Periods of political transition are often marked by cognitive dissonance in messaging. Old shibboleths are hard to drop. One of the most eyeroll inducing examples of this in our current discourse is watching GOP mouthpieces and standard bearers twist their defense of not taxing estates into something that makes sense in their larger “working class” populism narrative. Take a look at the National Review’s latest attempt to square this circle:
Meanwhile, keep an eye on the estate tax, too. In 2021, estates valued under $11.7 million are not subject to the estate tax. But if President Biden has his way, that threshold will be cut to $3.5 million, and the rate of tax increased to 45 percent (from 40 percent). Considering that as recently as 2001 the threshold was just $675,000, it’s not difficult to foresee this tax hitting middle-income Americans. So much for tax hikes on “only the rich.NRO
This is piece is classic GOP sleight of hand, opening with a non-sequitur on the Trump tax cuts being most beneficial to middle class earners who bring in between 40-80k to establish how the tax code is really set up to help the middle class (it isn’t). Then in telling readers that Biden wants to roll this all back, they shift to discussing estate taxes with an example of a modest family home and how the stepped-up basis rule for inherited property would work. Why shouldn’t parents be allowed to gift their modest 200k home to a child before they die at the same no-tax rate that they would receive after their death? See, this affects more than just rich people!
It really does not. Most middle class Americans do not gift their homes to their children before death. Why would they? What is the benefit for either the parent or child here? The primary reason to do this is if the inclusion of the home(s) in the estate would bump the value over the estate tax thresholds that would cost you a lot in taxes. This is more like the cash or non-property asset gift thresholds (15k a year, 11.58 million lifetime). This just is not something most American families do with any regularity. Of course, NR isn’t really trying to argue that this stepped up basis is a traditional tool of middle class wealth building. Like the opening, this is just window dressing. Which brings us to the quoted section above, where they pivot to how the estate taxes might someday become a blight on the middle class.
Biden proposing to cut the estate tax threshold from 11.7 to 3.5 million is somehow a looming threat to the middle class because of a ludicrous transitive property: If the Trump tax cuts benefited the middle class and the stepped up basis is available to everyone and lowering the estate tax threshold to 3.5 million will threaten the middle class as inflation sets in then changes to any of this must be viewed as a tax hike on the middle class!
Is it any wonder that this leftover from the pitiful Paul Ryan era GOP never found any real traction? It is convoluted nonsense that provides but the laziest veneer of logic to the self-interest of well-off wage earners in service of providing a free-ride to the much wealthier capital class who will benefit most from these defenses.
To be very clear, the median net worth of Americans over 65 is just over $250000. So even under the 2001 figure (which is not adjusted for over 20 years of inflation), the middle class did not come close to being touched by our estate taxes in the 1990s. The average American in that age bracket is still worth less than a million. Again, the proposed threshold is over 300% of that number. Worried that inflation will erode that margin? Then argue for an indexing that will keep that number inching forward with the inflation rate. NR isn’t interested in that– they simply do not want to pay taxes on their inherited wealth.
The GOP has promoted the idea that being worth millions is “middle class” for longer than I have been alive. It has always been bullshit. I think often of folks I went to college with who described themselves as middle-class despite their parents being surgeons, corporate managers, and other high-powered jobs. Because they went to private school with other kids whose parents had inherited wealth on top of their parents high earning jobs they considered themselves middle class. I get it– it is easy to overlook those you know with less and get trapped by envy and “keeping up” with the most affluent people in your community. Our self-sorting, through our work, home communities, and marriage often segregate us with like people and obscure us from wider social contexts. It is really easy to think of yourself as the baseline– after all, you know people with more and people with less than you!– but that does not make it so.
I can excuse that foolishness in wide-eyed 20 year-olds, but it is unacceptable in adults or as a political position. The truth is that our estate tax laws wildly favor the wealthy and compound the advantages they have in education, wealth generation, and power. This has never been about allowing you to keep the family farm. It is simply another hand out to the wealthiest among us.