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The Time Is Now to Push for Real Populist Tax Reform

If Trump wants to eliminate the “death tax” — let’s push for an expanded inheritance tax instead.

Trump and the GOP may or may not succeed in their opening gambit to redistribute wealth from the poor and middle class to the rich by repealing the Affordable Care Act and replacing it with the morally challenged and deeply unpopular American Health Care Act, but in the meantime, they are moving swiftly to accomplish the same task through tax reform. Trump’s hastily released tax plan — more of a poorly drawn Etch A Sketch, really — is, predictably, a grab bag of tax breaks for corporations and the wealthy. In theory, it should be an easier lift than health care, even for a compromised and ham-fisted administration, since Republican lawmakers rarely meet a tax cut for the rich they don’t like. The same cannot be said for the majority of Americans, however, or even for a plurality of Republicans, who believe the rich pay far too little in taxes. Given the rift between public opinion and the GOP’s regressive fiscal agenda, an enormous tax giveaway to the very richest Americans might be a heavier lift than anticipated. Carrying water for the billionaire class is what the Republican Party has come to stand for, however, and it is exactly what Trump intends to do — a policy imperative most clearly manifest in his proposed elimination of the estate tax.

Trump may be an extreme and particularly unsightly example of naked plutocracy swaddled in the thin gauze of fake populism, but he by no means invented the act. Trump’s faux populism builds on decades of obfuscation by the GOP, cloaking tax policies that benefit the super-rich in a fog of rhetoric calibrated to the ear of Joe the Plumber. Nowhere has this sinister art been more profoundly effective than in the GOP’s longstanding, obsessive campaign against the estate tax.

Over the past 20 years, Republicans have succeeded — often thanks to compliant Democrats — in increasing the tax exemption for families wealthy enough to bequeath anything worthy of the term “estate” from $600,000 in 1997 to $5.5 million per person (or $11 million per married couple) while decreasing the top marginal rate for any amount above this threshold from 55 percent to 40 percent. In other words, wealthy heirs can now inherit up to $11 million tax free, and pay no more than 40 percent on the remainder. Consequently, only 1 in 700 deaths result in any estate tax whatsoever, and the tax only applies to the top 0.1 percent of American households. In fact, thanks to aggressive estate planning and a tangle of loopholes, the average effective tax rate on large estates is just 16.6 percent, and the uber-rich often succeed in bequeathing billions to their heirs entirely taxfree. Due to the Croesus-level wealth of these families, however, the estate tax still yields significant revenue for the federal government — an estimated $275 billion over the next 10 years billion over the next 10 years. One would think this revenue would come in handy at a time when the US is dropping multimillion dollar payloads and threatening to cut essential services to millions of Americans, but Trump and the GOP won’t be satisfied until the estate tax — one of the few remaining backstops on the accumulation and perpetuation of dynastic wealth — is drowned in the proverbial bathtub and flushed down the drain.

The litany of arguments enunciated by crusaders against the estate tax is one of the most elaborate rituals of misdirection in the GOP prayer book, but one that does not bear up to rational scrutiny, as I have argued elsewhere. It is a thoroughly sensible, progressive and productive tax — one that has a long and noble history and applies only to a portion of the bounty handed down to the already cosseted heirs of the very wealthiest households. Suffice it to say, framing its elimination as a populist measure intended to provide relief to small businesses and farmers (almost none of whom ever pay a cent of estate tax) requires the kind of expert legerdemain that only immense wealth and decades of tortuous legal sophistry can buy.

What Trump brings to this shabby tradition, naturally, is the stench of his many conflicts of interest and shameless nepotism. His children would receive as much as a $4 billion windfall if the estate tax were eliminated, while the families of his billionaire cabinet would hold onto billions more.

Also unsurprising for an administration that has earned the full-throated endorsement of the KKK, Trump’s proposal is steeped in racial bias. The inherited wealth gap is one of the most persistent and pernicious causes of institutional racism in the US, perpetuating a level of structural inequality that makes a mockery of equality of opportunity. Removing one of the last remaining counterbalances would tip the scales even further toward the kind of white privilege that Trump and his children were born into and proudly defend.

Like the health care debacle unfolding in Washington, however, the gathering imbroglio over tax reform presents an opportunity. The sudden and breathtaking groundswell in support for single-payer health care-payer health care — precipitated in no small part by the GOP’s scorched-earth campaign to claw back the modest but real gains secured under Obamacare — could be a model for building a movement around progressive tax reform. Now is exactly the time to demand that the super-rich start contributing their fair share toward the well-being of the nation that enabled them to amass (or, just as likely, inherit) their vast fortunes.

Returning the estate tax rate and exemption threshold to something near where it stood during the prosperous 1990s (when rich families had no trouble at all passing along enormous estates) would be a good start. Economists Thomas Piketty and Emmanuel Saez estimate that a rate of at least 50 percent to 60 percent would be optimal in terms of efficiency, economic impact and general social welfare.

Additionally, the US should switch from estate taxes, which are levied on the entire estate before distribution, to inheritance taxes, which are levied on individual heirs according to the size of the bequest and specific tax situation — a system that not only makes more sense conceptually, but also improves efficiency and apportionment. We are, after all, talking about a tax on the inheritance received by living heirs, not (as conservatives like to call it) a “death tax” on individuals who, by definition, are no longer around to pay it. Lily Batchelder of the Brookings Institution has put forward a compelling proposal for switching to an inheritance tax system while correcting other flaws in the current system — like the “stepped-up basis,” which allows wealthy families to accumulate and hand down assets in the form of unrealized capital gains without ever paying taxes on them.

What we are learning as our phony populist president and the GOP take a wrecking ball to the foundations of US civil society is that the best defense is a strong offense. We can and should seize the opportunity created by Trump’s disastrous tax proposal to push for an expanded inheritance tax, just as activists and progressive leaders are breathing new life into the movement for single-payer health care. Bleak as the day may be, it could just become — in the authentic sense of the term — our populist moment.

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