Nov 19, 2017 4 min read

Last week, I looked at the Republican tax proposals that have called for, among other things, lower corporate rates and tax cuts for the affluent, and how the GOP is willing to add to the national debt to accomplish these goals.

The willingness to help the already well-off is reflected in their desire to eliminate the estate tax. It is actually an almost ideal tax. Republicans correctly argue that taxing something can discourage it, such as cigarette smoking, but that clearly does not apply here. While many people would like to leave something to their children when they die, they are mistaken to think that the estate tax will limit their ability to do so. The first $5.95 million ($10.9 million for married couples) is tax free, and very few people die with an estate worth more than that. In 2013, 11,300 estates had to file tax returns, and only 4,700 paid any estate tax.

Additionally, a good tax is one that is relatively easy to pay, and when someone dies with an estate that is taxable, they clearly have the ability to pay the tax. Critics like to argue that the inheritance tax forces families to sell businesses or farms, but examples of this are rare. And if you think about it, that should not be a problem. If someone inherits a business worth $20 million, and owes approximately $4 million in tax, a decent businessperson should be able to find a loan that allows them to pay the tax and retain ownership of the business. After all, they just inherited $16 million in assets.

One of the ways Republicans have proposed paying for these cuts is eliminating the deductibility of state and local taxes. A cynic might see this as pure politics, since it hits wealthy, primarily Democratic states that have much higher tax rates, such as New York or California, rather than red states like Texas or Florida. While this may be true, even red states have real estate taxes, and this will eliminate one of the many ways the government subsidizes high-end suburbs. As it is, this benefit is used by taxpayers who itemize their deductions, and is unavailable to most low or even moderate-income taxpayers who take the standard deduction. Under the current tax code, upper-income taxpayers residing in wealthy school districts bills have almost 40 percent of their real estate tax bill paid by the federal government, while low-income residents who often reside in impoverished school districts get nothing. This does provide an opportunity for reform, but not if all the savings are transferred to the wealthiest members of society.

The idea of limiting tax-free deductions to 401(k) plans has been floated. This is another element of the tax code that exacerbates inequality, since the people who take advantage of this deduction tend to be relatively well-off – it is hard to put the maximum allowable, $18,000 each year, into a 401(k) if you don’t have an income higher than most. Because this program exacerbates inequality, it could be reformed, reducing deductions for high-income taxpayers while matching contributions of lower-income taxpayers. But simply limiting the deduction that mostly benefits the upper middle class to pay for benefits that accrue to the top 1 percent makes no sense. Is discouraging retirement savings really what tax reform should be doing?

President Trump has claimed that Republican tax plans will not benefit him or his wealthy supporters, but that is clearly not the case. As a wealthy owner of a pass-through business, who has children to whom he is likely to leave his business when he dies, almost every aspect of the plan benefits him. While Trump’s refusal to release his tax returns prevents documenting exactly how much Trump benefits, this secrecy itself should make such a claim suspicious; it is unimaginable that he would pay more tax if his plan were implemented.

Republicans criticize Democrats for “social engineering” when they try to use government programs to change people’s behavior, but Republicans do the same thing. One reform that would greatly simplify the tax code would be to stop trying to “reward investment” and tax all income at the same rates. Why should someone who profits by buying and selling assets (capital gains) pay a lower tax rate than someone who works for wages? Why should business owners pay a lower tax rate than their employees? Why should a government with more than $20 trillion in debt be reducing its revenue? How can people who claim to be fiscally conservative, and railed against the deficit for eight years justify adding billions of dollars to it? Tax reform should be revenue neutral, not a gift to wealthy political donors that has the added benefit of justifying program cuts that affect your opponents’ voters.