NEW YORK – Americans are projected to inherit $764 billion this year and will pay an average tax of 2.1 percent on that income, New York University law professor Lily Batchelder estimated in a paper published Tuesday by the Brookings Institution.
By contrast, the estimated tax on work and savings is 15.8 percent.
“If anything, we should be taxing income from inheritances at higher rates than income from work,” said Batchelder, a former adviser to President Barack Obama who has advised several Democratic presidential campaigns on tax policy.
Batchelder said she wants to scrap the estate tax and replace it with an “inheritance tax.” The Urban-Brookings Tax Policy Center estimated her proposal could raise as much as $1.4 trillion in the next decade.
Under the current system, Americans and their estates are required to pay 40 percent on bequests and gifts to heirs. They have many ways to avoid the tax, however. For married couples, the first $23.2 million of an estate is tax-exempt.
Batchelder would scrap this system, in which estates are taxed, and replace it with a system in which heirs pay taxes on money they receive.
The actual revenue from an inheritance tax could be much higher, Batchelder said, because the estimates don’t include the effects of some parts of her plan, including closing many tax-planning loopholes.
“The proposal would take a large step toward leveling the playing field between income from inherited wealth and income from work,” Batchelder wrote.
Democrats, hoping to regain the White House in this year’s elections, are hunting for ideas on how to raise extra revenue for their progressive priorities.
Batchelder’s plan was part of a book released by Brookings’ Hamilton Project. The volume includes other proposals to increase corporate taxes, impose a new financial-transaction tax and administer the wealth tax proposed by Sens. Bernie Sanders of Vermont and Elizabeth Warren of Massachusetts.