The richest families in the U.S. are set to dodge trillions of dollars’ worth of taxes in the coming decades thanks to tax loopholes, according to a new report.
If lawmakers keep the current maximum estate tax rate of 40 percent, the richest families will dodge roughly $8.4 trillion in taxes over the next 24 years, Americans for Tax Fairness found in its report. Meanwhile, between now and 2045, the top 0.5 percent of wealthy families will pass on an estimated $21 trillion to their heirs.
As the report notes, capturing $8.4 trillion in dynastic wealth would allow the government to implement the Build Back Better Act for the next four decades, as the House-passed version of the bill was slated to cost $1.75 trillion over a decade.
Tax loopholes allow families to avoid the estate tax, gift taxes and wealth transfer taxes. Although Donald Trump and congressional Republicans doubled the estate tax exemption during the first year of Trump’s presidency, Democratic lawmakers didn’t address estate and generational tax loopholes in the tax reform section of the Build Back Better Act.
Under the Trump-implemented rule, which is pegged to inflation, estate values of up to $12 million for individuals and up to $24 million for married couples can be passed on tax-free. This is such a high amount that only 0.1 percent of estates owe the estate tax.
According to the report, wealth-transfer tax avoidance “has played an outsized role in our return to Gilded Age levels of wealth concentration.” Failing to impose estate taxes, gift taxes and generation-skipping tax exemptions is threatening not only the U.S. economy, but also the “stability of American democracy,” the report says.
“No justification exists for the failure of policy makers to end this scandal,” it continues. “There is no constituency supporting these enormous tax loopholes except the ultrarich and the wealth-protection industry they employ. They serve no societal purpose.”
The report’s authors go on to suggest levying a tax on undistributed trust income in order to disincentivize the accumulation of wealth within the trust. They also suggest implementing a 2 percent wealth tax on trust holdings that exceed $50 million and a 3 percent tax on holdings over $1 billion – the same wealth tax proposed by Sen. Elizabeth Warren (D-Massachusetts).
Part of the reason why lawmakers have yet to address issues of accumulating dynastic wealth is the outsized power that the wealthy have on politics, the report’s authors point out.
Despite campaigning on estate and gift tax reforms, President Joe Biden didn’t include any such measures in his Build Back Better proposal, even though he did include other taxes on the rich.
“His proposal to eliminate stepped-up basis – an income-tax policy that allows the wealthy, including billionaires, to entirely escape income tax on a lifetime of investment gains – was abandoned after wealthy opponents went on the attack, using phony claims that the proposal threatened America’s family farms and small businesses,” the report says.
In response to the report, lawmakers have reignited calls to tax the rich. “We can afford Build Back Better – four times over, as a matter of fact,” wrote Rep. Bonnie Watson (D-New Jersey). “For the lawmakers who opposed the bill, affordability was never *really* the issue. For them, protecting special interests was worth the cost of hurting working families. The rich must pay their fair share.”