Estate tax proposal from Bernie Sanders would mean big bills for America's wealthiest
Senate Budget Committee Chairman Bernie Sanders (I-VT) recently introduced an estate tax plan that specifically lists the wealthiest Americans amid a large push by the Biden administration for tax hikes largely affecting corporations and high-income Americans.
"The fairest way to reduce wealth inequality, invest in the disappearing middle class, and preserve our democracy is to enact a progressive estate tax on the inherited wealth of multi-millionaires and billionaires," the proposal stated.
Read more: Estate Planning: What you need to know to create your will, trust, and more
The “For the 99.5% Act” from Sanders would raise $430 billion over 10 years, according to the Joint Committee on Taxation, and would only affect the top 0.5% of Americans. Just reverting the tax rates to 2009 levels — which President Joe Biden has proposed — would bring in less revenue, or $281 billion over 10 years, according to estimates by the Tax Foundation.
"Under this legislation," the proposal noted above a list of billionaires in America, "the families of all 657 billionaires in America who have a combined net worth of over $4.26 trillion would owe up to $2.7 trillion in estate taxes."
'Creates many compliance costs for those administering estates'
An estate tax is a taxation on the transfer of wealth from a deceased person.
Sanders' estate tax plan would exempt the first $3.5 million of an individual's estate from the tax and $7 million for joint filers. Estates valued between $3.5 million and $10 million would be taxed at 45%, those between $10 million and $50 million at 50%, those between $50 million and $1 billion at 55%, and the tax rate for estates valued at over $1 billion would be taxed at 65%. (The bill would also end tax breaks for dynasty trusts and close some loopholes.)
"This plan would only impact the wealthiest 0.5% of Americans who inherit more than $3.5 million ($7 million for married couples)," the proposal asserted. "99.5% of Americans would not see their taxes go up by one penny under this plan."
Read more: Taxes: Here's how to know if you should itemize
Like President Biden's estate tax proposal during the presidential campaign, the Sanders plan would return some of the federal estate tax rates to 2009 levels and repeal changes made to the tax code in the Tax Cuts and Jobs Act (TCJA) of 2017 implemented under then-President Donald Trump.
“Unbelievably, the United States today has more income and wealth inequality than almost any major country on Earth,” Sanders stated in a Thursday press release. “This inequality has only deepened with the economic crisis brought on by COVID and by a tax system that allows for billionaires to pay less in taxes than working people across the country."
Some critics of increased estate taxes contend that they may be difficult to calculate, administer, and enforce while also not generating as much revenue as expected.
"The estate tax imposes tax liability when a decedent passes away and creates many compliance costs for those administering estates subject to the tax," Garrett Watson, senior policy analyst at the Tax Foundation explained to Yahoo Money. Expecting a tax bill, Watson added, those who might be affected often pursue tax avoidance mechanisms such as "making tax-advantaged gifts and transfers, shifting assets and investments, exploiting tax valuation provisions, and insuring against future expenses."
'A fair, meritocratic, and democratic tax system'
Sanders' proposals aimed at taxing the wealthiest come as President Biden is set to introduce a package of tax hikes for those at the top and the 'taxing the rich' movement continues gaining momentum on state levels.
Along with the estate tax, Biden's tax proposal includes raising the corporate tax rate to 28%, requiring a true minimum tax of 21% on all foreign earnings of U.S. companies, raising the top individual income tax rate to 39.6% (the current maximum is 37%), and requiring those who make more than $1 million annually to pay the same rate on investment income as they do on their wages.
Sen. Elizabeth Warren (D-MA) recently reintroduced her proposal on taxing the ultra-rich with a wealth tax. The legislation would impose a 2% annual tax on net worth of households and trusts between $50 million and $1 billion. For those making above $1 billion, the annual tax rate would be 3%.
“Progressive estate taxation is, along with progressive income and wealth taxation, one of the three core components of a fair, meritocratic, and democratic tax system," Gabriel Zucman, a professor of economics at the University of California, Berkeley said in a press release in support of Sanders' proposal. "Unfortunately, the estate tax has been severely weakened by tax avoidance over the last decades so that despite the upsurge of wealth at the top, it collects less and less revenue."
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova
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