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Ought to there be a riches charge on the most extravagant Americans? The best section of 70 percent? Possibly take a large portion of the bequest when an extremely rich person bites the dust? Or on the other hand, we could simply close these vast escape clauses.
Everyone, it seems, has ideas about new tax strategies, some more realistic than others. The list of tax revolutionaries is long. The short list includes Representative Alexandria Ocasio-Cortez, who wants a top tax rate of 70 percent on incomes above $10 million a year; Senator Elizabeth Warren, who wants a wealth tax; Senator Bernie Sanders, who wants an estate tax with a 77 percent rate for billionaires; and even Senator Marco Rubio, who recently proposed a tax on stock buybacks.
Whatever your politics, there is a bipartisan acknowledgment that the tax system is broken. Whether you believe the system should be fixed to generate more revenue or employed as a tool to limit inequality — and let’s be honest for a moment, those ideas are not always consistent — there is a justifiable sense the public doesn’t trust the tax system to be fair.
In truth, how could it when a wealthy person like Jared Kushner, the son-in-law of the president, reportedly paid almost no federal taxes for years? Or when Gary Cohn, the former president of Goldman Sachs who once led President Trump’s National Economic Council, says aloud what most wealthy people already know: “Only morons pay the estate tax.”
If you pay taxes, it’s hard not to feel like a patsy.
A New York Times poll found that support for higher taxes on the rich cuts across party lines, and Democratic presidential hopefuls are offering plans to do it. But the current occupant of the Oval Office signed a $1.5 trillion tax cut into law, so the political hurdles are high.
Patch The Estate Tax
None of the suggestions in this column — or anywhere else — can work unless the estate tax is rid of the loopholes that allow wealthy Americans to blatantly (and legally) skirt taxes.
Without addressing whether the $11.2 million exemption is too high — and it is — the estate tax is riddled with problems. Chief among them: Wealthy Americans can pass much of their riches to their heirs without paying taxes on capital gains — ever. According to the Center on Budget and Policy Priorities, unrealized capital gains account for “as much as about 55 percent for estates worth more than $100 million.”
That’s because after someone dies, the rules allow assets to be passed on at their current — or “stepped up” — value, with no tax paid on the gains. An asset could rise in value for decades without being subject to a tax.
Many wealthy Americans even borrow against their assets rather than sell them to avoid paying capital gains tax. That’s why closing this loophole is so critical: You could raise rates and put a big tax on the sale of property and it wouldn’t matter for many wealthy families. They wouldn’t actually pay it.
The Congressional Budget Office estimates simply closing this loophole would raise more than $650 billion over a decade.
As central as this idea is to the other suggestions, it is not an easy sell. Three Republican senators introduced a plan this year to repeal the estate tax.
But this and other changes — eliminating the hodgepodge of generation-skipping trusts that also bypass estate taxes — are obvious fixes that would introduce basic fairness to the system and curb the vast inequality that arises from dynastic wealth.
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By Andrew Ross Sorkin at The New York Times
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