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Financial Planning > Tax Planning

Estate Tax Gets More Attention Than It Deserves

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Estate plan

Chatting recently with a politically active friend on the left, I was surprised when she mentioned her objection to the estate tax for “obvious reasons.” This discussion was instigated by a column in the right-leaning  Washington Examiner, which wrote that “the death tax was the grim reaper of family-owned businesses,” an argument often invoked by those opposed to the levy.

Describing herself as “wealth adjacent” — she stands to inherit family money — my interlocutor joked that efforts to eliminate the “death tax” was the only thing Trump had gotten right.  It’s funny how a proximity to a fortune can change one’s political perspectives.

Regardless, it is surprising that anyone would be concerned about the estate tax. Of all the tax issues to worry about, this one should be at the bottom of your list. The exemptions are high, and the ways to legally avoid the tax are well-known and relatively cheap, if a bit complicated.

For most families, the only excuse for paying estate tax is getting hit by a bus on the way to the attorney’s office to sign the paperwork. Other than that, it is a nonissue for almost all Americans.

The more troubling issue about the estate tax is the rhetoric and inaccurate claims made in the debate: It’s an unfair death tax, and a killer of small businesses and family farms. Here is the Washington Examiner, although it could just as easily come from the op-ed page of any number of other conservative or business-oriented publications:

The estate tax creates needless complexity and hardship for family-owned businesses. It often eliminates a family’s ability to reinvest or grow, sometimes making it impossible to pass these businesses down to future generations.

This tax, often called the “death tax,” is terrible policy. Assets taxed in an estate have previously been subject to income taxes, capital gains taxes, dividend taxes, corporate income taxes, or business taxes at the local, state, and federal level.

Most of this is wrong or intentionally misleading.

Most assets in estates have never been taxed: shares in public or private companies, or real estate, are not subject to capital gains tax until they are sold or transferred. And nothing in the estate-tax law interferes with a business “reinvesting or growing” — that’s a cash flow issue, not a tax-policy consideration. As to the complexity and hardship — they may not be something for the average person to address, but then again, neither is buying or selling a house, something that almost two-thirds of American households have done at some point. For both, you probably need a lawyer, and talking to an accountant or financial adviser would be smart. But that’s about it.

Here is the real shocker: there are 6 million small businesses and 2 million family-owned farms in America. In the last year of the old law in 2017, only 80 small businesses and farms nationwide faced any estate tax.

That number was before the new estate tax exemptions were put in place by the Tax Cuts and Jobs Act of 2017. Now, the first $11.4 million of a single person’s estate is exempt from the tax.  For a married couple, it is $22.8 million. When most of us think of a family-owned business or farm, we tend to envision something far more modest than a company valued at almost $23 million. If only 80 estates owed taxes on their family owned farms and businesses under the older exemption, now that the exemption has been doubled, that number will fall a lot. I wouldn’t be surprised if it declines to single digits.

Apart from owners of family-run businesses and farms, in any given calendar year, about 2.8 million Americans will die. Of all those, only 11,000 will result in an estate-tax filing. Historically, only about 5,200 owe estate taxes — and that was before the Trump tax law changes. The increase in exemptions will bring that number down a lot.

What’s more, the average estate pays tax of 16.5 percent of assets, according to the Center on Budget and Policy Priorities. That’s less than half the 37 percent top marginal rate on regular income.

Of course, the easiest way to avoid estate taxes is to give it all away. Warren Buffett decided to dispose of his entire fortune via the Bill & Melinda Gates Foundation, run by his pal Bill Gates. Uncle Sam’s take on that $85 billion fortune is zero.

Since almost no one pays this tax, the complaints about it have little or no merit. If this were actually a problem, there would be no need to build a case based on misrepresentation. The facts do all the talking here.

— For more Bloomberg Opinion columns, visit

Barry Ritholtz is a Bloomberg Opinion columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He is the author of “Bailout Nation.”


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