President Donald Trump and his fellow Republicans hate the estate tax so much they renamed it, ominously, the “death tax.” Who could be so morbid as to tax the dead, right?
Wrong. The estate tax affects only a tiny percentage of America’s wealthiest families and, unlike what Trump and other prominent Republicans have argued, does not hurt small-business owners in any discernible way.
Instead, the independent Tax Policy Center estimates that, in the entire country, only about 20 small business or small farm estates owed any estate tax in 2013 – and those estates owed an average of 4.9% of their value in tax.
Trump in September touted his plan to end the tax on the ultra-wealthy in strong terms: “It’s a double taxation. A lot of families go through hell over the death tax.” The small portions of Trump’s tax returns that were leaked to the media showed that he may, in fact, be among those who might need to pay the tax one day.
The two men Trump picked to present the plan this week, Treasury Secretary Steven Mnuchin and White House adviser Gary Cohn, are former partners at the investment bank Goldman Sachs. Their personal fortunes might also be affected by the estate tax.
Yet most Americans can sleep easy knowing their “estates” will not be taxed when they die, regardless of Trump’s ideas about taxes.
“The top 10% of income earners pays over 90% of the tax, with over one-fourth paid by the richest 0.1%,” the Tax Policy Center says. “Very few farms or family businesses pay the tax.”
Put another way, unless you’re reading this post from the comfort of your yacht or private jet, you probably don’t have to worry about the estate tax.
It’s important to note that Trump’s tax proposal, which is really just a one-page mock-up of basic concepts with little detail, has scant chances of rapid passage in Congress. As the struggle over “Trumpcare” – the American Health Care Act – showed, Republicans may control the executive and the legislative branches, but that doesn’t mean they can quell considerable discord within the GOP.
Then there’s the issue of avoidance.
“Many wealthy estates employ teams of lawyers and accountants to develop and exploit loopholes in the estate tax that allow them to pass on large portions of their estates tax-free,” according to the independent Center for Budget and Policy Priorities in Washington. “These strategies don’t benefit the broader economy; they only allow the wealthiest estates to avoid taxes.”
Who knew that taxes – to quote the president when he referred to healthcare – could be so complicated?