Given the focus over the last few years on income and wealth inequality, it's strange that almost no one in Congress has turned to the tax that was explicitly designed to mitigate such inequality: the federal estate tax. A proposal from Sen. Bernie Sanders would do this, and new state-by-state figures from Citizens for Tax Justice demonstrate why Congress should enact it.
The figures show that under the estate tax rules in effect today 0.1 percent — just one-tenth of one percent — of deaths in the U.S. result in federal estate tax liability. State-by-state figures show that even in "rich" states, the numbers are not much higher. For example, the figure in California is just 0.3 percent of deaths, and in Connecticut it's 0.2 percent of deaths. In other words, the majority of the richest one percent of Americans are likely to be unaffected by the estate tax, thanks to dramatic reductions in the tax in recent years.
Even for the 0.1 percent of deaths that do result in estate tax liability today, the vast majority of the estates involved still go to heirs and charity. For the most recent year of data, more than 72 percent of these estates went to heirs while 11 percent when to charity. (For the 99.9 percent of estates not subject to the estate tax, all of the estate value went to heirs and charity.)
A bill introduced on Sept. 18 by Senator Bernie Sanders of Vermont would restore some of the revenue lost because of those estate tax reductions. The bill would exempt the first $3.5 million of every estate (double that for married couples) from the estate tax, which was the rule in 2009. Opponents of the estate tax will howl dramatically that this is socialism and an attack on freedom, but the figures in CTJ's report show that only 0.3 percent of deaths nationwide in 2009 resulted in federal estate tax liability, so this legislation is not overly radical or far-reaching. Under Sen. Sanders' proposal, the estate tax would still only affect the largest estates.
President Obama has a similar proposal that would raise $85 billion over a decade, but Sen. Sanders's bill is the better of the two because it would raise more revenue, thanks to a graduated rate structure that recognizes that a family inheriting a billion is even better off than a family inheriting $10 million.
Of course, Congress needs to do many, many things to address the growing inequality in our society. But the estate tax is an obvious place to start.