The rate schedule on inheritance income begins slightly higher than for income generally, 18% to 15%, but it quickly falls behind – at $250,000, the rate on inheritance income is 34% while the rate on income generally is 39.6%. An income of $800,000 results in $293,328.50 in taxes under the standard schedule, but only $267,800 on the inheritance tax schedule – a savings of over $25,000. This is a tax break, because it takes a chunk of your income and taxes it at a lower rate than normal.

You might not realize that this inheritance tax schedule even exists, because most of it never comes into play. This is because the law additionally creates a gigantic tax credit that wipes out nearly everyone’s liability on inheritance income. This is what people refer to when they talk about the estate tax limit of $5,450,000. A tax credit – a different thing than a deduction or an exclusion from gross income – is an amount that gets credited to your tax liability at the end of the calculation, canceling out some of what you owe. Basically, 26 U.S. Code § 2010 creates (using very convoluted language) a tax credit of $2,125,800 – equal to the amount owed on inheritances of exactly $5,450,000 – that effectively eliminates all tax liability on inheritance income up to that amount. This credit covers the entire tax liability for over 99% of estates.

The structure of the law is like a city that landfills a bay, digs a pond in the new land, and then builds an island in the pond. Inheritance income is broadly exempted from the income tax, a slightly lower tax schedule is enacted to fill this void, and then a huge tax credit offsets nearly everything imposed by this tax schedule (making this new schedule largely irrelevant). The effect is a massive tax break. To be clear, estate taxes existed well before the income tax was created and so did not begin as a tax break, but that’s effectively how they function today.

Because people who inherit large sums are themselves likely to be well off, this tax credit is incredibly regressive. A person who receives the median inheritance of around $70,000, a person likely in the middle class, receives a tax credit of about $15,600. A person who receives a million-dollar inheritance is given a tax credit of $345,800. Anyone who receives an inheritance above the cutoff – typically someone in one of the highest income brackets – is given over $2 million. The 40% of Americans who never receive an inheritance, people who are themselves more likely to be poor, receive $0.

Not incidentally, income tax credits like the one above are how we implement many of the programs we think of as “welfare,” such as the Earned Income Tax Credit or the Child Tax Credit. The purposes might differ, but the result is still welfare: income you receive from an inheritance is shunted onto a smaller tax schedule and offset by a $2 million tax credit. This is inheritance welfare, at a massive scale; for every full inheritance tax credit handed out to a lucky heir, the government could pay the entire lifetime benefits limit for 85 beneficiaries of TANF welfare. I was unable to find estimates of the total cost of the inheritance tax credit each year, but with around 2.6 million annual deaths and an average (not median) estate of $707,291, the total cost quickly reaches into the tens or hundreds of millions of dollars – dwarfing the $16.5 million spent by the United States on TANF welfare and on par with the $70 billion lost on the Earned Income Tax Credit. The only difference is that these programs largely benefit the poor, while the inheritance tax credit is largely welfare for the rich.

Now, to be fair, there are some sound policy reasons to provide relief on inheritance taxes, especially for small estates. Small estates often include relatively illiquid assets like real estate, vehicles or personal chattel, and your average family might have trouble securing the necessary cash to pay an unexpected tax on this property. (The same issue hits folks who win big on shows like “The Price is Right.”) There’s also an administrative cost to valuing and verifying non-financial assets, which starts to become less worthwhile when we’re talking about tax liabilities in the low thousands. And, of course, it can feel wrong for the government to seize a cut of the heirlooms, mementos and other legacies received from a departed loved one.

But these policy justifications fade away pretty quickly as the total value of an inheritance increases and more of it consists of money or financial assets. Like any welfare program, there comes a point where you go from helping deserving people to giving unearned windfalls to the well off, and that line is certainly well south of $5 million.

It's puzzling to me why, in a world where people freak out when someone buys lobster with an EBT card, we should be so willing to accept a welfare program that provides up to $2 million in tax credits to rich heirs. I suppose that's just what happens when you manage to label a massive cash giveaway as a "tax." So the next time you hear the phrase “death tax” or “estate tax,” remember that it’s not a tax, it’s a tax break. It turns out the real “welfare queens” aren’t the ones holding EBT cards, they’re the lucky rich kids inheriting a fortune and laughing all the way to the bank.