“Let’s close the loopholes that lead to inequality by allowing the top 1 percent to avoid paying taxes on their accumulated wealth,” Obama said Tuesday night during his annual State of the Union address. “We can use that money to help more families pay for child care and send their kids to college.”
A variety of tax strategies exist to shield much of an inheritance from taxation. And that, said Rep. Jason Chaffetz (R-Utah), is as it should be. Chaffetz moved quickly from talking points to genuine anger in responding to the president’s proposal. “That’s a non-starter. The audacity, that he thinks the government has a right to people’s money? He wants to transfer wealth," Chaffetz said. "It’s one of the most immoral things you can do, is try to steal somebody’s inheritance, to steal it away from their family.”
The Republican success over the last two decades in reshaping the debate over inheritance has virtually eliminated the taxes owed by the offspring of the uber-wealthy, who inherit trusts set up in their names or stock on which they owe no capital gains taxes. The cost to the Treasury has been hundreds of billions of dollars, while the cost to the social fabric has come in yawning wealth inequality disconnected from the American notion of equal opportunity and reward for hard work.
Popular debate around taxation over the last several decades has largely focused on income taxes, while Republicans have renamed the inheritance tax a “death tax” that destroys small businesses and family farms.
“That is DOA,” said Sen. John Hoeven (R-N.D.). “Think about all of the small businesses and the farms, and how are you going to maintain a small business or pass a farm on to your kids? They grew up on that farm, they worked on that farm, and then they have to sell it when you die? I mean come on, that’s not how you foster small businesses or entrepreneurship.”
The GOP argues that an inheritance tax forces heirs to sell the farm in order to pay the tax, but no taxes are owed on the first $5 million in value inherited, meaning any farm or small business hit would need to be rather big.
Sen. Marco Rubio (R-Fla.), who is flirting with a presidential bid, said there was no need to punish the children of the rich. “My preference is to have as much money available for people to reinvest back into the economy,” he said. “I think we can succeed at helping the middle class without having to go after anybody, or make an example of anybody, or punish anyone.”
Sen. Joe Manchin, a conservative Democrat from West Virginia, said he’d be okay with a proposal that had a large exemption, as it would hit few people where he’s from. “That makes a lot of sense,” he said of the president’s pitch. “I think it’s over a threshold of $10 million or more, so basically West Virginians would be okay with that. That wouldn’t hurt too many West Virginians.”