Experts say Mamdani’s plan to tax inherited wealth is right in principle but risks hitting middle-class homeowners
The Case for Taxing Inherited Wealth and the Problem With How Mamdani Is Doing It
Mayor Zohran Mamdani has proposed slashing New York State’s estate tax exemption threshold from its current level to just $750,000, a reduction of approximately 90 percent. The stated goal is to address the accumulation of dynastic wealth by taxing large inheritances more aggressively. The principle behind the proposal is sound. The way it is structured could cause serious harm to people who are far from dynastic heirs.
Why Estate Taxes Exist and Why They Matter
Estate taxes are one of the few tools in the tax code specifically designed to address intergenerational wealth concentration. Unlike income taxes, which are paid annually on earnings, estate taxes apply at death to the accumulated assets of the deceased. The federal code and most state tax systems have historically treated inherited wealth far more generously than earned income, including through the step-up in basis provision that allows decades of unrealized capital gains to disappear at death without ever being taxed. Andrew Leahey, an assistant professor at Drexel University’s Kline School of Law who writes the Technically Speaking column for Bloomberg Tax, has made the case that Mamdani is right to focus on this imbalance. The tax code “treats inherited wealth more generously than income earned through work,” Leahey writes, and estate taxes are one of the few available remedies. The behavioral responses to estate taxes are also more limited than to income taxes, since you cannot easily time your death to avoid them, though state-level taxes do create incentives for wealthy individuals to relocate before death to low-tax states like Florida.
The Problem With a $750,000 Threshold
The central flaw in Mamdani’s proposal is the threshold itself. In New York City, even modest homes in neighborhoods that were once considered working-class easily exceed $750,000 in market value. A family that purchased a home in Brooklyn or Queens decades ago at a fraction of its current value could face a substantial estate tax bill that has nothing to do with dynastic wealth and everything to do with the city’s housing inflation. Leahey describes this as the risk of hitting “asset-rich, cash-poor households who may have little immediate liquidity to meet the liability.” A family that inherits a brownstone but does not have cash on hand to pay the estate tax may be forced to sell the home, potentially disrupting neighborhood stability and family continuity in ways that serve no compelling public interest.
The Cliff Problem
Compounding the threshold concern is a structural flaw in New York’s current estate tax law that Leahey calls the “cliff.” Under current law, estates just below the exemption threshold owe nothing, while estates that exceed it by even a modest margin lose the entire exemption and are taxed on the full value. This creates a sudden, dramatic jump in tax liability that is not tied to any underlying jump in wealth. It also creates strong incentives for expensive estate planning, and any cost of planning below the total tax owed becomes rational from the taxpayer’s perspective, even if it generates no real economic value. Lowering the threshold to $750,000 would dramatically expand the number of estates caught in this cliff, many of them belonging to families that are nowhere near the concentration of wealth Mamdani says he wants to target.
What a Better Policy Would Look Like
Leahey’s analysis in Bloomberg Tax suggests that a more effective approach would lower the exemption more gradually, into the low millions rather than hundreds of thousands, and simultaneously eliminate the cliff by replacing it with a smooth, graduated rate structure. The reform should also distinguish between liquid financial wealth and illiquid assets. Primary residences and closely held small businesses could be granted deferrals or special treatment, ensuring that the policy captures large financial portfolios and multi-generational corporate wealth rather than family homes.
The Political Economy of Wealth Taxation
New York State already imposes an estate tax, and the city’s proposal would require state action to implement. Getting Albany to agree to a significant estate tax reform in a budget cycle already dominated by battles over income taxes, property taxes, and school funding will be difficult. The Institute on Taxation and Economic Policy has published extensive research on estate tax design, consistently arguing that well-designed wealth transfer taxes can reduce inequality without triggering the capital flight that critics predict. The Urban-Brookings Tax Policy Center has similarly documented the tradeoffs in estate tax design at both the state and federal level. Mamdani deserves credit for putting dynastic wealth on the agenda. The task now is to refine the proposal so that it actually accomplishes what it claims to, targeting the concentrated, multi-generational fortunes that distort democracy and opportunity, rather than sweeping up the Brooklyn homeowner who simply had the good fortune to inherit a house in a city that has priced most people out.
