congress have let it expire.
Republicans will repeatedly lie and mislead about the estate tax repeal over the next few weeks. They’ve been doing it for years, and to a large extent they’re winning the battle for hearts and minds. After rebranding the estate tax as the “death tax” years ago, they’ve convinced millions of Americans that it’s an unfair levy on dead people.
Well, we need to reclaim the moral high ground and start calling it the “lifesaving tax,” because that’s what it really is.
After all, what’s more important: giving an extra $10 million tax-free to a rich kid who’s never worked a day in his life, or giving a poor kid access to doctor’s visits and hospital care?
That’s the choice, and the implications couldn’t be any clearer. It’s time — finally — for this charade to end. Republicans have been fooling too many middle-class taxpayers for far too long. No more.