Why The Rich Need To Plan For A Tougher Estate Tax, Not A Wealth Tax


At a tax conference exploring the populist idea of an annual wealth tax, the conversation shifted to the estate tax, which is on the books and hits the rich at death already. Why is that significant? Changes to the estate tax would be an easier way to address wealth inequality; they’re way more likely to happen than the pie in the sky idea of a wealth tax. And they could hit people at much lower levels of net worth. One of the ideas–eliminating stepped-up basis–could hit anyone with stock with built-in gains.

What’s a wealth tax? The latest proposal by presidential candidate Bernie Sanders would hit about 180,000 households; Sanders says the new levy would increase federal revenue by about 10%, raising $4.35 trillion over a decade. Individuals with a net worth of $16 million and up ($32 million and up for married couples) would face an annual tax, starting at 1% and topping out at 8% for married couples worth $10 billion-plus. Presidential candidate Elizabeth Warren has a similar, slightly less ambitious, wealth tax plan. But any new wealth tax would most certainly face constitutional challenge, and it probably wouldn’t raise the amount of revenue its supporters hope for.

By contrast, the estate tax (a.k.a. the death tax) has already been proven, although it’s been scaled back to such a degree that it only hits the ultra-rich. For now. The Trump 2017 tax cuts doubled the estate tax exemption, so the estate tax today hits individual estates valued at $11.4 million and up with a flat 40% tax (married couples can do planning to shelter $22.8 million). The threshold is scheduled to drop back to $5 million per person in 2026. To put this in perspective, in 2000, the estate tax kicked in for an individual estate worth just $675,000.

“The exemption under the estate tax has risen astronomically. Probably by most measures, it’s too high,” said Beth Kaufman, an estate lawyer with Caplin & Drysdale in Washington, D.C., who spoke at the Tax Policy Center’s Taxing Wealth conference. You could justify imposing higher estate tax rates at higher levels of wealth and starting at a lower threshold, she noted. There are also bills in Congress aiming to close loopholes. That would go a long way towards raising revenue, Kaufman said….Read more>>