I recently noted the differing approaches of President Obama and Congress regarding tax changes, developing a budget and supporting the economy. In particular, I noted Congress’ push to eliminate the federal estate tax – which applies to very large inheritances by a small group of wealthy heirs.
Over the years, the amount of inheritance that is exempt from the federal estate tax has increased exponentially while efforts to raise the minimum wage in line with the growing costs of meeting basic needs have stalled.
In 2001, the federal minimum wage was $5.15 an hour and remained at that level until 2008 when it was increased to $5.85 an hour and then to $7.25 in 2010, where it remains today. On this issue, North Carolina has not differed from federal law, with a state minimum wage of $7.25 as well.
By contrast, in 2001, the amount of estate inheritance that could be exempt from the federal estate tax was $625,000. By 2008, this exemption amount increased to $2 million and for 2015 the exemption amount is $5.43 million. In 2013, North Carolina state lawmakers completely eliminated the state’s estate tax (only 23 North Carolina taxpayers paid an estate tax for the 2012 tax year). In the same year state lawmakers eliminated the state Earned Income Tax Credit, which helped more than 900,000 low- and moderate-income taxpayers who earn low wages keep more of what they earn to offset an already regressive state tax system.
The steady increase in the inheritance exemption amount over the years acknowledges that thresholds for things like taxation must be adjusted to reflect economic reality if an inheritance that is passed along to respective heirs is to hold value. On the flip side, a basic wage floor has not been subject to the same practice of annual adjustment for inflation – meaning the minimum wage is able to purchase less and less each year.
This is a clear example of how tax and economic policies work to facilitate income inequality, worsen poverty, and heighten the challenge of making ends meet for millions of workers that earn low wages. Meanwhile, conscious and deliberate efforts have been made that further tilts the tax code to favor the wealthy and profitable corporations.
As the push to increase the minimum wage towards a wage that will help boost the economy continues, stark contrasts such as this must not get lost in the debate. An economy that works for all must ensure that economic opportunity is afforded to all, not just a few. Proponents of repealing the estate tax claim that ensuring that the wealthy remain wealthy is good for the economy, though evidence doesn’t support this claim.
Ensuring that hardworking North Carolinians and workers across the nation who earn low wages can support themselves and their family, however, is good for the economy. These workers are much more inclined to spend their increased wages immediately and spur economic activity in local economies across the state.
If policymakers are truly committed to boosting the economy, nationally and here in North Carolina, focusing on the middle- and bottom- of the economic ladder, as opposed to the top, is certainly an opportunity to usher in tax and economic policies that promote broadly shared economic prosperity.