Estate Tax

Obviously, a lot of talk going on with the Estate Tax at the moment.  Ezra Klein was kind enough to run an Estate Tax Primer.   Here’s the key portion:

The basic insight behind the estate tax is that wealth concentration is a problem. That was true in 1916, when the tax was enacted, and it’s true today, when it’s being neutered. As Ray Madoffexplains, the going theory came from Louis Brandeis, who said, “We can have concentrated wealth in the hands of a few or we can have democracy, but we can’t have both.” Andrew Carnegie himself testified in favor the estate tax’s creation.

The way it works is simple enough. There’s an exemption level beneath which estates are not taxed, and a tax rate that applies to every dollar the estate is worth above the exemption. In 2001, we had a $675,000 exemption and a 55 percent tax rate. So an estate worth $700,000 would take a 55 percent tax on that final $25,000. The estate tax’s levels, however, have been changing because the Bush tax cuts — as you can see in the table on the right — have been phasing it out. In 2002, it was $1 million, and 50 percent. By 2009, the exemption was up to $3.5 million, and the rate down to 45 percent. And in 2010, the estate tax was repealed.

With all the Republican propaganda about a “death tax” in recent years, I have to wonder what pathetically low portion of Americans actually understand just how few Americans this tax actually affects (and it sure isn’t undermining family farms).  Meanwhile, Kevin Drum (backed up by some dubious polling) suggests that Americans are just naturally opposed to the Estate Tax:

Like it or not, I think that most people simply have an instinctive feeling that you should be able to bequeath your money to whoever you want. If most bequests went to, say, political parties or yacht harbor upkeep groups, things might be different. But as long as most bequests go to family members, you’re dealing with a very deep, very primitive protective instinct that most people sympathize with no matter how rich you are. After all, I feel that, and I don’t even have kids.

Drum may be onto something, but with so few Americans understanding how the Estate tax works (i.e., exempting that million dollars or more means a very small percentage of Americans will ever be affected) I think its hard to know how the public really feels.  I’d like to see a survey question about the Estate Tax following a clear explanation of how it works.  Of course, that would be interesting, nothing more.  In the real world, politics are shaped by how people think the Estate tax works.

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About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

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