Forgotten Americans by Isabel Sawhill

Author:Isabel Sawhill
Language: eng
Format: epub
Publisher: Yale University Press
Published: 2018-09-14T16:00:00+00:00

Paying for the Worker Credit

As noted, a modest expansion of the EITC or of its first cousin, a worker credit, combined with a higher minimum wage, need not be expensive.25 A much larger expansion, similar to Brown-Khanna, would be. Although Neil Irwin is undoubtedly right about the political feasibility of such an expansion, there is an obvious and compelling way to pay for it. It is by taxing wealth, not work.

Wealth is even more unequally distributed than income. Both the concentration of wealth and the concentration of income have reached record highs in recent years, but wealth more so than income.26 The baby boom generation, the most affluent generation in history, will, over the next few decades, pass on $30 trillion of their wealth to the next generation.27

The inheritance of wealth is inconsistent with basic American values. The American dream rests on the assumption that we live in a meritocracy, where a combination of skill and hard work, rather than inherited class or privilege, is the road to a better future. The estate tax is one of the few mechanisms available to limit inherited wealth. Many members of Congress are proposing to eliminate it.28 If they don’t want to be seen as favoring the rich and powerful, and instead want to be seen as favoring work over inherited wealth, they should adjust their stance.

The tax’s power to promote intergenerational mobility has eroded very badly over time. The estate tax is paid by a tiny fraction of American estates—about 2 out of every 1,000 deaths. That contrasts to the 1970s, when there were over 70 taxable estates for every 1,000 deaths.29 Most of that decline reflects the rising exemption level. In the 1970s, the exemption was $60,000 (about $280,000 in today’s dollars, or over half a million per couple). The Tax Cuts and Jobs Act of 2017 doubled the exemption level for the estate tax, so that every estate smaller than $11.2 million (or $22.4 million per married couple) will be exempt. Not only are very few estates subject to the tax, but contrary to what many believe, even fewer of them are small businesses and family farms (about 80 in 2017, and this value will be even lower under the new tax law).30

Despite the fact that they will never be hit by the estate tax, the majority of Americans still think that we should eliminate it.31 This is largely due to misconceptions about who pays the tax. Of surveyed respondents who favor eliminating the tax, about 70 percent believe that it will affect them, and three-quarters believe that it might force the sale of a small business or a family farm.32

Republicans have framed the estate tax as a “death tax.” This confuses the timing of the tax with whom it affects. Dead people don’t pay taxes. The main burden of the estate tax is on those who receive bequests. The reason it’s important to be clear about this is because it is often argued that the estate tax involves taxing the same people twice.

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