Worried about paying federal estate taxes? Don’t be

Writing for the Washington Post’s Wonkblog, and seizing the occasion of a House Ways and Means Committee vote to eliminate the federal estate tax, Matt O’Brien shines a momentary light on the estate tax, and comes up with some numbers that took me by surprise.

Nominally, the inheritance tax takes 40 percent of very large estates as they pass to the next generation. Republicans have long criticized this as case of “double taxation” because presumably the parents (or grandparents or whomever) paid income taxes on this money when they made it, so their grandkids shouldn’t have to pay again just because they inherited it.

The moral problem is a little hard for people without super-rich families to grasp fully. The heirs who inherit large estates aren’t exactly magnets for the sympathy of ordinary folks. And, of course, the heirs and heiresses aren’t being double-taxed, since they have never previously been taxed on these particular millions or billions. And the heirs are still making out reasonably well on their decision to be born into those particular families. But it’s the principle of the thing. The money itself has already been taxed.

Anyway, Wonkblogger O’Brien says that the share of the population that gets hit with this tax is 0.2 percent of households, or two out every thousand. It doesn’t kick in until after the children have received $10.86 million of tax-free inheritance.

Then the 40-percent bite is a fiction. Relying on research by the liberal Center on Budget and Policy Priorities, O’Brien writes that even after the tax-free $10 million has been passed on to the heirs, “creative accountants and big deductions can shield a lot of the rest from Uncle Sam.” After all the tax shelters have been exhausted, the unfortunate heirs, on average, pay 16.6 percent of the value of their inheritance.

In other times and places, House Republicans are obsessed with reducing the federal deficit and debt. But, CBPP concludes: “The House Ways and Means Committee proposal to repeal the estate tax would reduce revenue by more than $250 billion over the next decade. The proposal before the committee includes no provisions to offset this cost. The revenue loss thus would increase the deficit and add to the nation’s debt.”