Right now what a potentially large portion of what a person has earned (and paid taxes on already) for his entire life becomes fair game for the tax man again upon his death. The Republican majority in Congress may try to repeal the “death tax” in the coming session and that will almost certainly ignite a major class warfare skirmish.
South Dakota Sen. John Thune and other top Republicans will launch a new drive to repeal the estate tax next year, while pulling back on efforts to force a year-end vote aimed at blocking a proposed Treasury Department rule that would tighten levies on inheritances.
Thune, a senior Finance Committee member, has voiced confidence that there would be consensus support for his proposal to repeal the estate tax as part of a broad tax overhaul in the 115th Congress.
“If we can get into a debate about comprehensive tax reform, the odds are good that we can repeal the estate tax,” the South Dakota Republican said in an interview.
That would be no small accomplishment. The estate tax has been on the books for a hundred years.
Currently, individuals can inherit estates worth up to $5.45 million without being taxed. Estates valued over that threshold are taxed at a rate of 40 percent, under a bipartisan compromise that was included in the 2013 fiscal cliff deal. According to GOP aides, full repeal of the estate tax would cost an estimated $200 billion over 10 years.
First, let’s clear up the misleading language. Allowing you to keep more of your money (as opposed to confiscating it at gunpoint) is not a negative cash flow for the government. To say repealing a tax “costs” the government money is categorically untrue. They are not writing you a check from the treasury for money that wasn’t yours in the first place. They are simply not confiscating your money where they once were confiscating your money. Naturally the government speaks in terms of its own costs because they have the money (and then some) spent long before the taxpayer writes a check to the IRS.
Second, the current death tax deal allows you to bequeath an estate of up to $5.45 million without being taxed. How magnanimous. What this means is that politicians in Washington have made a value judgement on how much of your property you should be allowed to pass on to your family when you die. People you don’t know and most of whom you never voted for get together and make deals about how much of your property you deserve to keep in your family. People who owned businesses or property valued at more than $5.45 million currently have to give the government forty percent of the difference. So if you buy a house, a business, a farm, etc. for less than $5.45 million dollars and over time it becomes worth more than that, it is quite possible that your loved ones won’t be able to afford to inherit it. That is immoral.
When the modern death tax was implemented in 1916 it was far less draconian.
In the early 20th century, worldwide conflict cut into trade tariffs–a mainstay of federal revenues–and Congress turned to another revenue source. The Revenue Act of 1916, which introduced the modern-day income tax, also contained an estate tax with many features of today’s system. After an exemption of $50,000 (over $11 million in terms of today’s wealth), tax rates started at 1 percent and climbed to 10 percent on estates over $5 million (over $1 billion in terms of today’s wealth).
You can’t talk about repealing the death tax without class warfare, especially now that we have a President-elect who is part of the über-wealthy. The left will certainly take full advantage of the public’s perception of Donald Trump’s opulent lifestyle. Left leaning people like potential DNC chairman Rep. Keith Ellison think your family doesn’t deserve to inherit what you’ve spent your life working for. It needs to be redistributed to more acceptable people.
Republicans promote estate tax repeal as a way to preserve jobs and save small businesses. But liberals such as Minnesota Democratic Rep. Keith Ellison argue that full repeal would mainly provide a windfall to wealthy investors, including Trump and his family and some of the billionaires and millionaires he has selected for his Cabinet.
“This is 100 percent self-serving — billionaires lining their own pockets. It means we are going to institutionalize an American aristocracy based on wealth,” Ellison said.
Mr. Ellison would probably prefer to institutionalize an American aristocracy based on having held elected office or being a crony of someone who has. Think about his statement and what it means. His reason for wanting a death tax isn’t because the government desperately needs the money. He wants the death tax to remain in effect so he can take money away from people who he believes don’t deserve to keep it.