Reviews | Inheritance tax is far too low
An even better approach would be to replace inheritance tax with an inheritance tax. Under an inheritance tax, heirs would simply pay income and social tax taxes on their inheritance on top of a large exemption, just as others do on their wages.
If an inheritance tax exempted the first million dollars received in a lifetime and applied the highest income tax rates and payroll taxes to amounts above that threshold, it would yield $790 billion over the course of a lifetime. of the next decade. Rep. Jan Schakowsky, Democrat of Illinois, is drafting a proposal along these lines, and some former presidential candidates, including Julián Castro, have endorsed the idea. In this type of plan, only 0.08% of households would be liable for tax each year. The proceeds could be used to invest in children who don’t have the chance to inherit millions, whether through universal pre-K, paid parental leave or a credit. fully refundable child tax.
Whether or not we move to an inheritance tax, we should tax the capital gains accrued on large legacies. This would raise $450 billion when combined with other reforms. And we should reverse the IRS enforcement budget cuts that have led to a 61% drop in millionaire audits since 2010.
Finally, we should reform the rules governing transfers through trusts and similar arrangements, which the wealthy exploit to reduce their tax liability. In one strategy, people put easy-to-sell assets into a partnership to artificially deflate the value of the assets. According to the nonpartisan Joint Committee on Taxation, these and similar strategies can reduce the value of transferred assets by 15% to 60% or more. Casino magnate Sheldon Adelson used a different strategy involving trusts to avoid $2.8 billion in estate and gift taxes between 2010 and 2013.
Others create trusts for the benefit of their descendants for centuries. Beneficiaries of such dynastic trusts would have to pay taxes on their inheritances. Although the total tax revenues involved are unclear, trusts most likely hold billions of dollars in assets.
President Franklin Roosevelt said that “inherited economic power is as incompatible with the ideals of this generation as inherited political power was incompatible with the ideals of the generation that established our government.” The same is true today.
We know how to tax estates more fairly. We must act before the massive transfers of wealth on the horizon further entrench a hereditary economic elite.
Ms. Batchelder is a professor at NYU School of Law and served as Deputy Director of the White House National Economic Council and Deputy Assistant to President Barack Obama.
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