There is no issue in American politics that splits the parties more cleanly than the taxation of large inherited fortunes. Last year’s Republican tax cut included a big cut in the estate tax, which will now allow couples to pass on $22 million to their heirs before the first dollar of tax kicks in. Not satisfied with this generous gift, Republican senators recently unveiled a bill to eliminate the estate tax altogether, thus relieving heirs to fortunes exceeding the $22 million threshold of any tax burden.
Meanwhile, Democrats have veered toward sharply higher taxation of large inheritances. Last fall, Cory Booker proposed a higher estate tax to fund universal “baby bonds.” Elizabeth Warren and Bernie Sanders have recently proposed more robust plans to tax large concentrations of wealth. It is beginning to dawn on Democrats that a tax on massive inherited fortunes is not only a way to finance their domestic program, but a strategy to make their broader thematic case against Donald Trump and his party.
Taxing the very rich has always been popular. Proposals to tax wealth are especially popular. Representative Alexandria Ocasio-Cortez’s proposal to raise the top income tax rate to 70 percent has a net favorable rating of plus 13 percent, while Warren’s plan to tax wealth over $50 million has a net favorable rate of plus 41 percent. Even Republicans like the idea:
The tricky part about taxing wealth, as opposed to income, is that it’s easier to hide from the authorities. France and Denmark both eliminated taxes on wealth because tax evasion undermined their effectiveness. Lily Batchelder argues in a new paper that the problem can be solved by structuring the tax not on wealth per se (as Warren advocates) but on the transfer of money to an heir. Any inheritance above a set exemption level — Batchelder suggests $2.1 million — would be taxed as income, and subjected to an additional 15 percent surcharge.
Why tax income from inheritance at a higher rate than income from other sources? The logic is perfectly intuitive. High incomes serve a social purpose when they reward hard work and innovation. High incomes from being born rich serve no such purpose. Taxing inherited wealth at a higher rate than earned wealth makes sense from both the standpoint of economic efficiency and the standpoint of social fairness.
The transfer of wealth across generations is not a small economic or social problem. Inheritances account for two-fifths of all wealth, Batchelder notes. It is a major reason why economic class is stickier in the United States, where a father on average passes on half of his economic advantage to a son, as opposed to one-third or less in other countries.
The Trump era has put an especially fine point on the entrenchment of economic privilege. Trump is the visible representative of American oligarchy. He was raised wealthy and taught the importance of manipulating rules and cultivating political connections that would allow him to protect and expand his fortune, which he has duly passed on to a third generation of Trump children despite their evident lack of ingenuity. Trump hardly even bothers paying lip service to traditional Republican bromides about entrepreneurship and pulling oneself up by the bootstraps. The president and his family blend comfortably alongside the princelings of China, the petro-monarchy of the Persian Gulf, and of course the state-designated billionaires of Putin’s Russia.
Centering an attack on inherited wealth also gives Democrats a chance to highlight the still barely known reality of Trump’s sad history in business. Trump is known to the country as a self-made man, whose crude mannerisms suggest some working-class background. In reality, we now know he was primarily in the business of laundering inherited money. Last fall, a trio of University of Maryland political scientists found not only that most voters do not realize that Trump was born into great wealth, but also that learning that he was changes their overall view of him for the worse.
Trump — the real Trump, not the character he played on television — is the embodiment of inherited privilege. He has surrounded himself with crooks and cronies who live by his own values, in which money begets political power, which begets more money, on and on in perpetuity. It is a rare opportunity for a political party to face a politician who embodies the social phenomenon they are trying to fight. A tax on inherited fortunes is a symbolic and substantive blow against the crisis of American oligarchy that Trump simultaneously aggravated and embodies.