A group of very rich Americans, including Warren Buffet, George Soros, the father of Bill Gates, the grand-daughter of Roy Disney and former Treasury Secretary Robert Rubin, have released a statement arguing for a higher estate tax than even the Obama Administration has endorsed, showing that there’s a constituency to press for higher taxes on inherited wealth even among the very wealthy.
The statement from Responsible Wealth, which is relatively short, is reproduced below in full:
We believe that our country should have a strong tax on the largest estates. We believe that a well-funded government benefits people at all economic levels, and that our families have benefited significantly from government investment in schools, infrastructure, research, technology, public safety, national
defense, laws and regulations. We believe it is right to have a significant tax on large estates when they are passed on to the next generation. We believe it is right
morally and economically, and that an estate tax promotes democracy by slowing the concentration of wealth and power.
Current estate tax law, which expires at the end of 2012, provides for a $10 million exemption per couple. We believe this threshold is unnecessarily high and leaves too much revenue on the table in a time of growing deficits and painful cuts.
• We believe a more appropriate exemption is $4 million per couple, indexed to inflation.
• We believe there should be a graduated rate on the taxable estate over the exemption amount, beginning at 45 percent and rising on the largest fortunes.
• We believe that compliance should be simplified to allow for state tax credits, portability and the reunification of federal gift taxes.
An estate tax with these guidelines will raise significant revenue to reduce the deficit and fund vital services, will only be paid by the top one percent of estates, will raise more from the wealthiest estates, will simplify compliance, and is eminently reasonable and fair.
As individuals and families that have benefited most significantly from public investments and a strong society, we are proud to have the opportunity to contribute back to the country that helped to make our success possible. We urge Congress to pass a strong estate tax.
The Obama Administration has only endorsed a return of the estate tax to 2009 levels, with a $7 million exemption per couple and a flat rate of 45%. If Congress takes no action, the estate tax will return to the Clinton-era rates of a $2 million exemption per couple and a 55% flat rate. The Obama Administration proposal would raise $120 billion over ten years relative to current law, though it would obviously be a cut from current policy. This proposal from Responsible Wealth hasn’t been scored, but it would clearly raise more.
The graduated rate is the innovation here, essentially creating brackets for the estate tax, where more and more revenue gets collected. As the statement indicates, the entire point of the estate tax is to slow the creation of a landed gentry or an aristocracy in America, and to break the cycle of concentrated wealth begetting more concentrated wealth.
Jared Bernstein makes some additional good points on the estate tax. Even reverting to 2009 levels would only hit the top 0.3% of estates, with an effective rate of just 15%. The idea that estate taxes hit family farms and small businesses is just wrong, as the Center on Budget and Policy Priorities shows: “Only 40 small business and farm estates nationwide will owe any estate tax in 2012…these 40 estates will owe just 3.1 percent of the estate’s value in tax, on average.” And a lot of this money comes from unrealized capital gains that never get taxed in the first place.
The estate tax represents an important part of the overall tax debate, though it often gets overlooked. Hopefully this statement from Responsible Wealth kickstarts that conversation.