Hillary Clinton FBN

(AP)

Hillary Clinton Proposes 65% Tax on Largest Estates

Election Dow Jones Newswires

Democratic presidential candidate Hillary Clinton would impose a 65% tax on the largest estates and make it harder for wealthy households to pass appreciated assets to their heirs without paying taxes, according to an updated version of her tax plan released Thursday. 

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The estate tax increase and other new proposals from Mrs. Clinton would generate $260 billion over the next decade, enough to pay for her plans to simplify small business taxes and expand the child tax credit, according to the nonpartisan Committee for a Responsible Federal Budget, which advocates fiscal restraint. 

In all, Mrs. Clinton would increase taxes by about $1.5 trillion over the next decade, increasing federal revenue by about 4%, though that new burden would be concentrated on relatively few households. There is at least a $6 trillion gap between her plan and the tax cuts proposed by her Republican rival Donald Trump. 

The Clinton campaign changed its previous plan -- which called for a 45% top rate -- by adding three new tax brackets: a 50% rate that would apply to estates over $10 million per person, a 55% rate that starts at $50 million per person and that top rate, which would affect only those with assets exceeding $500 million for a single person and $1 billion for married couples. 

The 65% estate-tax rate would be the highest since 1981 and marks one of the most enormous tax-policy gulfs between Mrs. Clinton and Mr. Trump, who would repeal the tax. 

Neither of their proposals stands much chance of succeeding in a divided Congress where Republicans control the House and Democrats can block action in the Senate. The current top rate of 40% was set as part of a bipartisan compromise in January 2013, and the first $5.45 million per person is exempt from tax. 

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The shrunken version of the estate and gift tax that has been in place in recent years brings in relatively little money for the federal government, less than 1% of projected revenue over the next decade, according to the Congressional Budget Office. 

Still, the tax carries symbolic and political weight. Republicans see it as a patently unfair confiscation of wealth that punishes family-owned businesses. Democrats see it as a necessary leveling tool to combat concentration of wealth. 

Mrs. Clinton would also repeal what's known as the step-up in basis. Under that rule, people who die with appreciated assets -- for example, a stock bought decades ago -- don't have to pay the capital-gains taxes on the increase in value before death. Then, their heirs only have to pay taxes when they sell the assets and only have to pay capital-gains taxes on the difference between the sale price and the value when they were inherited. 

Under Mrs. Clinton's plan and under a proposal from President Barack Obama that has gone nowhere in Congress, a bequest of an asset would be treated as realizing those pent-up gains. There would be an exemption of undetermined size that would focus the tax on high-income families, and Mrs. Clinton's proposal, the campaign said, would include "careful protections and flexibility for small and closely held businesses, farms and homes, and personal property and family heirlooms." 

But the combination of the 65% estate tax and the change to capital-gains rules could lead to significant increases in effective tax rates at death on some people -- including, for example, Mr. Trump, who claims a net worth of $10 billion, though independent estimates put it lower. 

Mrs. Clinton's new proposals would also limit like-kind exchanges, the technique commonly used in real estate to defer capital gains when properties are sold. 

The latest changes are part of a series of tax increases Mrs. Clinton has rolled out to pay for targeted tax cuts and for increased spending. She would impose a 4% surcharge on income over $5 million a year, limit deductions for high-income households, create higher capital-gains rates on assets held for between two and six years and require the "Buffett Rule," a minimum 30% tax rate for the highest-income households named for investor Warren Buffett. 

Other tax increases in Mrs. Clinton's plan include policies to prevent tax avoidance through carried interest, reinsurance and retirement accounts. 

By Richard Rubin

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