Opinion: The estate tax should help to level the playing field. Instead it’s letting the rich get richer

Opinion by Amy Hanauer and Naomi Walker

(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 that family dynasties who’ve amassed enormous fortunes pay their fair share in taxes.

But because policymakers have repeatedly doubled and tripled the immense sums that can be passed on before the tax kicks in, the estate tax today affects almost no one.

The estate tax exemption — the value of an estate that a mega-millionaire can own before facing taxes — has grown so much over the past quarter century that just eight of every 10,000 people 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 the total estate goes toward the federal estate tax.

Now, some particularly inequality-loving members of Congress are pushing to eliminate this tax entirely. A bill to repeal the estate tax has 166 cosponsors. 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 the tax, with only around 2% 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 the exempted 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 tax exemption 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 love enormous 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 equivalent of 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 that 92% of wealth held by families 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 families too. These enormous intergenerational wealth transfers send us backward on equity, no matter how we define it, and at a time when wealth inequality is already 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 the exemption to revert to the level enacted under Obama, (which would be nearly $7 million per spouse today). Better yet, Senator Bernie Sanders and cosponsors seek to restore the estate tax exemption to $3.5 million per spouse, which would still shield all but 0.5% of estates from the tax. Additionally, President Joe Biden’s budget proposes closing some of the estate tax loopholes.

Doing so would raise real money. The official revenue estimators have said that Sanders’ proposal would raise roughly $400 billion over a decade, which is twice what we’d need to 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 and Biden’s proposed loophole closures 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.

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