Memo|Economy   3 Minute Read

Trump’s Estate Tax Plan Gives $7 Billion Windfall to One Family. His.

Published July 20, 2016

Updated On August 10, 2016

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“My tax plan is going to cost me a fortune,” Donald Trump said at press conference in Trump Tower last September. It won’t.

One lesser-noticed section of Trump’s tax plan would bestow a $7.1 billion tax cut on the Trump family dynasty. That’s just through his proposed elimination of the federal estate tax—not counting breaks on capital gains and income that would also disproportionately favor the wealthy and, altogether, increase the national debt by $9.5 trillion in just 10 years.1 Even if one assumes that his net worth doesn't increase at all, his family would still reap a whopping $4 billion windfall.

Put aside the other billionaires that scrapping the estate tax would benefit. The staggeringly high value of the tax cut for the Trump dynasty alone carries the same price tag as multiple high-value national priorities. Here are just a few alternative ways Congress could spend Trump’s proposed $7.1 billion gift to his heirs:

  • Expand Pell grants for three years: The Obama Administration’s proposal to increase Pell Grant awards and make them available for summer courses has an annual cost of $2 billion.2
  • Fund the search for a cure for cancer for seven years: President Obama’s cancer “moonshot” proposes investing an additional $1 billion per year to support the search for a cure.3
  • Finance career and technical education for a generation: A new bill would raise federal spending on career and technical education and skills at the secondary and postsecondary levels to $1.3 billion per year.4
  • Support investments in electrical grid modernization for more than a decade: $5 billion over a decade would help states invest in updating the grid and enhance security by providing more efficient, affordable, and reliable energy.5

Yet Trump proposes to shower his heirs with a massive gift compliments of the American taxpayers. How exactly does he propose to do so?

The estate tax is responsible for less than one percent of annual federal revenues. The tax applies to only 0.2% of the very wealthiest taxpayers per year, and for these families it is a 40% tax on joint assets above $11 million ($5.5 million if unmarried). Because the estate tax applies to only a very small portion of taxpayers with the greatest means to pay, the tax is regarded as one of the most distributionally fair parts of the code. To do away with the estate tax would mean adding $270 billion to the federal debt just in the first decade, or $320 billion with interest.6 To Donald Trump and his family though, a repeal would be particularly beneficial.

Here’s the math:

Mr. Trump estimated his own net worth (his total asset value including cash and securities, real estate, insurance, trusts, annuities, and business interests minus total debts, mortgages, and other liabilities) at $10 billion.7

If that were to remain the value of Trump's estate, his tax bill under current law would be about $4 billion. But we considered a separate and fairly conservative scenario that incorporated broader economic factors. We assume that a President Trump would have to liquidate and find alternative ways to reinvest this fortune. If his fortune were to grow at the historical average rate of U.S. stocks, that would afford Mr. Trump a 4.2% real, after-tax rate of return.8 The total value of his $10 billion estate would grow to over $17.7 billion by the time actuarial tables estimate his family will inherit his fortune, in 2030.9

By that time, the estate tax threshold will exempt $15 million (or $7.5 million if he filed as unmarried) from taxation.10 The rest would be subject to the 40% estate tax, which means the total size of the Trump dynasty’s windfall paid for by the American people through the federal tax code would be $7.1 billion.11

  1. James R. Nunn, Leonard E. Burman, et al, “Analysis of Donald Trump’s Tax Plan,” Research Report, Tax Policy Center. Accessed July 11, 2016. Available at: http://www.taxpolicycenter.org/publications/analysis-donald-trumps-tax-plan/full.

  2. Nick Anderson, “Obama Proposes Expansion of Pell Grants To Spur College Completion,” The Washington Post, January 19, 2016. Accessed July 11, 2016. Available at: https://www.washingtonpost.com/news/grade-point/wp/2016/01/19/obama-proposes-expansion-of-pell-grants-to-spur-college-completion/.

  3. Gardiner Harris, “$1 Billion Planned for Cancer ‘Moonshot’,” The New York Times, February 1, 2016. Accessed July 11, 2016. Available at: http://www.nytimes.com/2016/02/02/us/politics/dollar1-billion-planned-for-cancer-moonshot.html?_r=0.

  4. United States, House of Representatives, Committee on Education and the Workforce, “The Strengthening Career and Technical Education for the 21st Century Act,” 114th Congress, 2nd Session, June 27, 2016. Accessed July 11, 2016. Available at:  http://edworkforce.house.gov/uploadedfiles/bill_summary_-_strengthening_cte_for_the_21st_century_act.pdf.

  5. Jon Cowan, Jim Kessler, et al., “Ready for the New Economy”, Report, Third Way, October 28 2015, Accessed July 20, 2016. Available at:  http://www.thirdway.org/report/ready-for-the-new-economy

  6. Joint Committee on Taxation, “Description of H.R. 1105, The ‘Death Tax Repeal Act of 2015’”, March 24, 2015, Accessed July 19, 2016. Available at:  https://www.jct.gov/publications.html?func=startdown&id=4760

  7. Rebecca Ballhaus and Heather Haddon, “Donald Trump’s Financial Disclosure – What We Learned,” The Wall Street Journal, July 22, 2015. Accessed July 11, 2016. Available at: http://blogs.wsj.com/washwire/2015/07/22/what-we-learned-in-donald-trumps-financial-disclosure/.

  8. Author’s calculations based on the geometric average returns (real, inflation-adjusted) of U.S. stocks.

  9. Felicitie C. Bell and Michael L. Miller, “Life Tables for the United State4s Social Security Area 1900-2100,” Table 11 – Cohort Life Expectancies at Selected Exact Ages, by Sex and Year of Birth, United States, Social Security Administration. Accessed July 11, 2016. Available at:  https://www.ssa.gov/oact/NOTES/as120/LifeTables_Tbl_11.html#wp1004907.

  10. Extrapolated from JCT estimates from “History, Present Law, and Analysis of the Federal Wealth Transfer Tax System.” Author used average annualized threshold increase of 2.33%. Accessed July 11, 2016. Available at: https://www.jct.gov/publications.html?func=startdown&id=4744.

  11. Author’s calculations: Projected future value of $17.7 billion, minus projected exemption threshold, taxed at 40 percent rate.

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