When a person dies in the US, all of their wealth exceeding $5.49 million is taxed. The Republicans want to change this.
As part of their effort to overhaul US taxes, the House Republicans’ plan repeals the estate tax entirely six years from now; in the meantime, it doubles the amount of wealth exempted, to $11 million. The Joint Committee on Taxation estimates that the House plan would cost the government $150 billion over the next 10 years. The Senate Republicans’ plan does not include repeal, but does raise the exemption to $10 million (pdf).
Republicans argue that the estate tax is bad for business. The Heritage Foundation, an influential right-wing think tank, claims the tax hurts the economy by discouraging savings and investment, and thus hurts job creation and wage growth. Most economists agree that taxes levied at death are not the best way to tax wealth (pdf), but research does not suggest eliminating the estate tax would have a meaningful impact on the economy.
The estate tax also affects a very small proportion of Americans. According to the Tax Policy Center, of the 2.6 million people who died in 2013, only 11,300 had to pay it. That is less than 0.2% of all Americans.
But who exactly is the next generation affected by that tax?
The best source of data on the wealth of US households is the Survey of Consumer Finances, a representative survey of US households collected every three years (data was last collected for 2016). In addition to questions about a household’s income, investments, and debt, the survey also includes questions on whether the household ever received a substantial inheritance, or expects to receive one.
According to a Quartz analysis of the 2016 data, only 20% of households claim to have received any inheritance at all, and an additional 9% expect to receive one in the future. The households who have received or expect to receive an inheritance are generally already high-income. More than twice as many households in the top 20% expect to receive or have received any inheritance than those in the bottom 20%. (An analysis by the People’s Policy Project finds similar rates.)
The estate tax doesn’t impact everyone who gets an inheritance; only those who are in for a windfall. So we examined who received or expects to receive an inheritance of more than $2 million. These are the people most likely to be touched by the tax—assuming they shared an inheritance of over $5 million with other descendants.
Our analysis shows that about 12% of households in the top 10% in income receive this kind of large inheritance, compared with just 2.5% of the rest of households. (Inheritances received in the past are inflated to 2016 dollars.)
The households who receive inheritances of more than $2 million also tend to be highly educated—not surprising given the strong connection between income and education. Households headed by a person with a college degree are over than four times more likely to receive a big inheritance that might be impacted by the estate tax.
Large inheritances are also more common among white households than minorities. This is due to the large differences in wealth accumulation between races in the US, a difference even starker than disparities in income. The average white household makes more than 50% in income than the average black household, but the average white household has more than seven times more wealth (pdf).
As a result, only 0.7% of black household have received or expect to receive a $2 million inheritance, compared with 4.2% of white households.
Finally, we examined whether households led by women or men were more likely to receive an inheritance. Of male-led households, 3.6% reported receiving or expecting to receive a $2 million inheritance, compared with just 2.3% of female-led households.
The data show the tax on estates is most likely to draw from inheritances that would go to high-income, high-education, white, male-led households. The estate tax is a tax that hits the most privileged Americans hardest. Sad!