Even though it faces a potential Supreme Court crackdown, the Biden administration’s end-around of Congress to unilaterally grant over $400 billion in student loan forgiveness set off lightbulbs in the heads of some legislators. After all, why go through the tedious task of drafting legislation and mustering votes to pass it when unelected bureaucrats can just do it for you?
At least that’s the message of a recent letter by a group of progressive senators headed by Elizabeth Warren (D-MA) and Bernie Sanders (I-VT) to Treasury Secretary Janet Yellen. The letter asks Yellen to take it upon herself to change tax rules governing death and gift taxes that the aforementioned senators dislike.
The 2017 tax reform law made major progress towards eliminating the death tax, more than doubling the exemption for married couples. For tax year 2023, that exempts estates worth less than $12.9 million for individuals ($25.8 million for married couples). Consequently, only a very tiny percentage of Americans are subject to the death tax.
That’s often a fact that progressives highlight, but the fact is that any amount of taxpayers facing the tax is too many. Death should not be a taxable event. That’s a moral position, but it’s also a practical one — the tax is complicated and extremely difficult to administer, leaving its proponents to try to quash the numberless tax avoidance strategies like they’re playing whack-a-mole.
Just a few of those strategies taxpayers employ are the subject of the senators’ letter. The senators signing this letter are also proponents of wealth taxes — ironically, given that the death tax’s administrative drawbacks represent just a small taste of the pitfalls a full-blown wealth tax would face.
An unfortunate illustration of how difficult a wealth tax would be — and how difficult the death tax already is — to administer came with the death of Michael Jackson back in 2009. As part of the determination of the value of his estate being passed on to his heirs, Jackson’s side and the IRS had to agree on how much the use of Jackson’s likeness and image were worth. Jackson’s estate claimed it was worth $2,105, while the IRS said it was worth $434 million.
It took twelve years of court battles for the figure to be set $430 million lower than the IRS initially claimed, at $4 million. If you picked a random person off the street and asked them to value Jackson’s image and likeness, they probably would have come up with a number that was far closer to $4 million than the IRS was.
But while that episode was a bit absurd, it highlights the silliness of asking tax bureaucrats to value intangible property like the right to use celebrities’ likenesses, particularly considering the fickle nature of public images and fame. What’s more, it then puts taxpayers on the hook to defend these arbitrary valuations and assessments in court from people with the resources to fight to the bitter end. That’s something that already happens with death taxes, at a small enough scale that the system doesn’t entirely fall apart — as it probably would if things like this had to happen every single year for every single difficult-to-value asset held by the wealthiest Americans.
The senators signing the letter to Secretary Yellen are learning exactly the wrong lesson. In tax year 2021, taxpayers paid $18.4 billion in death taxes. That’s not a small number, but it’s also less than 0.5 percent of total revenue raised that year (and less than 0.3 percent of total spending). For a tax as difficult to administer and offensive to Americans’ sensibilities as the death tax, that’s not a lot of benefit.
And if their concern is a fiscal one, Sens. Warren and Sanders would be far better off looking at the other side of the ledger. Chronic overspending, rising debt, and growth in entitlement programs are set to create problems over the next decades that even the most progressive politicians won’t be able to tax their way out of.
Regardless, the senators signing on to the letter to Secretary Yellen should not be asking her to solve the administrative drawbacks of their favorite tax. If they want to play death tax whack-a-mole, they should be the ones doing the whacking.
