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Hillary’s Plan for a 65% Top Tier Death Tax

Hillary’s Plan for a 65% Top Tier Death Tax

Fodder for Monday’s debate

While the Republican presidential candidate talks about eliminating the death tax altogether, the Democrat presidential candidate promises to raise it even further than her initial suggestion.  This seems to be Hillary’s latest leftward lunge as she attempts to appeal to Bernie voters who appear to believe that once you die, your money belongs to them the state.

The IRS calls the estate tax (aka death tax) “a tax on your right to transfer property at your death.”

Hillary wants the death tax to be higher, all the better to manage your right to transfer your property at your death.

Investopedia reports:

In a nod to potentially disaffected supporters of her primary opponent Bernie Sanders, Democratic presidential candidate Hillary Clinton on Thursday proposed raising the top estate tax rate to 65%. This policy stands in stark contrast to that of her Republican opponent Donald Trump, who would repeal the “death tax,” as his website refers to it, but tax capital gains held until death.

Estate taxes are a contentious issue that generates strong partisan reactions, and the issue is likely to come up in Monday’s debate between the candidates.

Clinton previously advocated a 45% top rate on inheritance, but has now adopted the 65% rate Sanders called for during the primaries and beforehand in the Senate. The current top rate is 40%, with the first $5.45 million exempt. Clinton’s previous proposals would lower the current exemption – which her websites describes as almost $11 million, a reference to the exemption enjoyed by couples – to $3.5 million. The 65% top rate would only apply to individual estates of over $500 million ($1 billion for couples), which according to the campaign represent the wealthiest 4 of every 1,000 estates.

According to the Tax Foundation, fewer than a dozen estates per year would be taxed at the top rate under this “largely symbolic” change. Using the Forbes billionaires list, the Tax Foundation’s Scott Greenberg estimates that Clinton’s estate tax would raise $600 million in the first year after its enactment, a “drop in the bucket.”

One of the (many) problems with the death tax is that it doesn’t affect the exceedingly wealthy, who set up foundations, trusts, etc.  Instead, it affects farmers whose wealth is tied to their land and small businesses whose wealth is tied to their small business.  The “cash rich” are protected.

The Wall Street Journal opines:

Though she defeated Bernie Sanders in the primary, she is adopting the socialist’s death-tax rate structure. She’d tax all estates over $10 million at 50%, apply a 55% rate on estates over $50 million, and go to 65% on assets above $500 million. The 65% rate would be the highest since 1981 and is another example of how she is repudiating the more moderate policies of her husband and the Democrats of the 1990s.

The left claims only the super-wealthy will pay high rates, but the Sanders plan that Mrs. Clinton is copying did not index exemption levels for inflation. One reason a bipartisan movement emerged to reform the death tax in the 1990s was because the then 55% rate engulfed ever more taxpayers over time. Mrs. Clinton would also end the “step-up in basis” on stock valuations for many filers, triggering big capital gains taxes for a much broader population.

She also knows most of her rich friends will set up foundations, as she and Bill Clinton have, to shelter most of their riches from the estate tax. As Americans have learned, these supposed charities can be terrific vehicles for employing political operatives while they wait for Chelsea to run for the Senate.

With reports that Trump is taking the upcoming presidential debate seriously and is preparing for it in a number of ways, I’m popping popcorn for Monday night’s debate.


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…the Tax Foundation’s Scott Greenberg estimates that Clinton’s estate tax would raise $600 million in the first year after its enactment, a “drop in the bucket.”

I’m willing to bet that number is overestimated by about 600 million dollars…

The various means to avoid the death tax are open to anyone with an estate that warrants their use.

The estate tax is a red herring. Practically no one except the uber rich and/or uber dumb should be impacted by it. If you’re rich enough to be hit by the estate tax you’re presumably smart enough to manage your estate to avoid it. If not, you probably deserve to be parted from your money.

She’s not going to pay that tax. All her money is in the Clinton Foundation.

So Illary. How much more is Chelsea going to pay under your plan?

    rabidfox in reply to RodFC. | September 24, 2016 at 9:47 pm

    How much more will Chelsea pay? $0.00. She has the foundation as a tax shelter. It will be the people who don’t have massive amounts of money that will be affected since the rich already have work arounds.

      Yeah I know.
      I meant this as a question Trump should ask during the debate.

        4fun in reply to RodFC. | September 25, 2016 at 7:17 pm

        Same thought I had when I read the article in
        It could be another Trump blast to list her wealth and the foundations, trust and other tax avoidance schemes hateful hitlery is using.
        Wonder if it would make her eyes go bonkers again.

As someone that works in this area, practical points should be made. First, when the exemption was $650,000 per person, unindexed for inflation, it was too easy for the average person to fall under it, because LIFE INSURANCE is included…. It’s common for folks with young kids to have $1 million in life insurance….

Second, as a practitioner, it was always uncomfortable talking with a new client, and having to get to the nitty gritty of EVERY SINGLE FINANCIAL ACCOUNT they owned, including of course balances, because you’re just meeting them, have no track record with them, and their antennae is up for anything suspicious. With the current exemption around $5 million, you don’t have to be as nitty gritty as to exact amounts in their financials. Ball parks will generally do…

The fact is, by having a low exemption level, they increased the cost of even simple wills by making it malpractice not to nail down every little asset the client had. I’ve been much happier since the exemption amount increased, and so have my new clients, who pay much less for a will now.

The estate tax is one of those taxes that lacks even a hint of moral justification. First you earn income, and pay income tax. Then you invest what you have over, and pay capital gains tax. Then before you can pass it along to your family, its taxed one more time. It’s a stack of disincentives to the point where the most rational economic strategy is to either die broke or appear to die broke.

I am also a practioner in this area. My first point is the commentary and arguments on both sides of the political spectrum often widely miss the mark. Our current system allows a $5.4m exemption from the estate tax, $11.8m for a married couple with portability, the balance in excess of those amounts is a flat 40%.

A common argument for elimination of the estate tax is the destroys family business. While the estate tax is does have an effect, it is much smaller than argued. The failure rate for family businesses post death is almost identical in France with a much higher estate rate and Australia with a much lower estate tax rate. The failure rate of family businesses post death is primarily to product changes, demographic changes family dynamics – think about how many people work in the same profession as their father and grandfather.

A second point is that the estate tax would likely generate significantly more revenue for the government if the rate was lowered to a flat 15% -20% rate with a lower exemption threshold of $4m (while retaining the indexing). A lowering of the rate will substantially reduce administrative costs of compliance and the expense estate planning.

A third point is the progressives plan to eliminate the step up basis in assets passing at death – Ie taxing the capital gain. The reality is the majority of the untaxed gain is only inflation and not a windfall or a true economic gain. Think about the parents home that was purchased in the 1950’s for $20,000. It is now worth $250,000 – how much is appreciation and how much is inflation. Under the progressives plan, both the economic gain and the inflation adjustment is subject to taxation.

It is difficult to develop a coherent estate tax policy when the rhetoric on both sides of the Aisle widely misses the reality, though I will say that the progressives attitude is “its our money, so lets tax it”

As ClosetheFed above stated, the change to the $5m/$10m and the cap at a 40% top rate was one of the best tax policy changes in estate and gift tax law in the last 50 years. It was surprising that it was passed (maybe enough progressives actually looked at reality and decided to adopt something resembling sound tax policy).

No government should be entitled to 65% of anything.

It is not Hillary’s money to decide what to do with.