IT WILL not be a question of whether prominent 2020 Democratic presidential candidates favor hiking taxes on the very wealthy. It will be a question of how they propose to do it. Sen. Elizabeth Warren (D-Mass.) last month suggested a wealth tax of 2 percent per year on fortunes of more than $50 million, an idea that is constitutionally questionable and logistically difficult. Sen. Bernie Sanders (I-Vt.) entered the scene Thursday with a better plan: substantially hiking the estate tax on huge inheritances, an alternative to taxing someone’s fortune during his or her lifetime.
The country has an estate tax, but the rate and the amount exempted from the inheritance tax have bounced around as Republicans and Democrats have fought a tug of war over its terms. The number of estates hit with some level of inheritance tax has plummeted from more than 50,000 in 2001 to fewer than 10,000 in recent years. The 2017 GOP tax law doubled the inheritance tax exemption from $11 million per couple to $22 million per couple, driving the number of estates liable to pay the tax below a negligible 2,000 per year.
This was just the latest victory in Republicans’ push to protect wealthy heirs at the expense of the federal purse, and one of the most obvious giveaways to the superwealthy in the 2017 tax cut law. The Center on Budget and Policy Priorities pointed out that, even for those heirs getting more than $22 million, the latest estate tax reform amounted to giving them a $4.4 million tax break on the newly exempted portion of their inheritance. The price tag for the federal government is $83 billion over a decade — or, put another way, $83 billion in extra debt over a decade.
Mr. Sanders wants to roll back the GOP reform — and more. He would insist that estates worth more than $3.5 million pay at least 45 percent on money over that threshold, with higher tax brackets scaled to the size of the fortune in question. The rate would be 77 percent — the top rate from 1941 to 1976 — on estates worth more than $1 billion. Because such a plan would spur estate planners to seek legally creative ways to avoid inheritance taxes, Mr. Sanders would also close some loopholes currently used as tax avoidance vehicles. Mr. Sanders estimates that his plan would raise $315 billion over a decade.
That revenue is badly needed. Federal debt as a share of the economy has spiked. Rising generations face huge challenges paying for the health care and pensions of their retiring parents. Meanwhile, the very wealthiest Americans have done extremely well in recent decades, with a drift toward an ever-higher concentration of national wealth at the top. Weak inheritance taxes have contributed to this trend. Critics charge that the estate tax taxes income twice, first when it is earned and second when it is inherited. Yet it also serves as a backstop against avoidance of other types of taxation, in which the wealthy excel.
Rich heirs would still be rich after paying a Sanders tax. But their unearned head start over their less fortunate cohort would be shorter, and the government would have more resources to help promote opportunity for everyone else.