Wealth inequality in the US is even more dramatic than income inequality. The richest 1% of Americans own 42% of all the wealth in the country. And the richest 0.1% (300,000 people) have as much total combined wealth as the combined wealth of the bottom 90% (270 million people). This is the highest concentration of wealth in this country since the Gilded Age of the late 1800s. The richest 1% have an average of $14,000,000, while the bottom 90% average $80,000.
Thomas Piketty, in his book Capital in the Twenty-First Century, analyzes wealth and economies over the last 250 years and concludes that without a progressive wealth tax wealth inequality will grow. Left unchecked, wealthy families will perpetuate and grow their wealth, while the rest of us fall farther and farther behind. This will produce a permanent, wealth-based aristocracy.
To prevent the rise of this new aristocracy, we need to raise the estate tax — a modest tax on inherited wealth. Raising the estate tax on the wealthiest Americans is one key way to slow growing inequality. Yet some lawmakers in Congress actually want to eliminate this tax on inherited wealth.
Currently, the estate tax applies only to estates over $10,860,000 for a couple. The 40% tax applies only to any amount over this threshold. This means that the wealthy can give $10,860,000 to their heirs tax-free.
If the estate tax were eliminated, for which some in Congress are advocating, the federal government would lose roughly $27 billion a year in revenue and the growth in inequality in the US would accelerate. The average household that currently pays the estate tax would get a $3 million tax cut. State governments would lose revenue as well, because many state estate taxes are tied to the federal tax. This means that our state and federal governments, that are already stretched very thin, would have even fewer resources for public safety, schools, roads and bridges, and so forth.
If the estate tax were returned to its level in 1998 (with an adjustment for inflation), couples could give $1,748,000 tax-free to their heirs and amounts over that would be taxed. The federal government would receive an additional $49 billion a year in revenue to fund important needs. A couple with an estate of $10,860,000, the current tax-free threshold, would still be able to give $7.15 million to their heirs after paying the estate tax. Clearly, restoring the estate tax to its 1998 level would reduce the ability to pass on inherited wealth, but by no means eliminate it. It would slow our growing inequality but it certainly wouldn’t stop the ability to pass on significant inherited wealth.
A reasonable estate tax would be a step in addressing the growing economic inequality in the US. Returning to the lower tax-free estate threshold of 1998 would be a step in the right direction; conversely eliminating the estate tax would be a step in the wrong direction. American democracy would be seriously undermined by a self-perpetuating, wealth-based aristocracy. Such concentrated economic and political power is antithetical to the principles of our democracy.
Raising the estate tax is the eighth of Ten Ideas to Save the Economy: The Big Picture presented by Robert Reich and MoveOn.org. (You can watch the 3 minute video at: https://www.facebook.com/moveon/videos/10152795905365493/.)