Taxing inheritances under the income tax is a great idea — here’s how it could work

Core Viewpoint - The federal tax code has created a disparity between working Americans who pay taxes and the ultrawealthy who largely avoid taxation through various means [1][2]. Tax Avoidance Strategies - The wealthy often avoid earned income, escaping payroll taxes and ordinary income tax rates. They can also avoid capital gains taxes by not selling appreciated assets and instead borrowing against them [2]. - Inheritance is received tax-free, further contributing to the wealth gap [2]. Proposed Tax Reforms - Boston College law professor Ray Madoff suggests several reforms: repealing the estate tax, taxing inheritances over $1 million under the income tax, and taxing capital gains upon transfer, not just sale [3][4]. - NYU Law School's Lily Batchelder proposes a more ambitious plan that includes taxing inheritances under both payroll and income taxes, which would be particularly relevant for Social Security funding [5]. Revenue Estimates and Tax Structure - The Urban-Brookings Tax Policy Center provided revenue estimates for lifetime exemptions of $500,000, $1 million, and $2.5 million, with a focus on a $1 million exemption for Madoff's proposal [6]. - Under Batchelder's proposal, taxpayers receiving gifts and inheritances over $1 million would pay income and payroll taxes on the excess, with revenues directed to Social Security and Medicare trust funds [7].