Bernie Sanders’s new plan to supercharge the estate tax, explained

Bernie Sanders, the Vermont senator and not-quite-yet 2020 presidential candidate, is unveiling a proposal to dramatically expand the estate tax, which has withered considerably over the years, at the same time as Senate Republicans are working to eliminate it entirely.

His new proposal, which he calls the “For the 99.8 Percent Act,” would leave the vast majority of estates untaxed while creating a graduated rate structure for the estates of the very rich, topping out at a maximum rate of 77 percent. In terms of its policy impact, this would be broadly similar to Sen. Elizabeth Warren’s wealth tax proposal, though the implementation details of course differ (and one could, in theory, do both).

The two plans pursue different routes to essentially the same goal — raising revenue from the richest and deterring the accumulation of vast dynastic wealth. But both senators are laying down a clear marker that they want the vast fortunes of the richest Americans to be a key source of future revenue.

Until recently, US tax law allowed rich people to pass down $5.5 million untaxed to their heirs. But the 2017 Trump tax bill doubled that exemption to $11 million. Earlier this week, Senate Republicans introduced legislation to eliminate the estate tax entirely thus allowing billions to pass tax-free from today’s rich people to their children.

After campaigning on a broadly similar plan in 2016 that had a lower top rate, Sanders is back with a proposal that would do the opposite, instead creating a multi-tiered structure for taxing the largest estates, including:

The vast majority of Americans, obviously, do not inherit nearly that much money, but these relatively high rates mean that the tax would be a huge deal in practice to the richest American families. Sanders’s staff estimates, for example, that Warren Buffett’s tax liability would nearly double, from $33 billion to $64 billion.

From a policy perspective, of course, that’s exactly what Sanders is trying to accomplish — raise money from the biggest winners of the past generation of economic change and break up the large fortunes that allow a relatively small number of very wealthy individuals to wield disproportionate influence over the political system.

On a political level, conservatives typically argue against estate taxes (or as they call them, “death taxes”) by citing the supposed problems of family farmers and other owners of illiquid assets.The real policy argument from the right, however, is that wealth taxes are an especially pernicious form of taxation because over the long term, the accumulation of capital is the key to productivity and economic growth, and taxing wealth discourages that.

Sanders’s staff estimates that their proposal would raise about $2.2 trillion in a 10-year window — but the exact nature of the window is uncertain because the impact of his plan is highly sensitive to the exact timing of the deaths of a relatively small number of ultra-wealthy individuals.

The Warren wealth tax proposal, by contrast, would levy an annual fee of 2 to 3 percent on large fortunes, and her team estimates it will raise $2.7 trillion in a standard Congressional Budget Office 10-year scoring window.

These numbers are not exactly the same, but they are broadly similar and reflect the fact that these are essentially two different ways to reach the same goal. Warren’s plan, by taxing large fortunes at a slow and steady pace rather than in a single huge spurt when someone dies, has the advantage of being less sensitive to timing issues, while Sanders’s probably does a better job of tapping directly into the intuition that the government should try to prevent the emergence of an entrenched oligarchy.

On a more substantive level, experts in tax avoidance have in recent years tended to tilt more in favor of the wealth tax direction as perhaps easier to force compliance with. But under either scheme, the avoidance issue is really going to come down to fussy details that neither senator has yet delved into.

Broadly speaking, the message of these dueling plans is that the left wing of the Democratic Party is really eager to soak the rich — but has not yet reached a consensus on exactly how to do it.