Senator Bernie Sanders, a presidential candidate, recently proposed a bill in Congress that he titled “The Responsible Estate Tax Act.” The Act proposes to raise the estate tax and broaden its coverage. The proposal immediately was endorsed by well-known economists such as Robert Reich and Thomas Piketty. Surprisingly, for an unabashed progressive like Senator Sanders, the Act proposes only a modest increase in the estate tax. Here is what the bill would do:

  1. Reduce the current $5.43 million individual estate tax exemption to $3.5 million per person ($7 million for a married couple’s estate). The current estate tax law taxes only about 0.2% of American families (two tenths of one percent). The Responsible Estate Tax Act would only increase the coverage to 0.3% of American families. This would remain far below the historical norm of the estate tax taxing 2.0% of deaths annually over the course of its first 100 years.
  2. The tax rates would be increased from a flat 40% rate in effect today to a progressive rate structure of 45% on the value of an estate between $3.5 million and $10 million; 50% on the value of an estate between $10 million and $50 million; and 55% on the value of an estate in excess of $5 million. On top of this progressive rate increase, the bill would add a “billionaire’s surtax” of an additional 10% on the wealthiest 0.0002% of Americans.
  3. Other than those straight-forward proposals, the bill intends to close legal “loopholes” such as the so-called “dynasty” trust by strengthening the generation-skipping tax and applying it with no exclusions to any trust set up to last more than 50 years. Other “loopholes” such as valuation discounts and the use of grantor trusts to increase the value of deductible gifts would be addressed. On the other hand, the bill increases exemptions for family farms and conservation easements.

While this bill would remove some tools from the estate planner’s tool belt, the Act does not appear to be misnamed. The Responsible Estate Tax Act has a real chance of being passed if a progressive candidate is elected President in 2016. Even if Republicans maintain control of Congress, because of the relatively modest tax increases contained in the Act, it could be a bargaining chip to be passed in order to obtain some other political end. We will all need to keep our eyes on how this bill progresses through Congress.

Image courtesy of Stuart Miles /

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