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Wealth creation is the Republican Partyâs modern raison dâĂŞtre. But they donât only want entrepreneurs to create more wealth for everyone, they also want the already wealthy to keep a much greater share of wealth for themselves. A clear indication of this can be seen in their plans for an obscure part of American tax code called âstep up basisâ.
Americaâs federal government has levied an inheritance tax against the value of a dead personâs estate since 1916. The recently passed tax reform bill established that the first $11.2 million of a personâs estate is completely exempt from this tax. A married couple that plans ahead can effectively double this amount to $22.4 million. Anything above that is taxed at rates of up to 40%.
âStep up basisâ is a provision intended to protect heirs from double taxation. It establishes that bequest recipients have the value of their gifts âstepped upâ to the goodâs value at the time of the donorâs death. If this were not done, the government would effectively get two bites at the tax apple: first a share of the value of the good at a personâs death, and then again on any gains the recipient would get when they sell the good. Step up basis is fair in the context of an inheritance tax as it means the government taxes profits once and only once.
Many Republicans, however, want to repeal the inheritance tax and keep step up basis. Indeed, the bill passed by the Republican-controlled House last fall included this provision. Nor is this the first time the House has tried to do this: it passed a bill eliminating the inheritance tax while keeping step up basis on a nearly party line vote in April, 2015.
If this combination were to ever become law, Americaâs wealthiest individuals would effectively pay no tax on the billions of dollars they had saved over the course of their lifetimes. Their estates would not be taxed because of the inheritance taxâs elimination, and their heirs would pay no tax on the accumulated gains on the investments or property they received. Hundreds of billions of dollars would go untaxed, giving billionaires a massive tax break.

The amounts at stake are simply mind-boggling. According to Forbesâ daily updates of the net worth of the planetâs richest people, the ten wealthiest Americans have estates of approximately $692 billion.1 Assuming, for the sake of argument, that only about half of that amount represents unrealised gains on their investments, that means nearly $350 billion would never be taxed at all under the House GOP approach.2At the current effective capital gains tax rate of 23.8%, that means the federal government would lose nearly $74 billion in tax revenue.3
Left-wing groups and activists predictably decry this as a giveaway to the rich. Right-wing groups and activists, however, donât even note this possibility exists. During my research, I was unable to find a single mention of an anti-tax or right-wing group analysing or justifying this policy. There are plenty of justifications for the elimination of the inheritance tax, or the âdeath taxâ, but not a single one explaining why coupling this with stepped-up basis retention is fair.
Perhaps thatâs because it is an article of faith among many Republicans that the capital gains tax rate should be zero to begin with. The Tax Foundation, for example, is a very influential group on the American right and it endorses this idea.4Â Grover Norquistâs Americans for Tax Reform, the single most important group favouring tax reform, has long called for a zero % capital gains rate.5
If you donât think that capital gains should be taxed, then the enactment of such a policy by stealth for the uber-wealthy wonât trouble you one bit.
The attitude behind the tax proposals, however, continues to dominate economic thinking on the American right. As such, it drives a further wedge between the Right and the increasing number of Americans who believe they do not benefit from the modern global economy. Itâs one thing to stop death from being a taxable event; Americans think thatâs only fair. Itâs quite another to make death a âget out of tax freeâ card for the Davos set. A party that continues to listen to this siren song should not be surprised when one day they look up to find the Left firmly ensconced in power.
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