As GOP Lawmakers Eye Cutting Estate Tax, Will They Increase Income Inequality? As Republicans prepare to pass their massive tax overhaul, they are planning to lessen, or even eliminate, the estate tax. Critics say the tax plays an important role in making the economy fair.
NPR logo

As GOP Lawmakers Eye Cutting Estate Tax, Will They Increase Income Inequality?

  • Download
  • <iframe src="https://www.npr.org/player/embed/568828538/569039681" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
As GOP Lawmakers Eye Cutting Estate Tax, Will They Increase Income Inequality?

As GOP Lawmakers Eye Cutting Estate Tax, Will They Increase Income Inequality?

  • Download
  • <iframe src="https://www.npr.org/player/embed/568828538/569039681" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

RACHEL MARTIN, HOST:

Republicans in Congress are on the verge of fulfilling a long-held dream. The House and Senate have passed bills that would eliminate or reduce the tax that people pay when they inherit large estates - larger than $5.5 million. It's part of the massive tax overhaul legislation that is in its final stages in Congress right now. And even though Republicans have tried for years to scale back this tax, NPR's Jim Zarroli says this effort goes further.

JIM ZARROLI, BYLINE: The last time the estate tax was repealed, the move was temporary. During the George W. Bush administration, Congress gradually reduced the tax and then ended it altogether in 2010. But the tax came back the next year and remains in place today. Now Republicans are pushing a permanent repeal. Here was House Speaker Paul Ryan on Fox News recently.

(SOUNDBITE OF FOX NEWS BROADCAST)

PAUL RYAN: We just think it's unfair. Death should not be a taxable event, and we should not be stopping people from being able to pass their life's work onto their kids.

ZARROLI: This time, Republicans could get their way. The bill approved by the Senate would double the estate tax exemption, which means many fewer people would have to pay it. The House version would reduce the tax and then scrap it in 2023. And these bills would be more generous to heirs than previous repeal attempts because of a provision in the tax code. That provision means, if you have an asset that's climbed a lot in value over the years, like your Apple stock or a Warhol print, you can leave it to your heirs, and they don't have to pay taxes on the appreciation. New York University law professor Lily Batchelder says this goes beyond previous repeal bills.

LILY BATCHELDER: It would really mean that these giant estates - a lot of them would have never been taxed under the income tax, and then there no longer would be an estate tax.

ZARROLI: Critics of the estate tax, like Scott Hodge of the Tax Foundation, point out that it only raises about $19 billion for the Treasury each year, but it hurts the economy.

SCOTT HODGE: Its effect on the economy is outsized, in terms of what it does to change people's decision-making, in terms of the kind of investments they make, how they set up their affairs and other things. And so it can have a pretty serious consequence on economic growth.

ZARROLI: Hodge says the estate tax encourages people to spend money on tax lawyers and tax shelters. He says it can be really burdensome for people who inherit assets that are worth a lot but are cash poor, like certain kinds of businesses, so people who inherit them may be forced to break them up or sell them off. But people who want to keep the estate tax point out that such cases are really rare. NYU's Lily Batchelder says the estate tax has an important function.

BATCHELDER: The estate tax is basically a way of partially leveling the playing field so that these heirs of massive estates don't have quite as gigantic a leg up in life.

ZARROLI: That's important, she says, at a time of growing inequality. But if the repeal effort fails, it could be less about the wealth gap than the budget deficit. Numerous analysts say the tax overhaul will increase government debt. That means Republicans could once again be forced to reduce the estate tax but not eliminate it altogether. Jim Zarroli, NPR News, New York.

(SOUNDBITE OF RANDOM RAB'S "PLANET LIFE")

Copyright © 2017 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.