What is the Death Tax? - YouTube

Hey gang, it’s Chris, and I want to talk the “Death Tax.”

So, with the Republicans in power, they’ve been promising something they refer to as

“tax reform.”

Most experts call the term “reform” inaccurate because what we’ve seen so far is just an

assortment of cuts, but that’s not what I’m here to talk about.

I want to focus on the largest of those cuts, the elimination of something the Republicans

call the “Death Tax.”

Obviously that’s not an official government name.

Depending on who’s saying it, “Death Tax” refers to a few different taxes, actually.

First, we have estate taxes and inheritance taxes, which are actually different.

An inheritance tax is charged to the person who receives money or property, while an estate

tax is charged to the full amount of an estate before it is divided among heirs.

This may not sound like a big distinction, but it actually is

“Death taxes,” like all taxes, can come from both the federal government and the states.

Right now, in 2017, the federal government does not have an inheritance tax, but it does

have an estate tax.

That’s the one the Republicans want to repeal, and we’ll talk a good bit more about it.

Meanwhile, fifteen states have an estate tax and six have an inheritance tax.

How they administer these—what the rates are and who has to pay, varies as all state

laws do, so I won’t get into a lot of detail there.

In most cases, property you pass down to your children or grandchildren, or up to your parents

or grandparents, can be taxed.

The only person who is never taxed when inheriting money is your spouse.

Siblings, friends, and other more distant relatives are always taxed—assuming, of

course, that the amount of the estate is enough to be taxed.

See, that’s an important aspect that most people forget—and that Republicans in Congress

want us not to notice.

The Federal Estate Tax, which sounds very scary when I tell you the rate is forty percent,

only applies to estates greater than five and a half million dollars—or about one

seventh of one percent of estates in the United States.

Even when the estate tax applies, the first five and a half million is exempt, and expenses

like funerals, charitable donations, and taxes paid to the home state are all counted against

the total value of the estate.

In the end, after adjustments and deductions, people who do pay the federal estate tax wind

up paying around seventeen percent—much less than income tax, and around what most

people pay on capital gains like appreciated stock.

Let’s back up for a second.

Why do we even have an estate tax?

After all, you pay taxes on your money when you earn it, and you pay taxes on your property

every year you own it, so why should you pay taxes again when you want to give that property

to your kids?

It turns out that estate taxes go all the way back to the founding of our country.

In Europe at the time, and Especially in England, divisions around wealth and class were very

important.

A class known as the “landed gentry” had formed—these were people who accumulated

great wealth, and had become a sort of secondary nobility, not because of family names or titles,

but just based on their fortunes.

Over time, the landed gentry controlled so much real estate that none of them had to

work.

They lived off the rents paid by their many tenants, and spent their time in idle pleasure

and at court.

In fact, many of the prominent “statesmen” we know today—including George Washington

and Thomas Jefferson—were basically landed gentry.

Washington held the record as wealthiest man ever to serve as President, until Donald Trump

was elected.

So if we ever learn the truth, he’ll probably probably keep that title.

But old English traditions of class and nobility ran counter to American ideals like democracy

and equality.

Landed gentry in the New World, and typically found work as farmers or public servants.

Jefferson, a southern plantation owner and a member of the gentry class known as “First

Families of Virginia,” famously said “Those who labor in the earth are the chosen people

of God.”

OK, quick pause here.

I’d be remiss if I didn’t note the hypocrisy of men like Thomas Jefferson claiming to value

labor when he enslaved and exploited African and African-American people to work his farms.

When I say they valued these things, I’m referencing the beliefs they claimed to hold,

not the beliefs they lived.

Anyway, the estate tax was one of several mechanisms to avoid the development of a landed

gentry in the United States—the idea being that families of great wealth would hand a

portion down to their children, but not so much that those children could follow the

British tradition and get fat off their tenants.

Over multiple generations, that estate would gradually work its way back to the nation,

and the decedents of the wealthy would return to work.

This was by design—to avoid a permanent ruling class of families perpetually passing

down their immense fortunes.

I’ll let you decide how well that’s worked so far.

So, coming back to the present day.

Republicans are trying to repeal a tax that was designed by our founders to avoid control

of the country by a permanent wealthy class, and that only affects the top one seventh

of one percent of families in the United States.

Those few families who pay the federal estate tax are so rich, in fact, that the tax generates

almost 20 billion dollars per year for the federal budget.

One seventh of one percent of all households, paying an average of 17 percent, generates

20 billion a year.

So those estates are….

Well, they’re really, really big.

You can guess why Republicans are working so hard to repeal that tax.

Of course, they aren’t going to get a lot of public support by talking about mega-billionaires,

so they tend to frame the estate tax as harming farmers and small businesses.

The truth is, in any given year there are only around fifty small businesses and family

farms—that’s both combined—that will pay even a penny to the federal estate tax.

And those that do will pay a very, very small percentage—remember, it’s forty percent,

but only on the amount above 5 and a half million dollars, and after expenses are removed.

Now, I won’t lie, there are a small number of people for whom estate taxes can be a difficult

burden.

I’ve known a few people who went through this kind of difficulty, and it’s not pretty—but

again, it’s not due to the federal estate tax, because the federal estate tax doesn’t

even kick in unless your estate is worth 5 and a half million dollars.

So hopefully that helps you understand the “death tax” a little bit better, and why

you probably shouldn’t trust anyone who tries to make a political argument by talking

about the “death tax.”

To me, I agree with the founders in thinking that wealth is nice, but a class of people

with permanent wealth is a danger to the country.

But what do you think?

Are you less concerned about the risk of a landed gentry than you are about the government

taxing personal property?

Are you concerned about your own estate, and the potential impact of state taxes on your

future?

I invite you to share your thoughts, or to yell at me, in the comments below.

And as always, if you enjoy and appreciate this video, please do like it, and please

subscribe to my feed for future videos.

In the meantime, thank you for watching, thank you for thinking, and thank you for taking

the time to understand American tax policy just a little bit better.