Taxing estates, barely

The estate tax may die for a year after all, unless Congress passes an extension tax retroactive to January 1, which would be subject to court challenge. Everyone thought the tax would continue to limp along, after the House voted to extend it another year at the current rate. It was only made to expire so that forecasts for the Bush tax cuts wouldn’t look so bad.

The current federal law exempts the first $3.5 million, making about 1 in 460 deaths taxable, according to the Tax Policy Center of the Urban Institute and Brookings (some states have their own tax). They estimate that, of the $14 billion expected to be raised with the tax this year, 93% would come from the top 5% of people by income.

That $3.5 million exemption is more than 5-times what it was in 2001. Ironically, the tinier the population taxed, the more proponents can champion the tax as “the most progressive” tax we have. On the other hand, the smaller it is, the less efficient it is in terms of the government effort to enforce – an argument used against it by Cato. Or, as a real capitalist might put it, the tax “destroys capital.” The Democrats eeked out a narrow victory, 225-200, to keep it for another year (Senate action is still required).

Of course rich people pass wealth to their children in countless ways while they’re still alive – just as poor people pass on poverty. But inheritance seems especially out of order with respect to the idea of meritocracy or equal opportunity: “No issue gets to the heart of class privilege” quite like it.

Can anyone explain how the idea of equal opportunity can persist in the face of this? Why should children get so much advantage – or disadvantage – they did nothing to earn?

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