For the second time in as many years, Sen. John Thune (R-SD) is leading the charge in repealing the federal estate tax. With wealth inequality flourishing and public opinion moving in favor of higher taxes on the wealthy, removing this tax on inheritances will only make the gulf between the rich and poor wider. Sen. Thune’s bill is and should be unpopular. However, because of a massive misinformation campaign from Republican politicians and wealthy Americans, a surprisingly large number of people support repealing the estate tax. Here’s why you shouldn’t buy Republican lies.
The estate tax, which is one of the few taxes in the country that only affects millionaires and billionaires, was last adjusted in 2017’s Tax Cuts and Jobs Act (TCJA). The bill doubled the threshold for qualifying estate, making the lower limits $11.2 million for an individual and $22.4 million for couples, and taxing estates over these amounts 40%.
Republicans justified this change, in part, by repeating the tired lie that the estate tax is a burden on small family farms, and that this is justification enough to get rid of the tax. This claim is just plain absurd, and completely contradicted by facts and even basic logic.
By definition, a small family farm cannot be worth over $10 million, or even $5 million. In fact, the median farm operator household in 2015 was worth just $827,300. This is despite 90% of farms bringing in $350,000 or less in revenue a year, making the median skewed by the earnings of massive family operated farms. And yet, Republicans enlisted one of their own to use a tragedy in her family for political purposes.
In 2015, former Rep. Kristi Noem (R-SD) argued the estate tax hurts family farmers because of her family’s suffering after the passing of her father. It wasn’t until 2017 during the lead up to the TCJA’s passage that her oft-repeated story was really examined, and eventually exposed as extremely unlikely. Although Noem said her family received a letter from the IRS not long after her father’s passing and was forced to either sell land or take out loans to pay “death taxes,” a tax attorney and local newspaper poked holes in her story and reviewed documents like her father’s will, respectively, to come to the conclusion that the congresswoman was not telling the truth. Not only could Noem’s mother, who is still living, have received all her father’s assets tax-free through the 100% marital deduction, but the only tax owed on his estate due to poor estate planning was $85,774 total (from both the federal estate tax and state inheritance taxes). Given that her mother received $1.24 million in life insurance and annuity transfers, the necessity of loans to pay the taxes is unlikely. Noem, now governor of South Dakota, has yet to clarify the discrepancies.
Unfortunately, this hasn’t stopped her party from using the small family farmers lie to sell their estate tax repeal, and Americans are still falling for it. Thankfully, the more that people learn about the estate tax, the more likely they are to support it. Support for the estate tax will grow once misinformation is confronted, at least according to a few studies, so we don’t need to change minds, we just need to educate the public.
While most polls show Americans do not support the estate tax, polls consistently show the majority of Americans in favor of higher taxes on wealth and income. The reason for the disconnect? Americans haven’t been given the full picture when it comes to how the estate tax is applied. When people being polled were told the estate tax only affects estates over $5 million (before the TCJA) the number of respondents who supported the tax went up 19% compared to those who were not given this information before answering.
This should encourage the majority of Americans who do want to see a fairer tax code, and politicians who are working to get it done. After all, with 60% of private wealth having been inherited and not earned, strengthening the estate tax is clearly an vital part of any attempt to reduce economic inequality. The numbers just need to be presented clearly, without distortion, so citizens can make the most informed choice.