Economy

Congress Might Repeal the Estate Tax, But Here's What They Could Do Instead

April 23rd 2015

By:
Dante Atkins

At a time when economic inequality is a forefront political issue, it wouldn’t seem to make sense to repeal a tax that only affects the wealthiest 0.1 percent of American households—a total of 5,400 in all—but that’s exactly what the House of Representatives did just last week in a party line vote to repeal the estate tax, with Republicans in favor and the vast majority of Democrats opposed. President Obama has vowed to veto the bill if it makes its way through the Senate and on to his desk, so it is highly unlikely that the tax will actually be repealed this year. Still, if you were looking to convince the voting public that you only care about the interests of the wealthy, there’s one great way to do it: vote to repeal the estate tax.

What is the estate tax and who pays it?

The estate tax is a tax paid on money or property that people inherit, but it only affects the relatively wealthy: there’s an exemption of $5.43 million for an individual and $10.86 million for couples, and taxes are only paid on amounts that exceed that threshold. So, if a wealthy relative decides to leave $11 million to you and your spouse, you would only pay estate taxes on the $140,000 above the exemption level.

Opponents of the estate tax argue that that tax hurts small businesses and farms, punishes success, and slows down the economy by giving inheritors less wealth to invest. In addition, they claim that under the estate tax, money is double-taxed: once when it is made, and once when it is inherited. Supporters, on the other hand, argue that virtually no small businesses or farms are subject to the estate tax: the Department of Agriculture estimates that only 1 of every 167 farmers who died in 2013 owed any estate tax at all. In addition, a large portion of money collected by the estate tax involves unrealized capital gains that have actually never been subject to taxation. Lastly, there’s a moral argument to be made: eliminating the estate tax would increase the concentration of wealth in fewer hands, and create, in essence, a type of American aristocracy.

It may only affect a small number of people, but the money the treasury gets from this tax is significant: repealing the estate tax would cost the treasury over $14.6 billion in fiscal year 2016 and $270 billion over the next ten years.

But if Congress is so intent on spending that much money, here are some suggestions for things they could do instead of a tax giveaway to the richest:

Should women's colleges accept trans men?

1. Make college cheaper—or maybe free.

President Obama’s plan to make community college free for students who meet certain benchmarks would only cost $60 billion over 10 years. Imagine what could be done with over four times that money. In the 2016 fiscal year, the $14.6 billion cost of estate tax repeal could be used instead to fund the maximum Pell Grant award of $5,775 to more than 2.5 million additional students. It would also be enough to give all 9.1 million students who received a Pell Grant in 2013 another $1,584 in aid. Not that this is a priority for the current Congress: Normally, the maximum Pell Grant award goes up every year to account for increased costs, but Republicans in the House have proposed freezing the maximum Pell Grant at $5,775 for the next ten years.

But here’s a different way to view it: that amount of money would be enough to reduce the cost of a public university education by nearly half. In fiscal year 2013, students at four-year, state schools and community colleges paid a total of $61.8 billion in tuition. On average over the next ten years, the annual cost of repealing the estate tax would be $27 billion—enough to eliminate over 43 percent of student-paid tuition at public colleges. Now, House Speaker John Boehner (R-Ohio) has said that the cost of the estate tax repeal is “a drop in the bucket” compared to the size of the federal budget. In that case, it wouldn’t take much more than two drops in the bucket to make a public university education entirely free, as some top Democrats pushed for last week.

Pacific Surfliner in San Diego


B Garrett / Flickr

2. How about some trains that work?

The state of rail travel in the United States is a sordid story. Earlier this month, Japan broke the world speed record for trains. Europe and China have extensive, high-quality passenger rail networks. Comparatively, passenger rail in the United States is an outdated slowpoke. Now, part of that is due to the country’s geography: in general, the US is far less dense than Europe and Japan, and rail works best at connecting dense urban centers that are close together. But even where rail should work, like the Northeast and the Pacific Coast, it doesn’t. And a lot of that is because America doesn’t fund passenger rail.

Congress subsidizes Amtrak, our national rail company, to the tune of $1.4 billion. Compared to what other countries spend on rail, it’s a pittance. Great Britain, which has one-fifth the population of the United States, spends $8 billion subsidizing passenger rail. And China spends nearly 100 times as much. No, that’s not a typo. China is spending $128 billion this year on public railway infrastructure. And it’s not like there’s not a market for rail in the United States: according to National Journal, Amtrak use has gone up 50 percent in the last 15 years.

So what could we do with the $270 billion just over 10 years that Congress wants to give back to multi-millionaires? Well, California just broke ground on a $68 billion plan to connect San Diego to Sacramento with a high-speed train that could go in excess of 200 miles per hour and make the trip from San Francisco to Los Angeles in under three hours. Meanwhile, let’s take the Acela line—Amtrak’s most used service, which takes 7 hours to connect Washington, DC, to Boston and goes through New York along the way. It’s the most heavily-used passenger rail line in the country, and it operates at an average speed of 68 miles an hour. An investment of $151 billion could turn the Acela line into a genuine high-speed line that would connect New York to Boston in 94 minutes. For the amount of estate tax repeal, we could build both those projects, and still have a cool $50 billion left over—maybe to rebuild the tracks along the Gulf Coast that were wiped out by Hurricane Katrina and still haven’t been rebuilt 10 years later. All for what Speaker John Boehner calls a drop in the bucket.

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3. Universal pre-K, perhaps?

How about the other end of the educational spectrum? In his 2013 State of the Union speech, President Obama said that he would push to fund universal pre-school to help level the educational playing field, increase student achievement, and decrease social problems. The amount of money Congress wants to hand back over to the wealthiest Americans would be enough to make that happen—entirely on federal spending alone, without any state involvement.
According to the National Institute for Early Education Research, giving every 4-year-old a high-quality pre-school education would cost about $33 billion. In 2014, the federal government spent $6.4 billion on Head Start, a program to fund preschool for poorer kids. Well, that leaves $27 billion to cover all the other kids—and quite by coincidence, that happens to be the average cost over ten years of repealing the estate tax.

Homeless Veterans

4. Heck, we could end homelessness.

Now we’re just getting fanciful, right? Not really. The amount of money that would be lost through repealing the estate tax would be more then enough to end homelessness in the United States if we chose to spend it that way. In 2012, an official with the Department of Housing and Urban Development estimated that it would cost $20 billion per year to effectively eradicate homelessness in the United States. Another study concluded that it would take $22.5 billion per year to fund a rental assistance program that would be capable of “eliminating homelessness for the vast majority of those experiencing it.”

So, yeah. The amount of money Boehner calls a drop in the bucket would be more than enough to end homelessness in the entire country. Doesn’t that kind of make you wonder why we haven’t done it already?

Cyclone

Wikimedia Commons

5. Trying to save the planet is always an option.

Here’s a thought: maybe we could invest that same amount of money into alternative energy so we can do something about climate change.

Remember how the average annual cost of estate tax repeal over 10 years is about $27 billion? Well, that’s nearly the entire discretionary budget for the Department of Energy, which is tasked with supporting research into energy efficiency and reducing dependence on fossil fuels (as well as a little side activity involving maintaining our nuclear arsenal). Giving a significant boost to research and development funding for energy programs isn’t just a pipe dream of tree-hugging environmentalists—it’s a specific policy proposal of some of the nation’s top business leaders as well.

And even if you don’t believe in green energy and global warming, that money would still be put to good use in the energy sector. Guess how much it would take to replace our country’s aging, decrepit, rupture-prone network of natural gas pipeline? $270 billion. How does that number keep showing up?

Ok, we get it. There’s a lot you can do with $270 billion over 10 years.

Yes, there is. First of all, the estate tax is a pretty fair tax. But most importantly, it puts priorities in perspective. Repealing the estate tax would be a giveaway of billions of dollars to a tiny group of super-wealthy people. It’s hypocritical of Speaker John Boehner to call the amount of money in question a drop in the bucket to justify it: his office said the exact opposite about President Obama’s much less expensive community college proposal. But if that’s really what he thinks, it’s a statement of misplaced federal priorities. We could made public universities inexpensive or free. We could have universal pre-school. End homelessness. Build out crucial public infrastructure.

Each one of these would just be a drop in the bucket, and they would all create jobs and opportunity.