The following article by Heather Long was posted on the Washington Post website November 5, 2017:
House Republican leaders on Nov. 2 proposed legislation that would overhaul the U.S. tax code. Here’s what you need to know about it. (Monica Akhtar/The Washington Post)
More than 3,000 Americans would not have to pay the estate tax next year if the Republican tax bill is passed, a 64 percent reduction from the 5,000 people who would pay under current law, according to Congress’s Joint Committee on Taxation — one of the most glaring ways the proposed legislation benefits a small number of wealthy Americans.
Under current law, Americans can pass along homes, land, stocks or other assets worth up to $5.49 million without paying any estate or gift tax. Estates worth more than that are subject to a 40 percent tax. The House GOP bill would double the threshold to $11.2 million in 2018 and then do away with the tax entirely in 2024. For 2018, that means an estimated 3,200 people would not have to pay.
In total, the reduction and ultimate elimination of the estate tax would cost taxpayers $172 billion over a decade. The figures were contained in a JCT analysis that was obtained by The Washington Post.
The JCT is a nonpartisan group of analysts that serves as the official scorekeepers of how much tax bills add to the national debt and what their impacts are on rich, middle-class and poor Americans.
This chart, from the analysis, spells out the annual impact of the phase-out of the estate tax.
Democrats have panned this as a giveaway to the mega-rich. Instead of eliminating the estate tax, they argue that money should be used elsewhere, such as more tax relief for the middle class or aid for the poor. Economists Thomas Piketty and Emmanuel Saez, experts on inequality, say that one of the main reasons the top 0.1 percent have become even wealthier is because they transfer money and property to the next generation without having to pay much tax on it. They have argued for raising the estate tax to 50 or 60 percent.
But Republicans call it a “death tax” and say it is unfair because people already pay taxes when they are living, so they should not have to pay them when they die as well.
“We just think it’s unfair. Death should be not a taxable event, and we should not be stopping people from being able to pass their life’s work on to their kids,” House Speaker Paul D. Ryan (R-Wis.) said Sunday in an interview with Fox News Sunday. He also argued doing away with the tax would create more jobs as people use the money to invest or grow their businesses.
President Trump has said the estate tax hurts farmers and small-business owners trying to pass on their legacies to the next generation, but the Washington Post Fact Checker team pointed out that very few farms or small businesses have to pay the tax anymore. Congress has already raised the threshold many times in an effort to ensure it is only the very rich who are paying the tax. In 2000, 52,000 estates had to pay the tax. Now it is down to 5,000.
The GOP bill also keeps a popular loophole in the estate tax known as the “step up” basis. What this means is that if someone inherits a home worth $16 million today that was bought for $10 million years ago, then they would only have to pay the estate tax on the value of the estate worth over $11.2 million in the GOP plan. They would not have to pay any capital gains tax on the gain in the property value, a substantial savings and an example of how some assets are not “double taxed” under the estate tax.