Over at Real Clear Policy today, I’m pointing out how the repeal of the federal estate tax — which the House is expected to consider this week — would significantly increase budget deficits, widen wealth inequality, and benefit only the wealthiest estates.
As I explain, repealing the estate tax would benefit the heirs of the wealthiest estates greatly — and the vast majority of estates not at all:
Only the estates of the wealthiest 2 of every 1,000 people who die will owe the estate tax in 2015 under current law, largely because of its very generous tax-free exemption levels. The estate tax’s reach is limited to the biggest estates.
Under repeal, the roughly 5,400 estates that would otherwise owe any tax in 2016 would get a tax cut averaging more than $3 million apiece, Joint Committee on Taxation (JCT) data show. The estimated 320 estates worth at least $50 million would receive tax windfalls averaging more than $20 million each.
The repeal bill also would leave in place a loophole in the capital-gains tax. Consider estates that are worth more than $100 million. More than half of their assets are in the form of unrealized — and untaxed — capital gains (see chart). Normally, capital gains are taxed when they are realized, but those who inherit these assets are given a “stepped-up basis,” meaning that they are taxed only on gains that occur after the original owner died — and the gains that occurred earlier are never taxed at all. With estate tax repeal, wealthy individuals would be able to pass such assets along to succeeding generations without the gains ever having been subject to any tax.