Robert Bloink and William H. Byrnes Robert Bloink and William H. Byrnes

As the Democratic primary season begins to take shape, Bernie Sanders has once again emerged as a key possibility for the Democratic presidential nomination for 2020.  Sanders, as in 2016, has proposed dramatic changes to various aspects of the existing tax system.

The Sanders proposal would create significant changes in the current estate and transfer tax system, creating concerns for higher income taxpayers who have come to rely upon the relative high estate tax exemption that has been in place for most of the decade.  Sanders’ proposal would reduce the exemption from its current $11.4 million per person all the way down to the levels that existed in 2009—a mere $3.5 million per person—as well as impose increases to the estate tax rate itself.

We asked Professors Robert Bloink and William Byrnes, who write for ALM’s Tax Facts and hold opposing political views, to share their opinions as to both the viability and potential impact of Sanders’ estate tax plan should he or a similarly-minded Democrat reach the White House.

Their Votes:

Bloink

Byrnes

Their Reasons:

Below is a summary of the debate that ensued between the two professors.

Bloink: I’m all for this type of plan, although I think it’s far too soon to tell whether Sanders has a fighting chance at the presidency despite his general popularity. Sanders’ estate tax proposal focuses on taxing the super-rich taxpayers who would otherwise be engaging in drastic estate planning techniques to avoid transfer taxes entirely and create dynasties that have, historically, lasted for generations. It’s time that we focus more on what the country needs instead of encouraging such dramatic wealth inequity.

Byrnes:  There’s no way Sanders’ estate tax scheme will ever become reality, so I’m not overly concerned.  I do think this might be a call to action for wealthy clients who have tended to sit back and rely upon the generous estate tax exemption rather than engaging in any type of estate planning—and a reminder that estate planning is about more than just the transfer tax itself.

Bloink:  Maybe Professor Byrnes is right in that this specific plan won’t take off, but it’s a reflection of where the party itself seems to be headed—just take a quick glimpse at the pool of Democratic presidential hopefuls to date. I think there’s a huge movement in this country that could easily allow for a tax system that taxes the super-rich dramatically in order to provide what this country so critically needs right now—improvements to infrastructure, education and health care.

Byrnes: Professor Bloink keeps talking about the “super-rich”, but this proposal would reduce the exemption to a mere $3.5 million per person—that’s not $3.5 million in annual income, that’s $3.5 million in the cumulative wealth that’s been amassed over a person’s entire lifetime.  An exemption of $3.5 million creates a massive tax hike for taxpayers who would never be characterized as “super-rich” by any standard.

Bloink: The “massive tax hike” in Sanders’ plan—a 77% estate tax rate—applies only to estates worth over $1 billion. I don’t think anyone can say that someone who’s amassed $1 billion over a lifetime is anything but super-rich.

Byrnes:  Sure, but the plan still cuts the exemption by 2/3.  Think about why the estate tax exemption is so high in the first place—we don’t want to discourage Americans from working hard and amassing a comfortable amount of wealth.  If you put these huge transfer tax rates out there, where’s the incentive for small business owners to spend their lives working hard to fuel the economy and create jobs?  If all those funds will be taxed away anyway—and remember that Sanders’ plan also does away with some of the completely valid strategies that taxpayers might use to avoid these crazy taxes—I think that removes the incentive to create and innovate for a lot of Americans with moderate wealth.

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