Here’s a contradiction for you: The estate tax affects only 0.2 percent of American families—the wealthiest one-fifth of 1 percent of the population, yet 54 percent of Americans want to repeal it.
Why? Because years before Donald Trump ran for president, the push to repeal the estate tax was the original phony populism, disguising a windfall for the ultra-rich as a boon for working families. And now, thanks to the Republican majority and Trump tax plan, the con may finally work.
Established in 1916, the estate tax is a tax on inheritances over (at present) $5.4 million. It is paid by the estate of the deceased, and only affects the wealthiest Americans, who have long loathed it.
In the 1990s, Republican Svengali Frank Luntz rebranded the estate tax as the “death tax.” That makes no sense conceptually, since of 1,000 people who die, only two have to pay it. Those are the same odds as being born with 11 fingers or toes.
But it makes a lot of sense politically: The government even taxes you when you die! How awful! Thus “death tax” entered the partisan lexicon, persuaded millions of “white working class” Republicans to oppose a tax that only hits the richest of the rich.
Oddly, the Democrats haven’t fired back—at least, not with much success. Maybe they should call the tax the Millionaire’s Inheritance Tax, or the Silver-Spoon Tax, or the Tax on the 0.2 Percent—something that actually reflects who pays it and why.
The fake name is just the beginning, though. During the 2016 campaign, Republicans said the tax affected “millions of families.” That’s simply false. In fact, only 11,931 estate-tax returns were filed in 2014 (out of two million people who died), down from 109,600 in 2001.
Nor is there any evidence of people losing family farms or family businesses as a result of the estate tax, a sob story one hears often from estate-tax opponents. In fact, only 50 farms or businesses are liable for any estate tax at all in 2017, and none of those were lost as a result. The sob story simply doesn’t happen—and if it ever did, it would be easy to carve out an exemption for farms or businesses. It’s a non-issue.
Not only does the estate tax affect no one but the wealthiest sliver of America—thanks to the 2001 Bush tax cuts, it exempts more and more of them. In 2001, your first $650,000 was exempt. By 2016, the exemption grew to $5.43 million for an individual and $11 million for a couple. The top rate has also dropped to 40 percent from 55 percent. Already, in other words, the estate tax is a shadow of its former self, hitting only 10 percent of the people it affected 15 years ago.
There’s a deeper untruth at work here, however: the myth that in America, hard work is rewarded and the rich have earned their wealth.
Actually, between 35 and 45 percent of wealth in America is inherited, not earned. Sure, Bill Gates and Warren Buffett came from modest beginnings, but much more common are the obscure, faceless millionaires who were lucky to be born to other millionaires.
And that figure doesn’t even account for wealth generated on the basis of family money. Trump himself, for example, started out with around $14 million in loans from his father, and inherited an additional $35 million when his father died. (Needing cash in the 1990s, Trump borrowed about $9 million against this expected inheritance. Trump’s dad also bought $3.5 million in casino chips as an additional loan to his son.)
Whatever successes and failures Trump’s businesses generated, they began with tremendous advantages of interest-free financing and starting capital. It pays to be born with a fake-gold-plated spoon in your mouth.
Now, leaving money and property to your children is the American way. No one is arguing for a 100 percent estate tax, or no exemption, or anything so drastic. Nor is there an implicit claim that people with large estates are greedy or undeserving. What the Silver-Spoon Tax represents is a modest corrective to the natural tendency of capital to accrete in fewer and fewer hands.
In fact, now is the time to increase the Millionaire’s Inheritance Tax, not decrease it. Our country has now exceeded even Gilded Age levels of wealth concentration; we have to go back literally to feudalism to find a time in which the wealthiest owned so much and everyone else so little.
Forget the 1 percent. The top 0.1 percent own as much wealth as the bottom 90 percent. That’s triple the ratio in 1980, and it was last seen on the eve of the Great Depression. Indeed, while the Reagan Revolution was also, in part, about a resurgent American patriotism, the rise of the Christian Right, and the end of the Cold War, perhaps its most lasting impact is on the redistribution of wealth that it initiated, and that we are still living with today.
That’s why our country has begun to resemble a commercial aircraft, with an ultra-luxe first class, and an increasingly cramped and unpleasant coach cabin. An increase in the estate tax would be a modest corrective to these trends, slightly offsetting the explosion in inequality in recent years. This much inequality is both unjust and risky, as increased concentrations of wealth make access to capital more difficult for everyone else—not to mention the possibility of social unrest.
Of course, there would still be dozens of ways for the super-wealthy to continue to prosper, and to game the system. Donald Trump has paid no income tax for years, thanks to clever tax planning. Tax loopholes like the “step up in basis” allow rich families to shield huge real-estate gains from any taxation at all. Raising the estate tax would only be a slight rebalancing of the scales, correcting for the runaway wealth-gap increase of the last three decades.
Is there hope for rational thinking, when it comes to the Silver-Spoon Tax?
There is reason for optimism and pessimism.
On the one hand, as Gene Sperling recently noted in The Atlantic, when the estate tax is described correctly, people favor it. For example, when Sperling spoke with one person who favored estate-tax repeal, it turned out he actually supported “a proposal that would allow him and his wife to leave up to $7 million to their children without paying any tax, and only tax people on the amount they left that was more than that.” Even though that would represent a significant increase, not a decrease, from the status quo.
Generally, whether it’s desegregation or same-sex marriage, marijuana prohibition or Vietnam, it’s hard to win a policy battle if you’re just plain lying. At least in the long term.
On the other hand, the “death tax” label has stuck, and Americans don’t think you should have to pay taxes when you die. The fact that it’s only 0.2 percent of “you” who have to pay it is one of those facts left conveniently unsaid on Fox News.
Certainly, in the short term, the most Democrats can hope for is to play defense. In the long term, though, I wonder if the Millionaire’s Inheritance Tax isn’t the perfect illustration of the phony populism of the Trump era. There is no justification for estate-tax repeal—only the desire of the super-rich to become even super-richer. The emperor has no clothes. Progressives should grab him by the you-know-what.