People like the estate tax a whole lot more when they learn how wealth is distributed

 
 
Posted2/10/2019 6:09 AM
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  • In this Jan. 30, 2019, photo, Sen. Bernie Sanders, I-Vt., speaks on Capitol Hill in Washington. Sanders released a plan to significantly hike taxes on the wealthiest 0.2 percent of Americans, the latest in a series of proposals from Democratic presidential contenders to combat income inequality by shifting tax burdens to the upper class.

    In this Jan. 30, 2019, photo, Sen. Bernie Sanders, I-Vt., speaks on Capitol Hill in Washington. Sanders released a plan to significantly hike taxes on the wealthiest 0.2 percent of Americans, the latest in a series of proposals from Democratic presidential contenders to combat income inequality by shifting tax burdens to the upper class. (AP Photo/Andrew Harnik)

Proposals to increase taxes on the wealthy are having a moment: Polling shows Democrats and Republicans coming together in support of steep taxes on the wealth and income of the super-rich. While the specifics of the proposals are new, the general public sentiment toward soaking the rich is a long-standing one, according to Gallup polling.

But there's one type of tax on millionaires that Americans have consistently been skeptical of -- the estate tax. Polling typically shows that a majority of Americans favor repealing this tax completely.

Part of this is due to Republicans' success in branding the tax a "death tax" that unfairly confiscates wealth from Americans at the time of a family member's death. But research out of Sweden suggests there's another factor driving opposition to the estate tax: Many people may simply be unaware of basic facts about inherited wealth.

In the study, researchers from Linnaeus University and the Paris School of Economics administered a nationally-representative survey to Swedish adults. The survey included questions about the respondents' support for an estate tax, which Sweden had until 2004, when it was abolished.

Some respondents received factual information about wealth inheritance in Sweden, in three bullet points:

"Inherited wealth represents about half of all wealth in the population."

"Those with the highest incomes inherit the most."

"A majority of Swedish billionaires have inherited their fortunes."

Other respondents were not given this information.

The researchers found that the group receiving the factual information was significantly more likely to support the estate tax than the respondents who didn't; among the group not receiving the factual information, support for an inheritance tax stood at about 25 percent. But support among the other group was 33 percent, meaning the factual information boosted support for an inheritance tax by about 8 percentage points. This difference remained even after controlling for a number of demographic and economic variables.

"Our results suggest that a greater availability and exposure to research findings about the wealth distribution can have real effects on the political support for taxation," the researchers conclude. One implication of their study: Support for an estate tax in wealthy countries may be low simply because many people don't understand how inherited wealth works.

Washington Post Graphic
Washington Post Graphic -

Pollsters have observed similar dynamics at play in tax discussions in the United States. In 2017, for instance, a HuffPost/YouGov poll asked whether the estate tax should be abolished. Half of the respondents were additionally told that the tax only affects estates over $5 million. Among that group, support for keeping the tax (46 percent) was nearly 20 percentage points higher than it was among the group not receiving factual information (27 percent).

That survey also revealed that many Americans had incorrect notions about the estate tax. Only 37 percent of respondents knew that the tax only affects a few families (less than 0.1 percent of people who die) each year. Thirty percent believed, incorrectly, that "most" families were subject to the tax. Sixty-three percent incorrectly believed that poor and middle-class families were primarily affected by the tax, even though it only applied to estates over $5 million at the time the survey was administered.

More broadly, other research has shown that Americans have a poor understanding of how wealth is distributed in this country. For instance, a 2010 study found that Americans believed that the bottom 60 percent of the country owned a little over 20 percent of the nation's total wealth. In reality, the bottom 60 percent owns about 1 percent of the country's total wealth. Ninety percent of wealth in the United States is held by the richest 20 percent of families, with the richest 1 percent owning 40 percent of it.

The dynamics of wealth inheritance are also not widely understood. A 2012 Pew Research Center survey, for instance, found that the public was split on whether wealthy in the United States were rich because they worked hard for their money, or because they were born into wealthy families. But a 2017 study published by Thomas Piketty and colleagues estimated that in 2010, roughly 60 percent of private wealth held in the United States had been inherited, rather than worked for. It's worth noting that this share is higher than what some earlier estimates pegged it at, but Piketty and his colleagues say their method for measuring inherited wealth is superior.

Taken together, much of the best available evidence suggests that the median dollar of wealth in the United States has been inherited by someone in the richest 5 percent of families. It also suggests that most Americans don't realize this is the case, which may partly explain why support for abolishing the estate tax is so high.

In recent days, U.S. lawmakers have presented voters with two drastically different options for taxing inheritance. Sen. Bernie Sanders, I-Vt., introduced a bill that would increase the tax rate for the richest 0.2 percent of estates, while Senate Republicans introduced legislation to repeal the estate tax entirely. The research out of Sweden suggests that voters' response to the measures will hinge, in part, on how well they understand the way wealth works in the United States.

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