Focus on the donut, not the hole
Under current tax regulations, capital gains on assets must be realized to generate a tax burden. In other words, unless or until you sell a valued asset, you will not be subject to any tax on paper gain. If you never sell the asset, i.e. if you die while holding assets, your heirs who inherit your assets would be subject to an inheritance tax, which currently only applies to inheritances. greater than $ 11.7 million per individual. Notwithstanding this inheritance tax, the appraised value of any property is exempt from tax. That is, the beneficiary natural person recognizes the value of the asset on the date the asset is transferred, and any subsequent tax liability for the new owner would be calculated based on this increased basis.
I get self-interest from those on both sides of intergenerational wealth transfers; but, philosophically, the idea that those earnings end up being tax-exempt doesn’t seem exactly kosher – especially since the current structure provides the most generous benefits to the wealthiest families in our country. Moreover, it should be widely recognized that wealth creates a systemic advantage which is passed from generation to generation. Viewing America as the land of opportunity ignores the obvious advantages that the children of the rich have over their less well-off peers.
This fact alone should be a justification for taking corrective action, but there is more: ignoring racial disparities in this context seems to me to be willful blindness. The Federal Reserve’s most recent survey of consumer finances explicitly addresses this question, with results summarized in the Fed Notes of September 20, 2020. According to this survey, “the typical white family has eight times the wealth. of the typical black family and five times the wealth of the typical Hispanic family.
(A frequently cited Boston Globe study appears to disagree with the Fed’s findings. The Globe study sought to compare the wealth of black and white families in Boston and found that the respective median family wealth was $ 8. (sic) vs. $ 247,500, respectively Although this analysis has been criticized in several respects, the conclusion that the two measures of household wealth are drastically different still holds.)
How can there not be a consensus that something is wrong with this image? And likewise, how can we not recognize that the progressivity of our taxation is insufficient. Some measure of reparation can and should be implemented in relation to the inherited wealth.
Currently, the Biden administration is trying to do this as part of the US plan for families. This bill addresses issues of inherited wealth as part of a larger legislative package that involves a multitude of spending initiatives. For the most part, Republicans speaking with one voice and a few “moderate” Democrats have argued that the plan is just too expensive – items that would raise tax revenues anyway. Rather than settle for some form of compromise, their response is the quite common refrain, “Just say no!” This posture is unfortunate, because the fiscal elements of the American family plan are hardly extreme and deserve bipartisan support.
The plan would limit the unrealized capital gains tax exemption to $ 1 million per deceased person, but as far as I know the bill is agnostic about the size of the estate tax limit. This issue, however, is addressed in another bill drafted by Bernie Sanders that would reduce the exemption to $ 3.5 million per person in 2022. (Uh oh. I hear the whispers of rampant socialism!)
I consider these two legislative initiatives to be corrective. Things just got out of hand. In this regard, it is quite interesting to see how – or more precisely, when – we got to the present situation. The basic salary increase had in fact been repealed – twice – once in 1976 and then again in 2001. Both times the repeal was short-lived and the base for the increase was reinstated. Inheritance tax exemptions, on the other hand, have been increased over the years – never lowered. Before GW Bush, the exemption was less than $ 1 million, but within a year of his presidency it shot up to $ 5 million, with annual inflationary adjustments that ultimately brought the exemption to $ 5, $ 49 million at the end of the Obama administration. Trump’s 2017 tax law more than doubled the exemption to $ 11.18 million, again, with a mandatory annual inflation adjustment. And again, these exemptions are per person, so for a married couple you can double the amounts.
Isn’t that enough? Or, said in the affirmative, enough is enough. Critics of these Democratic proposals stare at the hole and ignore the donut. These criticisms do not sufficiently take into account the benefits that would continue to be granted to heirs under this law. Instead, they focus on cuts from overly generous starting points. These poor heirs would only get a tax exemption of $ 1 million in capital gains and $ 3.5 million in inherited wealth. How hard it must be for them! We must protect them!
It’s kind of rich to hear Republicans bemoan the fiscal irresponsibility of the US plan for Biden families in light of the stance they have taken in previous administrations on tax policies. In this case, the defense of fiscal responsibility is a smokescreen. What is really happening is that Republicans are looking out for the interests of their wealthy buddies and donors, as opposed to the common good.