“We don’t have enough money,” they said, when they cut the budget for food stamps by $125 billion. “There isn’t enough revenue,” they argued, when they reduced Pell Grant funding. “It costs too much,” they said, every time they proposed eliminating the Affordable Care Act.
Yet, somehow House Republicans just decided to eliminate a tax that’s only applicable to the wealthiest 0.2 percent.
On April 16, and with a party-divided vote of 240-179, the U.S. House of Representatives approved a bill to eliminate estate tax (or “death tax,” as Republicans like to misleadingly identify it). And the House GOP did so with an extra helping of bullsh*t, too.
It harms the children of farmers and small business owners, who are “threatened by the death tax every day,” said Rep. Steve Scalise (R-Louisiana). “It is, at its heart, an immoral tax,” according to Texas’ Rep. Kevin Brady, who sponsored H.R. 1105.
The only immorality, though, is coming from those House Republicans, whose “lets kiss the asses of campaign donors” bill will increase the national deficit by $269 billion in 10 years. They’re lying about it. And few people know much about this tax, because even fewer have to pay it.
Here are the four things everyone should know about estate tax:
1) It’s Only Applied To A Wealthy Few
If Aunt Edna gives you her car when she passes away, you don’t owe taxes for that inheritance. You won’t owe anything on her house, either, if she also gives that to you, and not even on that $5 million you find stuffed inside her smelly mattress.
This tax is only applied to estates that are valued over $5.43 million (or $10.86 million for a married couple’s assets) in 2015. And only 0.2 percent of Americans have estates of such value, so it would only affect about 5,400 this year. (Last year, only about 3,700 estates – 0.12 percent – were subject to the tax.)
2) It’s A Tax That Would Ordinarily Be Due
Let’s say you bought stock for $1 million and the very next day it soars up in value to $10 million. You instruct your broker to sell those shares, then run off to the bank to deposit the check. You’ll then owe capital gains taxes for the $9 million you cleared. Makes sense, right?
But let’s say you get smooshed by a dump truck on your way to the bank. What happens to the taxes you owe? Aren’t they still due? Shouldn’t they be collected before that money gets handed off to heirs? Of course!
It’s also applicable to real estate, art collections, and interest earned on cash holdings. Buy a mansion or a Rembrandt, then sell it years later for more than you originally paid? You owe taxes on the money you cleared. You also owe taxes on the interest you’d earn from that money after depositing it in the bank.
If you keel over before you sell that stuff, though, that doesn’t mean the tax on their improved value dies, too. Just like those assets are still there, so too is that tax still applicable.
3) It Isn’t Applied To The Entire Estate
That $5.43 million ceiling of exemption to the tax is also a deduction. If your estate is worth $5.5 million, for example, then only $70,000 is subject to estate tax.
It’s also a progressive tax, not the flat-rate 40 percent that Republicans claim. In fact, the average rate is only 16.6 percent, according to the Center on Budget and Policy Priorities.
4) It’s Already Chock-Full Of Loopholes
Don’t want your heirs to pay taxes on the money you want to leave them? There are a couple of easy tricks to work around that.
One is called a charitable lead annuity trust (CLAT). Put lots of money into an account, then establish a small amount to be donated annually to a charity for a fixed number of years. When that period is over, all the remaining money can go to your heirs completely tax-free.
Another is called a GRAT (grantor retained annuity trust). Put money into an account for a fixed time period, then use it for scheduled investments. The GRAT sort of borrows its own money, then pays it back with a fixed interest rate. If the GRAT profits on those investments, the money then becomes a tax-free inheritance for its pre-determined heirs. (If it loses money after the fixed time period, the remainder of the GRAT simply goes back to the estate.)
These loopholes saved wealthy heirs about $100 billion in estate tax since 2000, according to the tax attorney who discovered them. That comes to savings of about one-third of the total that could have been collected.
Of course, the Senate will have to vote on it, but a similar, non-binding bill got 54 aye votes there just last month. That’s still shy of the 60 votes required to pass it as a law, but is still darn close. At least the White House already threatened to veto the bill if it passes the Senate, according to The Hill.
H/T: The Hill | Image: Rob Groce