Since her campaign began, Democratic presidential candidate Hillary Clinton has pledged to raise taxes on the wealthy to help fund many of her policy proposals. But now she’s getting even more aggressive on one way to soak the very richest in particular: the estate tax, levied on money passed down from the wealthy to their heirs.
Originally, Clinton proposed increasing the tax on estates worth $3.5 million or more to 45 percent, raising it back to where it was after President George W. Bush succeeded in whittling it down from 55 percent. On its own, that plan would have raised $160 billion over a decade.
But her new position will go much further. She recently expressed support to the Committee for a Responsible Federal Budget (CRFB) for higher tax rates on the largest estates, along the lines of what Sen. Bernie Sanders (I-VT) was proposing during the primaries. The new rates would be 50 percent for individual estates valued over $10 million, 55 percent over $50 million, and the highest rate of 65 percent over $500 million. (All the thresholds would double for a married couple.) That would bring the highest rate back to where it was in 1982.
Currently, the estate tax is 40 percent on estates worth $5.45 million for an individual or $10.9 million for a married couple. Thanks to intricacies in the tax code and various loopholes the rich can use to shield their estates though, the effective rate is more like 17 percent.
According to the CRFB’s analysis, Clinton’s new proposals for the estate tax would tack on an additional $75 billion in revenue.
That kind of money can go a long way. For instance, it could cover the cost of Clinton’s plans to expand the Child Tax Credit, which helps families afford childcare, and her plan to simplify taxes on small businesses.
And it would only raise revenue from the very wealthiest, leaving the vast majority of Americans untouched. Currently, the estate tax only applies to the wealthiest 0.2 percent. That rate would expand under Clinton’s plan, but just 223 taxpayers in 2014 would have been subjected to the 55 or 65 percent rates.
The estate tax, while certainly a small piece of a much larger tax code, does more than just raise revenue. It was originally created in the United States amid a climate in which companies were rapidly merging into giant monopolies and wealth was concentrating in a few hands, leading to fears of an American plutocracy.
And it can still serve a similar purpose today. Wealth inequality began taking off in the 1970s, coinciding with a change in law that made it cheaper to pass wealth on to heirs rather than give it to charity and gradually increased the eligibility thresholds.
Inequality continued to grow as the estate tax has been reduced over the years. Today, the richest 0.1 percent of Americans hold 22 percent of the country’s wealth, a level of inequality not seen since the roaring 20s. While changing the trend would likely take a number of policies, economists have found that increasing the estate tax “would significantly reduce wealth concentration in the hands of the richest few and would reduce the economic advantage of being born to a super-rich family.”
Republican nominee Donald Trump has already attacked Clinton’s plan, with a spokesman calling it “an even more dramatic hike in the death tax.” Trump’s tax plan would repeal the estate tax entirely.