More About Chuck Marr

Chuck Marr

Chuck Marr is the Director of Federal Tax Policy at the Center on Budget and Policy Priorities.

Full bio and recent public appearances | Research archive at CBPP.org


Estate Tax Repeal: A Misguided and Costly Policy

March 25, 2015 at 5:29 pm

Eliminating the federal estate tax on inherited wealth, which the House Ways and Means Committee approved today and which we’ve explained would increase deficits and inequality, is a misguided — and expensive — policy, new data show.  New cost and distributional estimates from the Joint Committee on Taxation (JCT) confirm that repeal would reduce revenues by $269 billion from 2016 through 2025 (adding $320 billion to deficits once the additional interest cost on the national debt is included), with the entire benefit going to the nation’s roughly 5,400 wealthiest estates.

The JCT distributional estimates show that in 2016:

  • Only the nation’s wealthiest 5,400 estates would benefit — about 2 of every 1,000 estates — because only those estates currently face the estate tax to begin with.
  • The nation’s wealthiest 1,336 estates — those worth $20 million or more — would receive 73 percent of the benefit, with each receiving a tax windfall averaging roughly $10 million.
  • The nation’s wealthiest 318 estates — those worth at least $50 million — would receive tax windfalls averaging more than $20 million each.

Ways and Means approved this windfall for heirs of extremely wealthy estates on the same day the House is considering a Republican budget plan that would shrink programs for people with low- and moderate-incomes by an average 43 percent in 2025.  Such deep cuts would produce a dramatically weaker safety net, driving millions of people into poverty and denying or weakening health coverage for tens of millions more.  They would also reduce opportunity for students from modest backgrounds who are striving for a college education and a better future (see graphic). Proponents of the budget plan contend that such cuts are needed to meet their goal of balancing the budget in ten years.

In backing estate tax repeal, however, the House Ways and Means Committee suggests that the nation can afford $320 billion in higher deficits to deliver a tax cut to the wealthiest estates.

Estate Tax Repeal = More Inequality + Bigger Deficits

March 24, 2015 at 10:20 am

As our new paper explains, the House Ways and Means Committee is scheduled to consider a bill this week to repeal the federal estate tax on inherited wealth, just one week after the House Budget Committee approved a budget plan calling for $5 trillion in program cuts disproportionately affecting low- and moderate-income Americans.

Repealing the estate tax would be highly misguided — especially in the context of the House Budget Committee plan, which would repeal health reform and cut Medicaid deeply, causing tens of millions of Americans to become uninsured or underinsured; cut the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps), making it harder for millions of low-income families to put food on the table; and cut Pell Grants, raising the financial hurdle for people of modest means to attend college.  Despite these and hundreds of billions of dollars in additional cuts that were largely unspecified, the budget included no revenue increases.  And while concerns of future deficits supposedly drive the budget plan’s harsh cuts, repealing the estate tax would significantly expand deficits.

Repeal would: 

  • Reduce revenues by more than $250 billion over the next ten years. The legislation before the House would not offset this cost, contrary to Republican calls for a balanced budget.
  • Do nothing for 99.8 percent of Americans. Only the estates of the wealthiest 0.2 percent of Americans — roughly 2 out of every 1,000 people who die — owe any estate tax.  This is because of the tax’s high exemption amount, which has jumped from $650,000 in 2001 to $5.43 million per person (effectively $10.86 million for a couple) in 2015.  Repeal would bestow a tax windfall averaging over $2.5 million apiece — or roughly the same amount that a typical college graduate earns in a lifetime — on the roughly 5,400 wealthy estates that will owe the tax in 2015.

  • Exacerbate wealth inequality, which has grown significantly in recent decades. In 2012, the wealthiest 1 percent of American families held about 42 percent of total wealth, new data show. Large inheritances play a significant role in the concentration of wealth; inheritances account for about 40 percent of all household wealth and are extremely concentrated at the top.  Repealing the estate tax would exacerbate wealth inequality by benefiting only the heirs of the country’s wealthiest estates, who also tend to have very high incomes.

    In addition, despite policymakers’ frequent statements about the importance of work, repeal would reduce the incentive for heirs of large estates to work.

Evidence shows the estate tax is an economically sound tax.  Contrary to claims that the estate tax hurts the economy, it likely has little or no impact on wealthy donors’ savings, and it encourages heirs to work.  The estate tax is an economically efficient way to raise revenue that supports public services and lowers deficits without imposing burdens on low- and middle-income Americans.  The tax plays an important role in our revenue system, particularly given our long-term budget challenges.

Click here for the paper.

House Budget Chair’s Priority: Tax Cuts for Well-to-Do

March 18, 2015 at 12:25 pm

While imposing harsh budget cuts on the most vulnerable Americans, House Budget Committee Chairman Tom Price’s budget plan also appears to reflect a continuing drive to cut taxes for the nation’s highest-income people.

Unlike past years’ House budgets, this plan doesn’t specify a top tax-rate target of 25 percent.  It claims, more generally, that it “substantially lowers tax rates for individuals.”  Still, other details of the plan clearly indicate tax priorities that favor high-income households:

  • Repealing all health reform revenue changes. The Price plan would eliminate all health reform-related taxes and tax credits.  A significant share of the revenues that health reform will raise over the next decade come from its 3.8 percent Medicare surtax on the unearned income of high-income filers and its 0.9 percent Medicare surtax on high wage and salary income.  Repealing these surtaxes would be highly regressive; only filers with incomes over $250,000 for a married couple (and over $200,000 for single filers) pay them.  Moreover, the 3.8 percent surtax applies only to unearned income such as capital gains and dividends, which is highly concentrated at the top.  In 2012, the richest 400 filers received about $1 of every $9 of such income, according to IRS data.
  • Eliminating the Alternative Minimum Tax (AMT). The plan would eliminate the AMT, which is designed to ensure that higher-income people pay at least some base level of tax.

We estimate that repealing health reform and the AMT would likely reduce revenues by more than $1 trillion over ten years, based on Tax Policy Center (TPC) and Congressional Budget Office estimates.  While it’s intended to be revenue neutral compared to current law, Chairman Price’s budget proposes no specific offsets to pay for these provisions (or for the tax-rate cuts it calls for in general terms, which tend to be very costly).

Repealing the AMT and health reform’s high-income provisions would provide a windfall at the top while doing little for middle-class households.  Based on a TPC distributional analysis of the AMT and of health reform’s high-income provisions in 2015, we estimate that repealing these provisions would:

  • Cut taxes by roughly $50,000 on average for people with incomes exceeding $1 million a year, but by less than $10 on average for those making $50,000 to $75,000, and by essentially nothing on average for those earning less than $50,000.
  • Raise after-tax incomes by 2.5 percent on average for households with incomes exceeding $1 million a year, but by less than 0.01 percent for those with incomes between $50,000 and $75,000.

Accounting for eliminating health reform’s premium tax credits and other revenue provisions wouldn’t alter the conclusion: the specific tax proposals identified in the Price plan would direct large tax cuts to high-income earners and little to low- and middle-income filers.

While the tax component of Chairman Price’s plan is less detailed than the tax proposals in past years’ House budgets, the information it provides strongly indicates that the plan would juxtapose deep spending cuts primarily hitting low- and middle-income people with tax changes likely to heavily favor people at the top of the income scale.

Lee-Rubio Tax Plan Heavily Tilted Toward Top, Contrary to Tax Foundation Claims

March 11, 2015 at 4:22 pm

The Tax Foundation (TF) took issue with our post explaining that the new tax plan from Senators Mike Lee (R-CO) and Marco Rubio (R-FL) would give the highest-income people a large windfall while leaving many low-income working families behind.  TF argues that the plan “actually produces the largest increase in after-tax income for the lowest income earners, not the highest.”  Count me as a skeptic.  Let’s take a closer look at the plan’s effects at the bottom and top of the income scale.

First, the bottom.  TF claims the bottom 10 percent of households would see a 44 percent increase in after-tax income under Lee-Rubio (before counting TF’s large and unrealistic estimate of the plan’s impact on economic growth).  But a look at the main provisions potentially affecting low-income families doesn’t support this.

  • Lee-Rubio creates a new $2,500 Child Tax Credit to complement the current child credit. TF says the new credit “cuts taxes for most taxpayers.” But it would exclude many working-poor families.  The new credit is refundable only up to the sum of total income and payroll taxes after applying all other credits, such as the Earned Income Tax Credit (EITC) and existing Child Tax Credit.  After these credits, most low-income working families will have no net federal income and payroll tax liability and consequently won’t qualify for the new CTC.  In other words, its design excludes most low-income working families.
  • Lee-Rubio also replaces the standard deduction and personal exemption with a new tax credit (and eliminates the head of household filing status). TF states that this credit would be “fully refundable,” though the Lee-Rubio document itself doesn’t say one way or the other.  Let’s assume it is; if so, the new credit would benefit many low-income families.  Yet a substantial number of other low-income families would lose from this change, because the new credit would replace other current provisions that are worth more for them.  To return to the example family we used in our previous post, a mother with two children working full time at the minimum wage would lose $25 in 2018 from this change.  Some low-income workers would lose substantially more than this amount, while other low-income workers could get a significant boost from this change, assuming the credit is indeed fully refundable.
  • More importantly, Lee-Rubio would let a key provision of the current Child Tax Credit expire after 2017, causing millions of low-income working families to lose all or part of their credit.  The provision in question — under which the Child Tax Credit begins to phase in as family earnings rise above $3,000, rather than being unavailable until family earnings reach nearly $15,000 — is currently in effect through 2017; it needs to be made permanent. Ron Haskins, who as a senior Republican congressional staffer was a lead architect of the 1996 welfare law and later served as an adviser to President George W. Bush before joining the Brookings Institution, urged in recent congressional testimony that this provision be made permanent.  Haskins called it “an important part of the work-based safety net” and noted that if it’s allowed to expire after 2017, “working families with children will lose billions of dollars and a substantial amount of work incentive.”  He observed that this “is one policy that both encourages work and attacks inequality directly by boosting the income of low-income workers.”  Yet Lee-Rubio lets the provision end after 2017.

    If the provision expires, the full-time minimum-wage mother with two children whom we discussed above would lose her existing $1,725 CTC in 2018.  Many other low-income workers would lose under the plan as well.  Failing to extend the improvements in the CTC and EITC scheduled to expire at the end of 2017 would cast millions of people into or deeper into poverty.

Now let’s turn to the top end of the income scale.

Lee-Rubio cuts the top income tax rate to 35 percent and eliminates the alternative minimum tax, both of which represent large tax cuts that would heavily benefit high-income households.  Lee-Rubio also includes some tax increases on high-income filers by cutting back many deductions.  But both of these sets of changes were part of a tax plan that Senator Lee introduced in 2014 and the Tax Policy Center (TPC) analyzed.  TPC found that while the curtailment of deductions would, by itself, increase high-income households’ tax burdens, the net effect of the proposal overall would be a large tax cut for those at the top of the income scale.

Moreover, Lee-Rubio appears to tilt even more heavily to the top than last year’s Lee plan.  It does so by:  1) eliminating taxes on capital gains and dividends, which are highly concentrated at the top; 2) eliminating the estate tax; and 3) cutting corporate and business taxes.

By eliminating taxes on capital gains and dividends, the plan would make the single largest source of income for the wealthiest people in the country tax free.  By eliminating the estate tax, which now applies only to the estates of the wealthiest 0.15 percent of people who die, the plan would allow vast sums that the wealthiest Americans have amassed to be passed on to their heirs and heiresses tax free as well.

The plan also would cut the tax rate on domestic corporate profits to 25 percent, cut taxes on the partnership income of very high-income households from 39.6 percent to 25 percent, and cut corporate taxes on profits that U.S. companies earn overseas to zero.  The plan does cut back various corporate tax breaks.  But overall, it is likely to reduce corporate and business taxes significantly.  And since ownership of businesses and corporate stock is highly concentrated among high-income individuals, this would add to the tax cuts they receive.

As Howard Gleckman of the Tax Policy Center noted a few days ago, last year’s Lee plan would add $2.4 trillion to the debt over ten years and give almost one-third of its costly tax cuts to the top 1 percent of households.  Gleckman added that the new Lee-Rubio version of the plan “would surely be even more expensive.”

The bottom line is that those at the top would be the big winners even as many low-income working families lost ground.

Lee-Rubio Tax Plan: Huge New Windfall at the Top, Lost Child Credits at the Bottom

March 4, 2015 at 5:06 pm

The new tax plan from Senators Mike Lee (R-UT) and Marco Rubio (R-FL) builds on Senator Lee’s 2014 plan and creates something that’s even more tilted — outrageously so — in favor of the country’s highest-income people and likely much more fiscally irresponsible.  And, like last year’s plan, it not only excludes most working-poor families from its new child tax credit but allows much of their existing child credit to disappear after 2017.

Last year’s plan lost $2.4 trillion of revenue over the first decade and gave its largest tax cuts, both in dollars and as a share of after-tax income, to people making more than $1 million a year, the Urban-Brookings Tax Policy Center found.

The new plan essentially takes the old plan (which set tax rates of 15 and 35 percent and eliminated many deductions as well as the individual and corporate alternative minimum taxes) and adds more tax cuts for those at the top.  To understand their impact, it’s helpful to grab a copy of the IRS’s tax information on the country’s richest 400 filers:

  • Eliminating taxes on capital gains and dividends. The plan would do away with taxes on capital gains and dividends, even though they are already taxed at lower rates than wages and salaries.  And the benefit would flow overwhelmingly to those with the highest incomes.  In 2012, more than 10 percent of capital gains went to the top 400 filers, who collected an average of $230 million apiece (or $92 billion total).  This tax cut would also encourage wealthy people to use tax schemes to convert ordinary income into this newly tax-free income.
  • Cutting taxes on “pass-through” businesses. The plan would tax all partnerships and S corporations, whose earnings are “passed through” to owners and taxed at the individual rather than corporate level, at a special 25 percent rate.  Like capital gains and dividends, pass-through income is heavily concentrated at the top:  the top 400 filers had $18 billion of it in 2012, an average of $84 million apiece.  With this tax cut, the tax rate on pass-through income would be ten percentage points lower than a family with taxable income of $160,000 would pay on its salary.

As the IRS document shows, capitals gains/dividends and pass-through income are the two largest sources of income for the top 400 filers, as well as for the rest of the top 0.1 percent.  The Lee-Rubio plan targets these income sources for breathtaking windfalls.

At the same time, it targets working-poor families very differently.  Right now, many working-poor families receive some or all of the $1,000 Child Tax Credit thanks to a key provision created in 2009.  But this provision will expire at the end of 2017 unless policymakers extend it, causing millions of low-income working families to lose all or part of their credit.  The Lee-Rubio plan would allow this critical provision to expire.

Consider a mother with two children who works full time, year round at the minimum wage in a nursing home and receives a Child Tax Credit of $1,750.  The Lee-Rubio plan would let her credit disappear in 2018.  It also would exclude her — and millions of other working-poor people — from its new child credit, which wouldn’t be fully refundable.

The big losers under the Lee-Rubio plan, therefore, would be the working-poor people who feed and bathe the elderly, care for preschoolers, clean offices, and perform other essential tasks.  The big winners would be the country’s highest-income 400 filers, at a cost of much higher deficits.