Hillary Clinton is proposing to raise the tax rates on estates and tax more bequests, her campaign said Tuesday.
The move to raise taxes on estates is the second tax aimed at raising more revenue from the wealthy that the Democratic candidate has proposed in as many days. On Monday, she outlined a plan for a 4 percent “surcharge” tax on people who earn more than $5 million annually.
Clinton is planning to call for raising the tax rate on estates from 40-45 percent, and to institute the tax on all bequests over $3.5 million, according to a fact sheet released by her campaign. The cutoff for 2016 under current law is $5.43 million, or $10.9 million for married couples.
The former Secretary of State cast her new propoals as efforts to increase the fairness in the tax code and tighten the rules that prevent the ultra-wealthy from lowering their taxes.
Clinton’s proposal would restore the estate tax rate and the exemption for gifts to what they were in 2009.
Clinton, however, would leave the top rate on estates below the 55 percent it was during her husband’s presidency. And her proposal is not as aggressive of a plan to tax wealthy estates as the one submitted by her rival, Vermont Senator Bernie Sanders. Sanders has backed a plan to re-institute the 55 percent rate and create a “billionaire” surtax of an additional 10 percentage points.
Taxation of estates is one more area of tax policy in which Republicans and Democrats are moving further apart. House Republicans voted in 2015 to repeal the estate tax entirely, and several Republican presidential candidates have embraced that policy plank. Meanwhile, President Obama proposed raising inheritance taxes in his budget proposal last year.
Obama went further than Clinton has, however, by calling for an elimination of the “step-up in basis,” a feature of the tax code in which the appreciation in assets calculated for the purpose of capital gains taxes for heirs is calculated from the time the assets were passed on by the decedent. Eliminating the step-up for many estates, as Obama has proposed, would mean that bequests faced both the estate tax at the time of death and the capital gains tax accuring during the decedent’s lifetime.
While Democrats have pushed for raising inheritance taxes as a matter of fairness, Republicans have increasingly advocated rolling them back as a matter of encouraging investment. GOP lawmakers have argued that estate taxes represent a form of “double taxation” on investments that have already been taxed at the corporate level.
Under current law, only a tiny portion of estates face the tax, thanks to the large exemption and various means of avoiding the tax. Nearly three-quarters of all estate taxes are paid by the top 1 percent of income earners, according to the Congressional Research Service. Clinton’s proposal would expose more people to the tax.
The Clinton campaign also said Tuesday that Clinton would change the rules around the estate tax and taxes on capital gains to prevent wealthy, sophisticated taxpayers from taking advantage of them. In particular, she pledged to eliminate a provision of the code that allows money managers to lower their taxes by establishing offshore reinsurance companies in low-tax jurisdictions. She also singled out the use of IRAs and other tax-privileged savings accounts for people who put many millions of earnings into the accounts, a maneuver the campaign referred to as the “Romney loophole” because 2012 GOP presidential nominee reported having an IRA worth $20 million to $101 million.
According to the campaign, Clinton will also reiterate her commitment to the “Buffett Rule,” which is the principle that top earners should pay as high a share of their income in taxes as does the middle class. President Obama has pushed for instituting the rule as a matter of law, but has not seen legislative success in that effort.
This post has been updated to add detail regarding Clinton’s proposals.
