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estate tax
The Rich Want You to Think They Pay A Lot in Taxes—But It's a Lie
Please ignore the tales of horror that apologists for the ultra-rich concoct to advocate against any meaningful tax increases on their deep-pocketed friends.
Apr 21, 2025
What is the mission of the Washington, D.C.-based Tax Foundation? Even a quick review of the Tax Foundation’s output makes it perfectly plain: to help make average Americans see the richest among us as terribly overtaxed.
Hardly a Tax Foundation report goes by without one iteration or another of this overtaxed claim. Just last fall, the Tax Foundation produced a study that had billionaire Warren Buffett paying taxes at a rate of over 1,000 percent.
A few years back, early in the Biden years, I deconstructed another Tax Foundation claim, that the passage of tax changes the Biden White House was then pushing would leave the estate of a hypothetical taxpayer worth $100 million facing a tax rate of 61.1 percent. My response detailed the absurdity of that claim.
But what if that 61.1 percent had turned out to be an appropriate calculation? Would that 61.1 percent rate have really amounted to an oppressive tax levy? The Tax Foundation sure wants people to think so.
So let’s take a closer look at the Tax Foundation’s mythical ultra-rich taxpayer and let’s tweak the Tax Foundation’s hypothetical facts to make them just realistic enough to work with.
Suppose we assume our mythical taxpayer originally paid $1 million for the asset that ended up worth $100 million at her death 25 years later. That would leave $99 million of taxable gain. And a $1 million asset appreciating to $100 million after 25 years would have an average annual rate of return of 20.23 percent, a realistic rate for the sort of “home run investments” the ultra-rich actually make.
Let’s also ignore the exemption from federal estate tax — currently $14 million per individual, $28 million for a married couple — and treat the entire amount remaining from the $100 million after payment of income tax as subject to a 40 percent estate tax.
Applying the Tax Foundation’s methodology from that point, we would end up with a total effective tax rate just shy of 65.8 percent, nearly five percentage points higher than the 61.1 percent rate that had our friends at the Tax Foundation clutching their pearls. Wow! Sounds stunningly oppressive, huh?
Actually, no. The reason: The Tax Foundation’s presentation deceptively ignores the tax reduction magic of buy-hold for decades-sell, the tax loophole that causes the effective annual tax rate on the growth in the value of investments to decline as the rate of return and length of the holding period increase.
Our mythical taxpayer would be the quintessential beneficiary of this tax reduction magic. She would see her investment gains compound for 25 years without paying a nickel in income tax, all while her asset’s value was increasing by 20.23 percent per year.
The Tax Foundation, you see, makes quite the fuss over the one-time tax a mythical taxpayer’s estate would pay in the year of her death, but conveniently forgets about the taxpayer’s zero tax rate for the previous 25 years running.
That focus on a once-in-25-years tax payment ignores the full picture. To see that more clearly, consider the impact that a 65.8 percent tax would have on a mythical taxpayer’s overall investment return. At an after-tax annual rate of return of 15.18 percent, an asset with an initial value of $1 million will be worth $34.2 million in 25 years, exactly the amount left of the mythical taxpayer’s $100 million after her estate’s one-time tax payment of $65.8 million. That would be a 25 percent reduction in the pre-tax annual rate of return of 20.23 percent.
In other words, that supposedly onerous 65.8 percent tax at the time of the Tax Foundation’s mythical taxpayer’s death translates to an effective annual tax rate of just 25 percent.
Had the Tax Foundation’s mythical taxpayer been required to pay federal tax, covering both current income tax and future estate tax, at an annual rate of 25 percent on the growth in her investment’s value, and had she sold off just enough of the investment each year to pay the tax, her estate would be left with the same amount in the year of her death as it would have after paying the supposedly oppressive income and estate tax due under the terms of the Biden budget.
So, to review, the Tax Foundation concocted a hypothetical situation to show the proposals in Biden’s budget rated as extreme and oppressive. But even though that hypothetical is so concocted it couldn’t be found in the real-life situations of even the richest Americans, the supposedly oppressive one-time tax rate paid by the Tax Foundation’s mythical taxpayer translates to a modest effective annual tax rate of just 25 percent.
The bottom line: Once we take into account the impact of buy-hold for decades-sell, the tales of horror that apologists for the ultra-rich concoct to advocate against any meaningful tax increases on their deep-pocketed friends turn out to be not at all horrible.
Unless you’re horrified at the prospect of a reformed tax system that prevents the already obscene concentration of American wealth from becoming even worse.
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Ron Johnson Is Working Tirelessly to Protect the Super-Rich From Paying Their Fair Share
While purporting to be concerned about income inequality, Johnson advocates for proposals obviously intended to benefit his rich benefactors and, worse yet, himself.
Oct 11, 2024
If you were a rich Wisconsinite striving to get even richer and you had little regard for intellectual honesty or the well-being of your fellow citizens, you would agree with Sen. Ron Johnson’s remarks at last month’s Senate Finance Committee hearing.
Otherwise, you’d find the senator’s views troublesome, to say the least.
I was a witness at that hearing. Johnson asked me to agree with him that having both an income tax and an estate tax is double taxation. As politely as I could, I pointed out that the income tax and the estate tax are two different taxes. The senator’s argument is no different than saying it is double taxation if an average American, after paying tax on her wages, pays federal excise tax at the pump when she purchases gas.
Unless and until Johnson’s face replaces Roosevelt’s at Mt. Rushmore, I’ll go out on a limb and say we should stick with the tax structure Roosevelt advocated.
Johnson undoubtedly knows better. America has had both an estate tax and an income tax for over a century now. They’re two different taxes. One is an income tax; the other is an excise tax on the transfer of substantial wealth. The specific purpose of the estate tax was to limit the size of America’s largest dynastic fortunes, lest we slip into an aristocracy. The lead advocate for the estate tax, President Teddy Roosevelt, recognized the necessity for both taxes: “The really swollen fortune, by the mere fact of its size,” Roosevelt observed, “acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means.” Therefore, Roosevelt, a Republican like Johnson, advocated for both a “graduated income tax on big fortunes,” and “a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.”
At the hearing, Johnson was speaking in support of keeping one of the worst loopholes in the tax code, a provision commonly known as stepped-up basis. It allows the untaxed gains on the investment assets of mega-millionaires and billionaires to escape income taxation entirely, as long as they hold those assets until death. Jeff Bezos, for example, would avoid income tax on over $100 billion of gain on his Amazon shares were he to hold those shares until his death. And if ultra-rich Americans ever need cash, they don’t need to sell highly appreciated assets. Instead, they can borrow against the assets. It’s a strategy known as buy-borrow-die.
Johnson’s true goal isn’t really protecting the ultra-rich from double taxation, though. He actually wants to protect them from any taxation. That’s what the Death Tax Repeal Act of 2023, a bill Johnson and 41 other Republican senators have sponsored, would do. If that were to become law, Mr. Bezos, or any other billionaire, could pass his billions to his inheritors free of both estate tax and income tax on all those previously untaxed gains.
Unless and until Johnson’s face replaces Roosevelt’s at Mt. Rushmore, I’ll go out on a limb and say we should stick with the tax structure Roosevelt advocated. And that requires closing the stepped-up basis loophole.
At the hearing, Johnson did not limit his shilling for the ultra-rich to the stepped-up basis issue. While purporting to be concerned about income inequality, Johnson advocated for proposals obviously intended to benefit his rich benefactors and, worse yet, himself. Were it up to him, for example, our tax law would “index out” inflationary gains. Here’s how that would work for Johnson and his fellow real estate moguls: Say Johnson purchased a property for $10 million with $2 million in cash and an $8 million loan, using the property’s rental income to make the loan payments. Now, say inflation ran at 4% for 10 years and Johnson’s property kept pace. Under his plan, he’d be treated as if he paid $14 million for the property. And if he then sold the property for its $14 million value? He’d have no income tax to pay, but after paying off the loan, he’d have a $4 million profit. Yes, $800,000 of that profit would be attributable to inflation, but the other $3.2 million would be real profit, and it would escape tax entirely if Johnson has his way.
Johnson’s efforts to “address inequality”—yes, he really presented it this way at the hearing—aren’t limited to opposing stepped-up basis reform and advocating for indexing for inflation. He also insists that he and his rich patrons not be taxed on their massive investment gains until they sell assets so they have the “wherewithal to pay.” That would allow the country’s ultra-rich to continue to benefit from the tax-free compounding of their investment gains using the buy-borrow-die strategy. When you do the math, even when the ultra-rich sell long-held investments before they die and pay tax on their gains, the effective annual rate of tax on the growth in their wealth can be less than 5%. With Johnson’s plan to “index out” inflation added to his staunch support of buy-borrow die, that effective rate would be even lower.
There’s no need to guess about whether Johnson believes he’s advocating for good tax policy or is simply carrying water for his billionaire backers (and himself). The record is clear. In 2017, Johnson pushed hard for the so-called “pass-through deduction,” which allows owners of limited liability companies and subchapter S corporations to pay a 20% lower rate of tax on their income. He even threatened to withhold his vote for former President Donald Trump’s tax package unless the pass-through deduction was increased. In 2018, according to reporting by ProPublica, the pass-through deduction generated tax deductions of over $117 million for Dick and Liz Uihlein, the owners of Uline, and over $97 million for Diane Hendricks, the owner of ABC Supply Co. In 2022, according to the Milwaukee Journal Sentinel, Hendricks and the Uihleins contributed at least $22.5 million to Wisconsin Truth PAC, a Johnson-supporting super PAC which spent $24 million on ads attacking Johnson’s 2022 opponent, Mandela Barnes.
Those massive contributions were entirely rational, in a depressing way that reeks of corruption. In 2018 alone, Hendricks and the Uihleins saved just under $80 million in tax as a result of Johnson’s handiwork. His efforts to continue the pass-through deduction past its scheduled 2025 expiration date could net them about $1 billion over the next decade. That $22.5 million they spent on Johson’s 2022 senate campaign may be categorized as a campaign contribution. But when $22.5 million has the potential to enrich you to the tune of $1 billion, it smells a lot more like an investment. And a highly profitable one; the kind only billionaires experience.
With Washington filled with politicians like Ron Johnson, we need more patriotic millionaires. A lot more. To paraphrase our Vice Chair, Stephen Prince, we need more wealthy Americans to step up and say that while they like being rich, they recognize that our tax system has been rigged in their favor for far too long. And we need more politicians fighting to unrig our tax system, not rig it further. We’ll never change the mindset of Ron Johnson and his ilk. The only way to fix this mess is to elect politicians who will outvote them.
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Walz Aims to Tax the Rich While Vance Wants to Shower Wealthy With More Giveaways
Trump-Vance tax agenda of cuts and tariffs stands in stark contrast to the reforms that Walz has shepherded.
Sep 30, 2024
As Minnesota Gov. Tim Walz and Ohio Sen. JD Vance prepare to debate this week, it’s worth looking at their approaches to tax policy, a critical throughline that helps determine not only the quality of public services in communities across the country, but also the overall fairness of our economy.
Lessons from the North Star State
Recent reforms signed by Walz have helped create a moderately progressive tax system in Minnesota, making the state stand apart from most that charge the rich lower tax rates than everyone else.
Our analysis shows that taxes on working-class families declined markedly over the last few years in Minnesota while taxes on high-income people went up slightly.
The most notable changes were signed into law by Walz in 2023 as part of a sweeping tax reform package. Some changes were temporary, like taxpayer rebate checks and expanded property tax credits. But the bill also included important permanent reforms.
In Minnesota, Walz has helped institute a tax system that asks wealthy households and profitable corporations to chip in more to help create a stronger, healthier, more equitable society.
Chief among those was a new Child Tax Credit that is expected to slash child poverty in Minnesota by one-third, according to Columbia University’s Center on Poverty and Social Policy. The link between Child Tax Credits and child well-being is well established, as the financial security afforded by these credits is associated with improved child and maternal health, better educational achievement, and stronger future economic outcomes.
Other tax cuts signed by Walz include expanded exemptions for Social Security income and for student loan forgiveness, plus an extension of the Child Care Tax Credit to newborn children.
To help pay for all this, the 2023 bill included tax increases on high-income people and profitable corporations. Certain tax deductions claimed by high-income filers have been scaled back. Capital gains, dividends, and other investment income over $1 million per year is now subject to a modest 1% surtax. And multinational corporations reporting income overseas now face higher taxes as well, as the state opted to piggyback on a law written by congressional Republicans targeting companies’ “low-taxed income.”
Trickle-Down with a Twist of MAGA
Vance has not been a lawmaker for long and doesn’t have a robust track record on tax policy. The roughly dozen tax-related bills he sponsored or co-sponsored in Congress run the gamut. He has introduced bills that would use the tax code to fight the culture war against colleges, universities, and campus protesters. He’s signed onto several bills that would further enrich the richest, like eliminating the estate tax (which is paid almost exclusively by those inheriting more than $20 million) and making the 2017 Trump tax law’s subsidy for pass-through businesses permanent (which goes mostly to millionaires, who often game the system to extract the largest possible windfalls from this law).
Vance has also introduced legislation to repeal tax incentives for electric vehicles and replace them with tax breaks for buying American-manufactured vehicles, and signed onto a bill to eliminate rebates for upgrading to more efficient appliances. He’s also a co-sponsor of a bill to erode K-12 public schools with private school voucher tax credits.
In August, Vance floated increasing the Child Tax Credit to $5,000 per child for “all American families,” yet details remain scarce. His comments suggest he would make the credit available for many–but not all–the low-income families who currently earn too little to receive it as well as the wealthy families who earn too much (over $400,000). It’s unclear if Vance’s plan would help all low-income families currently left out by the credit’s lack of refundability–he’s never addressed that. While it’s promising that Vance talked about the Child Tax Credit, it’s hard to take his vague proposal seriously–especially after he sat out a vote in the Senate for a bipartisan bill that would have expanded this credit.
On the trail, Vance is hyping up many of his running mate’s tax proposals, including Trump’s tariff tax. This proposal–which would create a 60% tariff on Chinese imports and a 20% one on all other imports–would cost an average middle-class American family nearly $4,000 a year.
The tariff plan is a critical part of the Trump-Vance tax agenda because it’s one of a very small number of revenue raisers in a basket of special interest tax cuts. So, yes, it would help pay for some of those tax cuts (though at an estimated $2.8 trillion raised over the next decade it pales in comparison to the over $9 trillion in revenue loss from proposed cuts). But it would do it in a way that falls hardest on regular families, making our system fundamentally less fair in the process.
That stands in stark contrast to the reforms that Walz has shepherded. In Minnesota, Walz has helped institute a tax system that asks wealthy households and profitable corporations to chip in more to help create a stronger, healthier, more equitable society.
This is the type of tax system that most Americans say they want. It’s also exactly the kind that America desperately needs.
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