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GUEST ARTICLE: A Role For The Estate Tax In Debt Debate

Steve Wittenberg, July 26, 2017


Large changes are possible around the US estate tax regime. The author of this item, from SEI Private Wealth Management, puts the debate around the issue into a broader context about the US and its debt position.

While the debate in Congress over healthcare continues, showing little indication of waning, a shadow of doubt has been cast over the future of federal tax reform and the debt ceiling. Many Americans are concerned with the potential changes to their taxes that may be looming in the near future, namely the hotly debated estate tax. Steve Wittenberg, director of legacy planning at SEI Private Wealth Management, has written this article about the estate tax and issues around it. The editors of this news service are pleased to share these insights and invite readers to respond. Email tom.burroughes@wealthbriefing.com

The year was 2011. Arabella Kushner, daughter to Ivanka and Jared, was born; Wall Street was “occupied;” Steve Jobs passed away; and Congress faced a debt-ceiling crisis while their bi-partisan Super Committee (1)  debated the estate tax’s future.  

The year is 2017. Healthcare dominates the news, but tax reform is still the hot topic. The under-reported Congressional vote on the debt ceiling will creep up on us mid-October. It is déjà vu all over again, as we deliberate like we did in 2011. Should the estate tax be an important part of the current fiscal debate?

What does history say?
The year was 1916. Kirk Douglas was born; a young Babe Ruth pitched for the Boston Red Sox; World War I was underway; and Congress enacted the modern estate tax to fund the war effort (2).  Since that time, estate tax rates and exemption levels have adjusted 32 times. The modern estate tax was never intended to be a permanent tax or fund a broad array of government programs (3). Intended or not, today’s estate tax has not faded into history but, instead, has become a crucial factor in the federal government’s budgetary process. 

Argument against the estate tax’s Importance
Some argue the estate tax is insignificant to US debt, as the tax should generate only one percent of total revenues over the next decade (4) - hardly a solution for budget woes. In fact, only one in 487 estates is projected to pay estate tax in 2017 (5). Further, as the nation’s deficit has increased over time, the estate-tax rate and exemption have become more taxpayer friendly. Some believe its repeal will significantly improve American families’ financial situations (6), while others believe a full repeal would increase net federal revenues via a “common sense” trickledown effect of increased wage tax revenue derived from a larger work force (7).  

Argument in favor of the estate tax’s importance
Proponents recognizing the estate tax’s significance believe the above statistics are based on historical data and do not account for the significant change in the US social-economic landscape. Representing the most financially successful generation in US history, one in every four Americans is a baby boomer, increasing the number of estates subject to the estate tax over the next 20 years. Though a one percent generated revenue seems small, it is still a significant revenue source at an estimated $269 billion over a decade (8). Cutting the tax leaves an additional gap in funding government programs, forcing the government to borrow more and impacting the debt ceiling (9). The estate tax is relatively cheap to administer, but it is the most effective way to control the negative impact of concentrated family wealth (10). 

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