...except for estate taxes on inheritances. And most rich people don't pay this tax either. Only a small fraction of the super-duper rich pay this tax (on money they don't hide overseas).
But still, the GOP-dominated House Ways and Means Committee just voted to repeal the federal estate tax, which the Republicans, Libertarians and Tea Partiers have been labeling as a "death tax" that unfairly steals the family jewels from ordinary hard-working Americans.
Former Secretary of Labor, Robert Reich (March 2015): "The ranks of the working poor are growing because wages at the bottom have dropped, adjusted for inflation. With increasing numbers of Americans taking low-paying jobs in retail sales, restaurants, hotels, hospitals, childcare, elder care, and other personal services, the pay of the bottom fifth is falling closer to the minimum wage ... the real value of the federal minimum wage is lower today than it was a quarter century ago.
At the same time, the ranks of the non-working rich have been swelling. America’s legendary “self-made” men and women are fast being replaced by wealthy heirs. Americans who became enormously wealthy over the last three decades are now busily transferring that wealth to their children and grand children. The nation is on the cusp of the largest inter-generational transfer of wealth in history.
A study from the Boston College Center on Wealth and Philanthropy projects a total of $59 trillion passed down to heirs between 2007 and 2061. Last year only 1.4 out of every 1,000 estates owed any estate tax, and the effective rate they paid was only 17 percent.
The [GOP dominated] Senate voted 54-46 in favor of a non-binding resolution to repeal the estate tax altogether. Earlier in the week, the House Ways and Means Committee [led by Paul Ryan] also voted for a repeal.
Rep. Paul Ryan (R-Wis.) claimed: "This tax doesn’t just hit the big guy, it hits the little guy — like the small business and the family farm." But as Congressman Jim McDermott, a Democratic member of the Ways and Means Committee, had pointed out, “You cannot call twenty-three-thousand acres a family farm."
It should also be noted that when Republicans refer to "small businesses", they aren't talking about the local "five-and-dime" store or a "mom-and-pop" business — they mean hedge funds and private equity firms. These financial gurus are the people the GOP wants to lower business taxes for, not for the neighborhood deli. And the same applies to the estate tax.
The New Yorker: "The facts? The estate tax now applies only to inheritances valued at more than $5.4 million [$10.8 million for two parents]. According to an analysis by the nonpartisan Tax Policy Center, about 0.2 percent of estates owed the estate tax."
In fact, the repeal of the estate tax would amount to a massive unfunded tax break for the very wealthiest people in the country. The Joint Committee on Taxation estimates that the move will raise the budget deficit by about two hundred and seventy billion dollars over the next ten years.
At Al Jazeera David Cay Johnston writes: "It would be a huge boon to billionaires and others whose fortunes would forever escape taxation, creating an even larger dynastic class of inheritors who owe their riches to their skill at picking their parents."
The wealthy hotel owner Leona Helmsley (aka "The Queen of Mean") went to prison for tax evasion. She had previously told her maid: "We don't pay taxes. Only the little people pay taxes". After Helmsley died, she left her pet dog a $12 million trust fund.
A rich married couple can now leave their unemployed spoiled brat $10.4 million, but grandma (or a divorced mother of two) who works as a waitress at the local diner, has to declare all her tips and pay taxes on them.
And as it has already been pointed out many times before, the estate tax is not a "death tax" — because dead people don't pay taxes; and neither do trust-fund babies — or dogs. Evidently, only "the little people" pay taxes.
(The CEO of BP thinks
of us as "small people".)
As it is now, the poor already pay a greater percentage of their income in taxes than the very rich. Not to mention, the little people pay interest on loans to buy homes and cars — whereas, the very rich pay cash and get cash discounts.
The little people also spend a greater share of their income to sustain themselves (food, rent, transportation, heat, gas, phone, cable, etc.) So they can't afford to stash away vast sums of unused cash in offshore bank accounts. Nor can the little people afford to buy million-dollar works of art or bury gold bars in their back yard.
And the very rich spend a smaller share of their gains in consumption. As billionaire investor Nick Hanauer pointed out in a speech: "There can never be enough super-rich people to power a great economy. Somebody like me makes hundreds or thousands as times much as the median American, but I don't buy hundreds or thousands of times as much stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and shirts a year like most American men. Occasionally we go out to eat with friends."
If tax rates aren't raised for capital gains (to the level of regular wages), the little people would have to be taxed more; or we'd have to cut government spending (the GOP's plan of starve the beast) — because the growing number of low-wage jobs doesn't contribute enough in tax revenues.
Besides the numerous tax loopholes that Congress has provided for the very rich, there's also the "step-up in basis for capital gains" — a tax loophole that all the little people should want to close (which is the sheltering of capital gains during one's lifetime by not selling assets, and then leaving those assets untaxed to their trust-fund babies).
David Cay Johnston says, "We need to reform the estate tax system. I would start by changing the code to tax capital gains at death, as Canada does, and to limit the estate tax to huge concentrated fortunes — say, of $1 billion or more."
Personally, I think that maybe we should start treating vast Walmart-like fortunes just like a game of Monopoly: When someone dies, the game is over, and all the money goes back into the box — or in this case, back to the U.S. Treasury — to be used for infrastructure, jobs and shoring up Social Security.
There's no reason at all why estates shouldn't be taxed 100%. The excess wealth is only hoarded for the benefit of privileged generations 100 years into the future for a handful of very rich families (like the Waltons). It does very little good for anybody else.
Update: The Gift Tax
Without a gift tax in effect, the wealthy could easily sidestep the estate tax by giving away the bulk of their fortunes before they die. (Read: A History of Federal Estate, Gift, and Generation-Skipping Taxes). With a gift tax in effect, the wealthy can still give away whatever they want, whenever they want. But if they try to pass a huge chunk of change to junior before they die, they have to pay Uncle Sam a tax on that chunk.
This gift tax has always come with exemptions. Gifts to charities have never been subject to gift tax. And deep pockets have also enjoyed both a “lifetime” and an annual exemption on the gifts they make to individuals. Since 2002, the “lifetime” exemption has stood at $1 million.
Even better, the tax cut lets stand a complicated estate planning technique known as the “Walton grantor retained annuity trust” — named after the heirs of the Wal-Mart fortune — that allows America’s wealthy to undervalue the actual worth of the assets they give away.
With a higher new lifetime gift tax exemption and a wide-open Walton loophole, estate tax expert Stephan Leimberg explained to Forbes, the rich will be able to shift “an unbelievable amount of wealth” beyond the reach of the IRS.
IRS (2015) What's New - Estate and Gift Tax