April 14, 2005
From the desk of Jane Galt:When you're in a hole, stop digging
Matthew Yglesias ably demonstrates why middle America hates blue state folks like us.
Posted by Jane Galt at April 14, 2005 12:58 PM | TrackBack | Technorati inbound linksWow! Mr. Yglesias has no idea how offensive most people with taxable estates find the very idea of an estate tax. Don't we want to encourage individuals and family's take care of those around them -- without needing to involve government? Instead, we tax altruisim (gifts) and reward consumption.
I know someone who has a daughter who just will never be able to take care of herself. Nice enough girl, she just can't do ANYTHING well. When he dies, he wants to leave her enough money in trust so she can live in comfort if not luxury. That, in current dollars, means about $2 million. If Yglesias were to have his way, the government would get half that money. Why? Would it be better if he were to leave his daughter nothing and allow her to be a burden on society?
Yglesias is promoting a point of view that would eliminate wealthy private influence. He doesn't realize that once that has been achieved, government will have little effective opposition. Who will concern themselves with his rights on that fine day?
Inequality...people say that like it's a bad thing. I've never understood why.
Absent in the referenced post is any acknowledgement of the idea that a person's estate belongs to him or her. Most offensive to me is the idea that, without exception, the beneficiary or heir(s) of the estate is automatically undeserving of it.
"A government that is big enough to give you all you want is big enough to take it all away."
- Barry Goldwater
That, in current dollars, means about $2 million. If Yglesias were to have his way, the government would get half that money.
If he can live to 2009, the exemption will be $3 million, and Democrats have offered to make that level of exemption permanent.
Problem solved.
Needless to say, I feel the same way about Matt that he does about me.
Well in fairness, we don’t hate you, a cretin like Matt Yglesias on the other hand . . .
Seriously though both those of us who favor the elimination of the death tax and those who wish to keep it in some capacity usually approach this issue from a moral or values perspective (e.g. equality versus freedom). I’m curious though is there any hard information on the effect that the death tax on capital formation? My understanding is that while its elimination might not be the best way to encourage capital formation, it does create some bad economic distortions and is particularly onerous in how much economic activity it destroys to provide revenue for the government.
I read his post and thought he was kidding - is he usually like that?
My problem with the estate tax is that for it to affect me personally, either I or someone who wants to give me lots of money has to get pretty rich, and then die.
Talk about mixed emotions....
It does't seem to occur to Matthew that many don't want to sell a business that has been in their family for generations.
More importantly, he doesn't seem to realize that the value in that business comes from the fact that there is a lot of experience and knowledge that those who worked in the business have aquired. When the business gets sold to someone who lacks the knowlege and experience of running that business, there is a good chance that the business will fail, or at least not be as sucessful. Less wealth will be created, and those who work for the business may lose there jobs and be worse off.
So no, it's not a great position to be in.
His apoplexy over the very idea that other, less deserving life forms have more than he does is about what I expect from Yglesias and his crowd - what really got my goat was using the french spelling of resentment. Or was that a typo?
the actual concern is that I'll give $10 million to my son and he'll be rich, rich, rich without ever having worked- Matthew Yglesias
I guess the estate tax is really nothing more than "tough love". It takes a village to raise a child, and the villagers know that it's in the kid's best interest to take a fat chunk of his deceased father's property and split it amongst themselves. What a caring individual Matthew Yglesias is! I wonder if his concern extends to lottery winners?
I see that Matthew also yearns for a "serious program to combat inequality". Hear, hear! But before implementing our social engineering in the U.S. economy, why not use professional sports as a test case?
Baseball, for example, is rife with inequality. Greedy players like Barry Bonds are hitting more than their fair share of home runs. Clearly it's bad for the game when a small number of players selfishly grab up so many of the available home runs, because it leaves less for all of the other players to hit. The best thing for the game is to have everyone hitting at least a couple of the homers, and nobody hitting too many of them: a large "middle class" of mediocre power hitters is what should dominate baseball. But how to best achieve a more equitable distribution of home runs? Heavier bats for better hitters? Movable fences in the outfield? Discounting every marginal home run over 30 by 80%, and distributing the "savings" among those disenfranchised players who can't even reach the warning track? I'm sure it will take a lot of tinkering to get our system just right, but in making the game more fair, we'll doubtless gain some valuable insights on how to remake society as a whole. Then we can move on to the gulags and 5-year plans...
That, in current dollars, means about $2 million. If Yglesias were to have his way, the government would get half that money.
Hmm? Even before the law changed, the first $1 million was exempt. If the guy died in 2002, before the estate tax was repealed, the government only would have gotten 1/4 of the money. That compares pretty favorably to what Income taxes and Social Security taxes do to my wages. If he died today, he'd be paying about $225,000 in taxes, or 12%.
You can make arguments about why this form of income shouldn't be taxed, but I wouldn't try my luck on an appeal to emotions for the poor girl who can't live "comfortably" off of $1.5 million in assets. There are plenty of working people who would like to leave gynormous trust funds to their children, but because taxation must come close to matching the spending needs of our government, they have to pay some of their income in the form of income taxes, property taxes, sales taxes, etc.
Have you seen the Democratic proposal referenced by LizardBreath and shot down by the Republican majority? It pretty much covered every comfort-enabling trust fund one can think of. Beyond that, it's luxury. Very, very plush luxury. Again, people can make the argument that kids have the right to inherit access to luxury tax-free, but I don't think you can construct much of a sob story around it.
Rob, are you comparing the skill involved with being an excellent baseball player with the skill needed to become a member of the lucky sperm club?
Yglesias is right on the money. Why should a deadbeat kid receive tax free income in an inheritance? Income he earns is taxable, income he wins is taxable, income from his investing is taxable. Why the f should income from inheritances not be taxable?
Mr. Walser - the $2m he leaves today would result in about $200k tax. There is a $1.5m exemption. I doubt his daughter would be a burden on society with $1.8m.
too many steves - the heir has a right to inherit the estate, however as income it should be taxed just as any other income would be. The heir did NOTHING to increase the value of the inheritance, btw, and as such cannot automatically claim to actually be deserving of it, either.
Mad Anthony - no, obviously families do not want to have to sell the family businesses. I don't want to pay income taxes either, but that's just the way it goes. If the family's expertise and experience are so valuable, they should be profitable enough to be able to obtain outside financing to pay estate taxes, retain control of the company, and be able to cover the debt on the financing out of profits.
If you inherit a company worth $4m and have to borrow $1m to cover estate taxes, leaving you with a $3m net asset, cry me a river.
Wow! Mr. Yglesias has no idea how offensive most people with taxable estates find the very idea of an estate tax.
I think it's possible he does, but since that number hovers somewhere around 1% of Americans, he's willing to deal.
The problem is the much larger numbers of middle-class and working-class Americans who mistakenly think they're benefiting from estate tax repeal because of the way this issue has been communicated to them by the Republican Party. An excellent accomplishment.
I'm assuming that the use of "Ressentiment" is a Nietzsche reference, though I don't know for sure.
What really got me ticked was the self-righteous confiscatorial attitude: f*** the small business man, just take it all! It is though by being `rich' they have forfeited their humanity, and can be disposed of to suite society's needs. Certainly he would not cheer on similar de-humanizations of (your favorite oppressed group here).
And it's not as though the owner's death means that no one is affected by the confiscation: if I were to die tommorrow, my `estate' of savings, life insurance, and the equity built into my small business are there to support my wife and two children. I realize that current law has lots of special exemptions to protect these from the estate tax, but the very existence of these protections argues that my death is no better time to confiscate my property than any other time.
And another thing, while I am floundering in a rant-like state: one commenter on Yglesias blog states that the rich have soaked up all of the newly created wealth in our society. This is like saying that basketball stars have soaked up all the excess scoring in games. Does the commenter really believe that excess wealth is oozing out of the ground somewhere, and he is being denied his fair share by others huddled around the money hole mopping it up? Could it be that the rich are rich because they created the wealth?
Nah.
one of the bomb throwers suggested a very good estate tax to get back at people like MY: tax all inheritances of value. Tax the value of connections, friendships, schooling, etc taht represent one's inheritance from their parents. So the value of Dalton, Harvard, etc would be taxed (plus interest, natch).
As for MY. He has been getting shriller as he moved from being a student to being a professional limousine liberal. MY is arguing against interest here, as he comes from significant money, though I'm sure that his family isn't stupid enough to pay estate taxes (a little bit of planning goes a long way).
I love the charity arguments. No mention that most foundations happen (by accident of course) to employ progeny of the estate, own lots of rather nice assets, and can count overheads (or used to, not sure if revisions went through) as part of their mandatory spending.
But it is nice that thanks to the estate tax the rockefellers, carnegies, van der bilts, heinzs, etc were not able to become self perpetuating dynasties that controlled vast fortunes. What, they did, and got tax exemptions for doing it? My god, next you'll tell me that government is incompetent and that limousine liberals use emotional politics to absolve their guilt while reinforcing their elite status!
why not compare estate vs. income vs. sales tax in this discussion?
nobody likes taxes, but given that the gov't is going to take $ one way or another, what is the optimum blend of those three basic forms of tax for maximum net benefit to our economy and people.
completely eliminating the estate tax is ridiculous.
Rob, are you comparing the skill involved with being an excellent baseball player with the skill needed to become a member of the lucky sperm club?
My sarcastic example had nothing to do with the estate tax, but with Yglesias' expressed desire for a "serious program to combat inequality" in America. I presented a mock criticism of the inequalities in baseball, along with some mock suggestions on how to redress those inequalities, in an attempt to illustrate some of the absurdities of this kind of talk. Just like the game of baseball, a free market economy is perfectly fair, and the mere existence of unequal outcomes does not prove otherwise. Also, just like hitting home runs isn't a zero-sum endeavor, neither is economic activity.
Is luck a part of life? Sure it is. But if you're lucky enough that someone - a parent, a friend, or a complete stranger for that matter - chooses to give you a large sum of money, I fail to see anything unfair about this. I don't think it should be singled out as a special kind of income, one that you have a more tenuous claim to, simply because you didn't earn it. You deserve the gift or inheritance because the person who owned it wants (or wanted, in the case of an inheritance) to give it to you, and after all it was their property.
I have no problem with taxing estates, although I think I would rather see inheritances simply taxed as ordinary income to the recipient. My problem is with some of the specific arguments put forth in favor of the idea.
Hmmm. Isn't the talent needed to become a basketball player conveyed through "the lucky sperm club"?
its not ridiculous because of the negative effects that the estate tax causes.
taxes cause people to spend money and effort to get out of them. taxes on rich people cause a higher rate of spending on tax planning (poor people have less flexibility to change their behaviour, legal domicile, etc).
as someone who accepts that the state has a few things to do legitimately (very few) i want an economically efficient tax. raise what you need and do no harm in raising it. estate taxes are mostly about doing harm, with estimates that they at least create no net benefit (with enforcement and avoidance costs >= revenues).
look at MY's post, its about harming people taht the doesn't like. the tax raises very little money (people who have large estates figure out how to not have large estates at time of death) only $22B while causing people to do lots of strange things to avoid the tax while providing for their offspring.
the best tax is one tax (on personal income or consumption), with minimal deductions (only those expenses directly tied to generating the income, or else no deductions in case of consumption tax). The problem that this policy has is that people don't like paying taxes, and when confronted with the actual cost of government programs will change their preferences for government programs.
You'll notice that monarchies endemically have lots of complex taxes that make the total share of GDP consumed in taxes complex. When one's personal income is directly related to the $ value of taxation received, one wants to maximize that, overall economy be damned. The concern is no different for kings, bureaucrats, socialists, or public employee unions. Pluck as many feathers without making the goose sqwawk!
That isn't a good economic strategy, as it creates uncertainty and disincentives to work. But its great for the rentiers of the government classes.
As some others have pointed out, completely eliminating the estate tax is INSANE. The exemption can certainly be increased, I don't see any problem with even a $10 million exemption (or a smaller exemption applied per heir), but eliminating it entirely while retaining a progressive income tax makes no sense whatsoever. I don't understand why that is even debatable.
Kind of heavily mediated by hard work and training, innit?
Isn't the talent needed to become a basketball player conveyed through "the lucky sperm club"?
I believe there's actual initiative, training, and work involved, too, before the paychecks are written. The system isn't wholly rational and I'm not going to defend it because I know next to nothing about baseball, but it's not entirely random.
I suppose you could compare that to an heir not pissing off their parents so much they don't get written out of the will... that's kind of hard work.
And where do you think the character traits that make them work hard come from?
Isn't the talent needed to become a basketball player conveyed through "the lucky sperm club"?I believe there's actual initiative, training, and work involved, too, before the paychecks are written.
Sounds almost like the labor theory of value to me. Like everyone else, players don't get paid because they put in a lot of hard work, they get paid for the results they achieve.
Anyway, aren't initiative, willingness to train hard, and willingness to defer gratification either heritable traits, behaviours learned in childhood, or (most likely) some combination of the two? Seems to me that all human achievement is explained by lucky sperm and/or a lucky environment. Much as I'd like to believe in free will, that conjectured mystical ability of a conscious mind to create it's own nature ex nihilo, I haven't been able to find a reason to.
Sorry for veering way off topic...
The character traits also come from the 'lucky sperm club'. Inheritance, athletic or intellectual ability, work ethic - all due to the luck of the reproductive draw. Hence progressive taxation is appropriate and not unfair to anybody in higher tax brackets, as long as their income after taxes is no lower than anybody not admitted to the lucky sperm club.
Well, in that case, no one deserves anything, including the original people who got rich. Redistribute everything!!
What's incredible is how a tax that only affects, what, 2% of all estates, has become a rallying cry for millions that will never, ever be affected by it. Meanwhile those millions will have to pay taxes in the future to pay back the debt that financed the tax cut. Talk about reverse Robin Hood.
So they think that the tax is unjust? All taxes are unjust to someone, the bottom line is if we want to pay for government taxes have to come from somewhere. But the GOP has an easy answer for that (at least for now), let's just borrow the money!
I guess that line about a sucker born every minute is sadly true.
Jane, you're right; income and inheritance are two sides of the same coin, because both are determined by who your parents are. Ergo, inheritance should be taxed as income is.
Yglesias is right on the money. Why should a deadbeat kid receive tax free income in an inheritance? Income he earns is taxable, income he wins is taxable, income from his investing is taxable. Why the f should income from inheritances not be taxable?
wallster
Perhaps the point is, who are YOU to decide who is a deadbeat kid and who is not? What is the diff between 'deadbeat' and 'works hard in the family business'? Who decides?
The point, for me, is that it's none of your business who I leave my (hypothetical) wealth to when I die, and the motives for doing so, nor is it your concern what they do with it.
Has nobody mentioned that the inheritence was already taxed when it was earned? I mean, hello, most investments have to be made with post-tax dollars (especially as the IRA and 401(k) are relatively new inventions), so the tax on that money was paid when it was invested.
But But But...it's worth MORE now. Yes, okay, sure, but the thing is we have an income tax not a wealth tax.
If the inheritance is in the form of a tax-deffered investment, tax will be paid when the money comes out. If it's property there will be property taxes paid, if it generates income in the future that income will be taxed. The estate tax adds another level of taxation, so those assets are taxed multiple times because...because...because it's somehow okay to just take "rich" people's money by fiat?
The character traits also come from the 'lucky sperm club'. Inheritance, athletic or intellectual ability, work ethic - all due to the luck of the reproductive draw. Hence progressive taxation is appropriate and not unfair to anybody in higher tax brackets, as long as their income after taxes is no lower than anybody not admitted to the lucky sperm club.
This sounds like an echo of John Rawls' "veil of ignorance" argument. I disagree with it entirely. A supermodel may have inherited her good looks, but they are her looks, and nobody else has any claim to whatever income she is able to derive from them.
You say your criteria for a fair tax system is that it doesn't result in an after-tax income that is lower than that of "anybody not admitted to the lucky sperm club". What income level is that, exactly? It should be pretty easy to find a homeless guy who makes absolutely nothing; if he's a member of your lucky sperm club, then I have no idea who isn't. So are you saying that it's fair to confiscate 100% of an executive's income, since he'd still be no worse off than the homeless guy? Why would be bother showing up for work?
The idea that government is more "deserving" than the family of its wealth is absolutely ridiculous. How many times can the same money be taxed? Besides, this isn't cash that can just be transferred. It's businesses that must be closed and sold, real estate that must be sold quickly no matter what the current state of the market is, etc. What a great thing to put families through as they're mourning.
If you think the government has any right to this money, you're starting from the wrong place. Start with the individual, and work toward what the government needs to function. Don't start by looking at what the government spends its money on now and what it needs to do so, because current spending is completely arbitrary and unprincipled. They basically spend on whatever they can get away with.
It baffles me how pervasive Marxist "fixed pie" thinking still is. It's those damn rich people and small businessmen who create the jobs and put out the effort to raise the living standards of everyone. Keep pushing, and they'll keep finding more and more ways to "shrug."
Socialism is nothing but the redistribution of wealth from the most efficient uses of capital to the least efficient.
GT:
Why are you surprised that people would get exercised about something that will only affect 2% of the population? I can imagine any number of horrible policies that would affect only a small percentage (e.g. "let's enslave Jews") that would still get me upset.
Maybe people can be upset because they want to preserve a notion that government action such as taxation should be fair or just, not simply efficient or expedient.
On NPR this morning, a reporter implied that Republicans had just stumbled into an effective PR ploy when they called into question the morality of the estate tax. The reporter never addressed whether it was moral or not, and simply went back to stating that the estate tax would affect few and, by implication, the moral ploy was flawed.
I understand that there is a current of thought that power is all, and notions of truth or morals are just a scam perpetrated by the powerful.
But if you really believe that, why comment on a blog at all?
Thomas Paine wasn't exactly the most pro-tax historical figure. Yet he argued for an estate tax.
Warren Buffett is unquestionably one of the most brilliant capital allocators today. He is very strongly pro-estate tax.
Why these seeming inconsistencies?
Just maybe, inheritance is a special case that deserves special consideration?
Warren Buffett is unquestionably one of the most brilliant capital allocators today. He is very strongly pro-estate tax.
And what's the significane of this? If he wants to turn over every dime he had left to the government* when he dies, that’s his choice. It’s only when he decides that he has the “right” to try to impose it on others that there’s a problem.
* Somehow I doubt that he will. Chances are he's going to shield every red cent he can.
Mark,
Simple. Because they will have to pay for that 2%.
Cutting or abolishing the estate tax means that other taxes have to be raised now, or in the future, to make up the difference. (Of course if we cut spending there would be no need but I think it's pretty clear by now that no one on either side really wants that.)
So all those millions supporting the estate tax repeal are, in effect, asking to have their taxes raised so that very rich people can become even richer.
And can we PLEASE stop with the Nazi comparisons?
I think Yglesias has sprinkled his post with some deliberately abrasive leftist talking points, but I don’t simply don’t take as much offense to his basic point as some of the previous commenters.
Taxes are pernicious wherever they are levied. But the basic legal unit of western civil society is the individual, not the clan. Individuals are held to contractual obligations, not families. Individuals are answerable for crimes, not their parents or children. Corporations, as I understand it, are typically viewed as legal abstractions of individual citizens.
I have read a number of pieces decrying tribalism as a major barrier to economic progress in the developing world. In the west, free voluntary economic associations of individuals spanning family, race, and ethnicity are easily formed, broken, and reformed. Developing regions lack this civil framework, and are often forced to operate only in high trust environments afforded by clan associations. Legally treating intergenerational families as economic collectives would seem to open a can of worms.
I have no use for leftist class bashing about how the children of the rich are deadbeats who need to be cut down by social engineering. Nor for the redistributionist “to each according to his needs” argument, the last thing we need is the government assigning (more) economic merit. But for now we have to pay individual income taxes – it says so right on the form. And if inheritance is not individual income, then what is?
What's incredible is how a tax that only affects, what, 2% of all estates, has become a rallying cry for millions that will never, ever be affected by it. Meanwhile those millions will have to pay taxes in the future to pay back the debt that financed the tax cut.
"Rallying cry for millions"? That's a little dramatic, IMO.
But anyway, if a lot of people think repealing this particular tax is the right thing to do in principle, what does it matter that they aren't personally liable for it? The repeal of any tax, the lowering of any bracket, or the addition of any new deduction, exemption, or credit could rightfully be claimed to represent an extra tax imposed on all of the taxpayers who aren't subjected/eligible for it. Funny how nobody ever says this about, say, the blindness exemption. It's really just a populist, class-warfare argument that lets people think that soaking the rich a little less (but still to a greater extent than anyone else) is somehow equivalent to subsidizing them.
Warren Buffett (who doesn't actually know enough about economics to fit on a postage stamp, but ignore that for now) wants the government to confiscate half his wealth when he dies. Therefore, it's right for the government to confiscate half of everyone's wealth. Huh?
I'm glad some people are worried about the ethics of a special "screw the rich" tax.
Assume a society of 100 people. It is organized along two principles:
1. It is a perfect and absolute democracy. There are no predetermined legal or moral restrictions: whatever a majority wants is done.
2. Everyone always votes in his immediate financial self-interest.
Does everyone see how this story ends?
GT:
Why is it fair that a few people who happen to be wealthy get their own special tax so that 40% of taxpayers can continue to pay $0 in income taxes? How is that fair?
AT,
Who said anything about fairness? All taxes are unfair to someone or other.
The point is that if estate taxes are reduced some other taxes will have to be raised to make up the difference. And this simple point seems to escape the millions supporting the repeal. They don't seem to realize their taxes will have to go up so that very rich people can be even richer.
Oh, so you're gonna pass on whether it was ethical to have the tax in the first place and just say that since we have it, it would be unethical to repeal it. That's kinda shady, and as others have already pointed out, can be used to argue against any tax cut while saying nothing about any tax increase. Convenient.
Let me ask you something else. Since all taxes are unfair to some extent, why don't we just scrap our crazy 0%-10%-15%-25%-28%-33%-35% income tax on top of a 15.3% payroll tax and have just ONE income tax, with brackets at, say, 0-10-20-30-40-50-60? Or 0-15-30-45-60-75-90? For that matter, why not 0-1-2-3-4-5-99? They're all the same, aren't they?
That's a separate question. We can debate what would be the ideal tax system if you want (short answer: I have no clue).
My point is a very simple one. It's about the millions that support the repeal of the estate tax. They don't realize that their taxes will have to go up so that a very small group of rich people can be richer. Now maybe you think that is OK. But I suspect if people understood this simple fact support for the repeal would disappear. Just like support for the flat tax disappears once people realize it takes ways their mortgage interest exemptions.
Allow me to reenter the fray with a few random comments. Some background: I am a tax accountant and spend most of my professional time estate planning. In my experience, nothing upsets taxpayers more than the mere notion of the estate and gift tax. They find it morally offensive. They might not LIKE the income, sales, or property taxes, but they find gifts and bequests to be entirely inappropriate as a tax base. Are there some exceptions to this attitude? Sure, but this is NOT a close question. Most Americans, according to the polls, find the estate tax to be manifestly unfair -- and it does not matter how small a percentage of the population have to pay it. In fact, from a fairness point of view, only taxing 2% of the estates makes the estate tax WORSE, not better. Americans just don't see death (or a birthday gift) as something that should trigger a tax. To me, it is refreshing that so many of my fellow countrymen are unwilling to benefit from what they see as an unfair tax -- particularly since they know there is little chance the tax would ever apply to them.
Finally, I find the comments from Britain33, GT, et al, ironic. Jane's point was Mr. Yglesias seemed totally oblivious of how "red staters" would respond to his post. Britain33, GT, and the rest obviously fail to understand the objection to the estate tax. It's not an economic question, it's a moral one. Death should not grant the government access to someone's property -- even if that means income tax rates might have to go up. Until you learn to address that concern, your arguments will only make your opponents angrier. Lamenting that people are voting against their self-interest comes across as thinking those who oppose the estate tax are too stupid to know that the tax is unlikely to apply to them. Pointing out that their own taxes may have to go up if we don't sock it to the 2% who'd otherwise pay an estate tax is offensive because it smacks of a bribe. As if they should be willing to allow others to be treated unfairly so their own tax bills will go down. Just how self-centered and petty do you think your fellow citizens are?
That's fine, but my point is that arguments for taxes based entirely on income distribution are inherently flawed, since income distribution is always relative. Without any other standard for judging the fairness of taxes, there is no ethical difference between taxing everyone 17% of all income and taxing the top 5% of taxpayers 100% of their income.
David:
Good point. People like MY always scratch their heads about voters' "acting against their own economic interests." They don't understand people can have ethical economic principles.
As for me, there are two things the government does that strike me as so much more monstrously unfair than anything else it does. First is Social Security, and I think everyone understands that argument. The second is the accredited investor exception to securities laws. Sure, it's a relatively small thing, but I find it completely outrageous.
David Walser,
Is this a joke?
Just how self-centered and petty do you think your fellow citizens are?
I mean, really, are you kidding? Why in the world do you think the tax code is a big as it is? Because we are all selfless? No, because every group tries to get the best possible deal it can. Some are succesful and some are not.
Of course we are self-centered. That's why when you tell people that a flat tax means no more mortgage interest deduction support for it drops. That's why we all say we want lower spending but what we really want is lower spending for others and why even conservatives are raising spending.
How about you tell the millions that are not and never will be affected by the estate tax that their taxes will need to go up to make up the difference. Let's see how selfless Americans turn out to be in that case.
David Walser’s quite correct, it reminds me of a line from the West Wing when they were repealing the Death Tax and they were lamenting why so many lower and middle-income people favored repealing it. Josh (or Toby) said something to the effect of “the problem is that they believe in the American Dream and that a tax on the ‘rich’ is one that they’ll have to pay someday.”
Ironically, in spite of the grenade tossers, the commenters on Yglesias' post -- and yes, I gladly include most of the pro-inheritance tax posters -- generally had more sense than he did.
No Thorley the problem is they are being conned. Make clear to them that the estate tax repeal means their taxes will go up and watch how support for getting rid of it disappears.
But people don't realize that because no taxes are being raised today. We are simply borrowing and delaying the inevitable tax hikes (as Bruce Bartlett realizes).
So that's what it comes down to, GT? The people are being "conned?" You mean they don't realize it applies only to estates over $1,000,000? Surely they do, and they hate it anyway. Are you saying they're just wrong, and that their rights to substantive due process are being violated?
David Walser,
Well said, but once they've died, they won't mind nearly so much. I'll confess to not getting it. Tax the dead! They don't need the money!
I am saying that they don't realize they will have to pay for the tax cut by having THEIR taxes raised.
Ask people if they think that the estate tax is unfair and most will say yes. Ask them if they are willing to pay to get rid of that unfair tax and I suspect the answer is different. So what does the GOP do? They don't talk about the second part.
It's funny how when one tax is cut, it's automatically assumed by so many people that other taxes must be raised, as if cutting spending isn't even an option...
GT - As Jane might say, "Just keep on digging. You'll get to the bottom of the hole eventually." The estate tax is my turf. I explain it to clients and non-clients on an almost daily basis. I make sure to tell them that the tax won't apply to them (if I am talking to people of wealth similar to my own). Almost universally, they detest the estate tax. They just think it is wrong. In fact, to calm them down, I frequently find it necessary to explain the historical justification for the estate tax.
Of course, your mileage may vary. Me, I've only had clients in Arizona, California, Utah, Colorado, New Mexico, Oklahoma, Arkansas, and Texas. So, perhaps it's a regional thing.
GT,
The top 400 taxpayers in 2000 earned $69,566,247,000 in adjusted gross income. They paid $15,507,223,000 in income taxes. That's a 22.23% averate tax rate. They're clearly not pulling their weight. If we only increased their taxes so that they pay an average rate of 35%, which is the marginal tax rate over nearly all of their income, that would bring in an additional $8,840,963,450 in tax revenue. Wouldn't this be fair?
In fact, if we just raised their effective average tax rate to 54%, we could repeal the estate tax and not reduce total revenue. This would have the virtue of shifting a tax paid by hundreds of thousands of people to one paid by no more than 800 people - people who can obviously afford it. How is this not fair? Aren't we all being conned by letting these people get away with paying so little in taxes relative to what they can afford? These are all people earning more than $86,830,000.
It's about the millions that support the repeal of the estate tax. They don't realize that their taxes will have to go up so that a very small group of rich people can be richer.
GT, I have a hard time believing millions of people are that stupid. If you cut a tax without cutting spending, of course it creates a shortfall of the amount cut. And of course, any new shortfall must either be covered by other taxes in the current year, or financed through debt which will be paid off by future taxes.
The estate tax brings in $24 billion in annual revenue. To put that in perspective, it's somewhere between a third and a half of the amount our federal budget allocates to veterans affairs. It's relatively miniscule, and a lot of people would like to see it repealed as a matter of principle. I don't have a strong feeling either way - as I mentioned earlier, I think I'm in favor of just treating inheritances as ordinary income (which would probably bring in even greater total tax revenue than the current estate tax) - but I have a big problem with a lot of the specious reasoning and class warfare rhetoric that this issue seems to bring out.
Count me as one taxpayer who votes his principles, not his wallet. I support a flat tax even if it means I would have to pay more.
I mentioned Paine and Buffett not because their words are gospel, but because they obviously are NOT big-government types. I thought this would have prompted someone to actually check what does motivate their positions, but instead I'm stuff as patently stupid as "Warren Buffett (who doesn't actually know enough about economics to fit on a postage stamp, but ignore that for now) wants the government to confiscate half his wealth when he dies."
So, I'll spell it out. Completely unchecked inherited economic power has the same sort of problems as completely unchecked inherited political power. While, to a first approximation, the son of a king can be expected to be more qualified to rule than a randomly selected member of the populace, we've figured out better systems of allocating political power -- even the most trivial study of history makes clear how easily hereditary monarchy can go bad. In modern democracy, the son of a president may still have plenty of advantages in gaining the presidency himself, but they still have to prove themselves as well -- show that they still have the right genetic material, if you wish to think of it that way.
The estate tax is only aimed at economic power, it isn't intended to reduce your ability to provide your children a comfortable life after you die. Raising the exemption to $10 million, heck, even $50 million doesn't really interfere with this function. But eliminating it entirely would probably be the mistake of the decade.
David,
Yes I met a lot of people like that. They detest it. But ask them if they are willing to pay to get rid of it even if they will never, ever be affected by it. Ask them how much they are willing to pay so that rich people can get richer.
AT,
I don't know what the ideal tax system is and my comment is not directed to that. My point is much, much simpler.
Rob,
Of course people can be stupid. Just look at the SS con game the GOP is trying to pull.
On top of the moral case against `tax-the-rich' excesses, I think there is a high political price to progressive taxation.
Our current income tax is so progressive that 40% pay no tax, and 80% pay only 20% of the total tax burden.
There is a functional voting majority that is voting for the government to spend someone elses money. This is corrosive to the entire idea of self-government. We can pretend that we as a democracy are voting our money for what we believe is important, but what is actually happening is that we are deciding someone else should pay for good things to come our way. Alexander Tyler pointed out that democracies perish when a majority realizes it can vote themselves money.
Also, f you believe income taxes have to go up in order to replace lost income from estate taxes (which contains a whale of an assumption in itself), it is disingenous to argue that poor people will pay more so that the rich can get richer. The rich now pay almost all of the taxes anyway.
And that con game would be that people can get better returns than they are now from SS just by putting money in CDs, even with today's low interest rates?
No, GT, it's the same issue. You just refuse to answer.
A whale of an assumption? Which would that be?
Dog of Justice - You've raised the only argument in favor of the estate tax that I've found people are willing to tolerate. (It's the historical justification for the tax and is closely related to the "trust busting" that went one at the turn of the last century.) Most people can understand this rational, but few accept it. After all, if a rich man's three children cannot be trusted with the power and influence that comes from inheriting a third of his wealth, how can we tolerate allowing the rich guy to have 100% of his wealth?
The logic of using the estate tax as a check on power demands that we, also, take "excess" wealth from people before they die. No? Bill Gates' kids will have too much money. They can buy and sell politicians and could rule the state of Washington. If that's true for the kids, it's also true for Bill. For some reason, the average citizen does not trust the government with the power to confiscate "excess" assets in the name of promoting freedom.
What's "fair" in taxes and what isn't. If you can't even give us some idea of your answer, I'll assume you're just jerking us around.
No AT. I don't know what the ideal system is, assuming such thing exists. So I have no clue which if the ones you offered is better.
But we have one in place today, however imperfect. If you cut someone's taxes and don't cut spending then someone else's taxes have to go up. There is no other option. So the millions that support the estate tax repeal are saying, in effect, that they are willing to have their taxes go up. But I suspect that if you tell them that, explicitly, support for the estate tax repeal will disappear.
I ask you, how much are you willing to see your taxes go up so that Paris Hilton can inherit all her money tax-free?
Dog of Justice:
Warren Buffet a small government type? That's funny. And no, he doesn't know sh*t about economics. He doesn't think stocks should be traded, after all. See BRK.A for an example. Either that, or he only thinks rich people should be able to invest in his company, which would just make him an elitist bigot. Take your pick.
No Jay, that's not the con game. The con game is related to the tax cuts of 2001 and the payroll tax increases of the 1980s.
The logic of using the estate tax as a check on power demands that we, also, take "excess" wealth from people before they die. No? Bill Gates' kids will have too much money. They can buy and sell politicians and could rule the state of Washington. If that's true for the kids, it's also true for Bill. For some reason, the average citizen does not trust the government with the power to confiscate "excess" assets in the name of promoting freedom.
This is not the same thing at all.
The very act of amassing his fortune shows that Bill uses money more efficiently than most of the rest of us. This is one of the most basic tenets of capitalism.
His children have not proven such a capability. If they have it, they can amass their own fortune from scratch.
No GT. Why do you refuse to answer the question of what's fair at the outset?
I also don't see why your question is at all relevant. You say it's not fair to eliminate the estate tax because the other 98% of taxpayers will have to pick up the tab. I ask you why it wouldn't be even more fair to replace an estate tax that only affects 2% of taxpayers with a higher income tax that only affects 0.00036% of taxpayers.
I really don't see the difference.
GT:
The whale of an assumption is that you can't cut spending. The government could spend less. It used to spend less than it does now. I am not sure how this is so unthinkable.
AT,
I didn't say it was unfair. I simply said that I didn't think the other 98% realize they are being asked to pick up the tab.
I am making no value judgement as to what is the ideal system. I am simply saying that I think that the 98% don't realize they will have to pay for the 2% and if they did support for the repeal would evaporate.
I ask you again, how much are you willing to pay for this?
Perhaps I am cynical but, if so, here is why:
My inlaws moved to Ohio shortly after my wedding in 1980. They retained a summer home on Cape Cod, MA, which they visited regularly in the summer.
In fact, my mother-in-law lived on the Cape from late June until Labor Day (she was a public school teacher at that time). My father-in-law flew to the Cape every Friday and returned to Ohio each Monday. Their legal domicile was Ohio - they lived there, uninterupted, from the day after Labor Day until late June.
In May of 1985 my father-in-law was diagnosed with lung cancer. In late June he and my mother-in-law took up residence (physically not legally) in their Cape Cod home; he was receiving treatment at Mass General Hospital in Boston. As it happened, he died in mid-September 1985, four months after diagnosis.
From October 1985 until, roughly (as memory serves), August 1987 the State of Massachusetts agressively sought to "tax" that portion of my inlaws estate (50%) that passed to my mother-in-law from my father-in-law. Their calculation of the estate included cash, stock, real estate, and all other real property.
My mother-in-law fought this. The state's tactics included: monthly demand letters, letters enumerating usary monthly interest penalties (18%), phone calls from marginally abusive bureaucratic functionaries, and visits from State Tax Officials to "remind" my mother-in-law of her "obligations".
In the spring of 1987 my mother-in-law, who was still grieving over the loss of her 52 year old husband of 28 years, was so despondent that she seriously considered paying the State of MA what they claimed - just to make it go away.
The problem was they weren't entitled to any of it, no matter how you read the law. My inlaws, at the time of my father-in-law's death, were legal residents of Ohio, which did not have an estate tax. MA was demanding that my mother-in-law pay on the assumption that her house on the Cape proved her residency in MA and her liabillity for the tax. The burden of proof, as to their residency, was on her.
Fortunately she was persuaded by her attorney to see it through. A higher court in MA ruled in her favor and she has lived an independent and adventurous life in the nearly 20 years since her husbands passing.
What does all that mean? Just that the beneficiaries of estates aren't all just Paris Hiltons. Oh, and the State will go to obscene lengths to take what they had no role in creating.
But GT, they do. We have established this. I have also established that there's no difference between the unfairness of this tax and the unfairness of any other tax, at least by the way you're arguing.
Since you're not willing to discuss this honestly, I guess we'll have to agree to disagree.
How much am I willing to pay for it? Apparently, about $200 a year.
Mark,
You are not sure why that is unthinkable? Really?
Have you seen any indication that there is any support for that? At any time?
The GOP controls Congress and the WH and they are RAISING spending. Who do you think is going to cut spending?
GT - My experience is that people simply do not think in the terms of getting rid of the estate tax means that they will have to pay for it anymore than they think of paying for safe firefighting equipment. There are just some things you don't do. You don't ask someone to fight a fire without adequate equipment and you don't ask a family to pay a tax because someone died. It's not that they don't get the connection between cutting the estate tax might mean raising other taxes or cutting services. It's that they don't balance their books in that manner.
Not too long ago, we determined that one of our employees would not "work out" and needed to be fired. Before we pulled the trigger on that decision, we learned this employee's spouse had just be diagnosed with cancer. Treatment was being paid for by the employee's insurance. Firing the employee was no longer even considered. Contrary to our own self interest? Sure, but you just don't count the costs in such a situation. People feel similarly about the estate tax. It's wrong, so how much revenue it produces is beside the point.
By the way, does anyone know how much rich people spend on estate planning every year?
Just a thought.
OK AT you are willing to pay $200 a year. Why don't we make public, as the GOP to make public, that we will all be asked to pay another $200 a year so that rich people can be even richer. Let's see how long support for the estate tax repeal lasts.
And I am saying, GT, that most of the other 98% aren't paying much of the total tax burden anyway. All tax cuts benefit only the wealthy because the wealthy far and away pay the lion's share of the tax burden. Tax increases likewise mostly affect the wealthy. You keep arguing as though the tax burden was shared by all voters, and it simply is not.
As for the "fuck small businesses", I always found it interesting that Modern Machine Shop magazine has a monthly column on how to avoid being shafted by estate taxes. The point being that a) there are a bunch of ways to dodge estate tax for the small business owner whihc achieve the same thing but are a humonguous hassle b)it's a tax on people too stupid to shelter their business c) who the fuck does he think employs people in the U.S. anyway? Small fucking business is who! When a business is broken up all those people are sent to the unemployment line...
Great, GT, great.
While we're at it, let's make public that not indexing social security benefits to prices instead of wages will leave every person in America with a $17,000 share of federal debt they wouldn't otherwise have.
Creation of a Trust, a Will, and a Healthcare Proxy is approximately $3,000 - $5,000.
too many steves:
Not if you're a billionare avoiding estate taxes.
Duh.
David,
People get a direct benefit from firefighters. Are you saying that 98% of the population is willing to pay an extra $200 in taxes every year so that rich people can inherit all their money tax free? That the emotional satisfaction they get of the repeal of the estate tax is worth $200 annually to them? People are willing to see their taxes go up so that millionaires can be even richer? Really? You believe that?
I don't. I think people simply don't realize their taxes will go up because the GOP is borrowing the money right now. A little like Reagan.
Well AT, I ain't no billionaire, so my protection is a lot cheaper. :) But if I was, 10% of the total value would be a small price to pay, wouldn't it?
TMS:
I suspect it's a lot, that's all. That's a lot of money for lawyers. Not that lawyers don't need to eat too. Blood's expensive.
Goodnight GT. Maybe, in the future, you could try to honestly engage the other side of a conversation. You might like it.
"People are willing to see their taxes go up so that millionaires can be even richer? Really? You believe that?"
Um, GT, do you want to explain how taking less money from people makes them *richer*? This just shows how backward you're looking at this. The estate tax makes people poorer; the lack of it does not make people richer.
Good night mark. Maybe next time yo won't jump around from one thing to the other. So, for example, if we are talking about why assuming spending cuts is a big assumption you won't jump to who pays taxes, a completely unrelated topic.
Let's see Jay. Suppose with an estate tax I inherit $2 million and without the estate tax I inherit $4 million. That's how it makes me richer. I inherit more money.
Wow GT, I'm impressed at how long you've hung in there proving Jane's point again and again and again. I'd almost suspect she's paying you.
Are you saying that 98% of the population is willing to pay an extra $200 in taxes every year so that rich people can inherit all their money tax free?
Talk about misleading! If the mean cost of eliminating the estate tax works out to around $200 in extra taxes (or borrowing) per taxpayer, that DOESN'T mean 98% of the taxpayers will pay an extra $200 in taxes every year. It's probably more like the CEO of Walmart pays an extra $20,000, an assistant store manager pays an extra $5, and a guy who works in the stock room doesn't have to pay taxes anyway. I haven't done the math, but you get the idea.
I would also suggest that with or without the estate tax, that assistant store manager and his family are consuming more in government services than he pays for, so it's probably hard to think of him as being "screwed" either way. I'm not prepared to quantify this, though, which is why it's just a suggestion. Something to ponder alongside the "you get screwed, Paris gets a new Ferrari!"-type rhetoric that tends to infuse these debates.
GT - Short answer to your question: Yes, if they had too, I believe many people would be willing to pay more in taxes if that was necessary to eliminate the estate tax.
Longer answer: Suppose there were a tax on homosexual activity. (Don't ask me how the tax would be enforced, I don't want to think about it.) Most people, 90+ percent would never have to pay that tax. Yet, even if their own taxes had to go up to pay for the lost revenue, most people would support repealing the "gay tax". There are some things that should NOT trigger a tax. Homosexual activity would, I think, fall into that category for most people. Such a tax would just be wrong. That's how many people feel about the estate tax.
Or, take another hypothetical tax: Say there were a reverse lottery. Each day the government would pull some unlucky taxpayer's name out of the governmental hat and then confiscate 50% of that person's wealth. Even though most people would NEVER have to pay the tax, I doubt many would support it. Even if you gave generous exemptions and deductions, most people would not view the tax as fair. And, yes, they would not support it even if it meant an increase in their own tax bill.
Got it now?
There is an error in the assumption that if the estate tax is eliminated, other taxes will have to be raised because there will be a shortfall. The economy is expanding -- tax revenues are increasing. There won't necessarily be a shortfall.
Anyone who agrees with sentiments the phrase unnecessarily wealthy conveys is not someone I want making tax policy.
Ya, the top 20% of earners pay 80% of income taxes. In reality, if repealing the estate tax must be made up by other revenue, it will be these people who pay for it. Coincidentally, probably everyone in this group has a decent chance of paying the estate tax someday. Therefore, it's really just insurance: they pay some small, fixed amount each year instead of paying a huge amount at death.
There is an error in the assumption that if the estate tax is eliminated, other taxes will have to be raised because there will be a shortfall. The economy is expanding -- tax revenues are increasing. There won't necessarily be a shortfall.
Good point. The growth in income tax revenue due to economic expansion could be more than enough to cover the revenue lost from the incremental phaseout of the estate tax. However, supporters of the estate tax would say "So what? That's just more money we could have used to narrow the deficit", and they've got a valid point too.
The estate tax generates a relatively tiny amount of revenue. This is such a polarizing hot-button issue because it's a matter of principle for many conservatives (not necessarily me), and class-warfare cannon fodder for many leftists.
AT, you do realize that people pay taxes other than income taxes, right?
You've elided the difference between not paying income taxes and not paying taxes a few times in this thread, and you seem to be the only one doing it. Note that people who don't pay income tax DO pay Social Security tax and sales taxes, the latter making up a much larger share of their income than it does for you and me. It's a bit disingenuous to label them as non-taxpayers.
The crucial flaws in GT's argument are that he ignores the fact that the government can borrow and then he assumes that because the current government isn't cutting spending, no government ever will.
GT's points over many, many posts appear to boil down to:
1. Eliminating one tax by definition means another tax must increase because we will never cut government spending.
2. People only support repeal of the estate tax because they're too stupid to realize point number 1.
However, it isn't at all true that future governments won't cut spending. And eliminating a tax in the short term does not mean another must by definition go up, because the government can borrow to make up the difference. Future governments could then cut spending and pay off the additional debt purely through spending cuts and without raising taxes. Therefore GT's point number 1 is simply wrong.
Since point number 1 is wrong, point number 2 is not only wrong, it's also offensive.
Together, GT and Matt have made three arguments that probably have great appeal to upper class liberal blue staters:
1. Fuck small business.
2. Government spending will never, ever be cut.
3. Everyone else is stupid.
Unfortunately, to get back to Jane's initial post, middle America isn't particularly fond of any of these arguments. Time to invoke the first rule of holes.
But Brittain33, payroll taxes are for a pension plan and medical insurance, they're not general revenue!!!!!!!!!!
DRB,
Not many would try to position ending the estate tax as anti-elitist but kudos to you for trying. Damn those rich liberals for trying to tax themselves and people with comparable wealth!
Everyone,
There a lot of things I don't get in the above argument (including especially the we don't need any more taxes ... sure, people, the cut-Medicare majority is coming, just wait! One day people will want that because, hey, you guys do now.)
But one confusing issue in particular is how this is a blue state / red state issue. The blue states are a lot richer; I have to believe they have a lot more people who are hit by this tax. And small business owners exist in them too! Fewer farmers I guess, but I don't think that many farmers are effected now. Is there some poll I missed on this?
Tom
But one confusing issue in particular is how this is a blue state / red state issue. The blue states are a lot richer; I have to believe they have a lot more people who are hit by this tax.
That two-tone political map we've grown accustumed to over the last 5 years is misleading, because it doesn't convey enough granularity. The truth is that we're a mottled nation of purple hues. States that we think of as raging red went ~60% Bush, while the truest of true-blues went ~60% Kerry. That's a difference of 1 in 5 voters, folks.
Much of the nation's wealth resides in the coastal "blue" states, but those families wealthy enough to be subject to estate taxes still represent a small segment of the population. My guess is that Park Ave. is politically "redder" than NYC as a whole.
Or maybe both sides are a little more principled than the other is willing to concede, and neither buys into that detestable "vote your pocketbook" notion to the degree expected.
Speaking of voting your pocketbook: in large sections of the banking and IB world, profitability (and therefore pay) varies inversely with the economy. Tremendous amounts of money have been extracted from Japan's and Germany's sickness. Salomon Bros. in the 1980's built an empire by piggybacking on the steep yield curve (gov't financial aid to banks).
So by all means, let us New Yorkers make your financial decisions. Especially since our dream is to make our pile and then buy half of Idaho...
As above, the real problem with the estate tax isthat you can be rich enough not to have to pay it.
Warren Buffett has said all of his $40 billion will go to a foundation. Revenue raised on his estate? $0.
Revenue raised on Joe Kennedy’s estate? $0.
That’s why the younger Kennedys are not starving as their undoubted talents would lead one to believe is ther due.
Rob, Joan, DRB
But that's not my point. You and others may be right that it's perfectly fair to reform the tax code to eliminate the estate tax. I have not opined on that one way or another. But someone has to pay for the difference.
DRB tells us that its wrong to assume spending will not be cut but, of course, offers no evidence of how that will happen. In fact all the available evidnce shows that spening is set to go up, and by a lot. Federal govt spending is about 20% of GDP and some estimates I've read say it could go up to as much as 35% in th e next decades, mainly due to healthcare costs. So right now any tax cut has to mean a tax increase for someone else. Joan says there won't necessarily be a shortfall. It boggles the mind to think smart and educated people say that today. There is is no lack of information telling us that the gap is wide and will get wider.
Rob,
I agree with what you said.
Which I think means neither of us gets Jane's initial comment that 'Middle America' is for the repeal of the estate tax and Blue-staters are for it.
Tom
Editing error, I meant to end with and 'Blue-staters are against it.'
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not." - Thomas Jefferson
But Brittain33, payroll taxes are for a pension plan and medical insurance, they're not general revenue!!!!!!!!!!
Much of the money raised through Social Security taxes has been used for general revenue--in fact, it's this vast surplus that has enabled Republicans to cut income taxes, capital gains taxes, and estate taxes to a level far below what's needed to cover current spending. And now Bush is saying the government may not pay back the Social Security taxes borrowed to cover general expenses!
In addition to all that, there are the sales taxes, property taxes, and income taxes (in states where taxes hit at incomes of a few thousand dollars or less) paid by all these people.
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not." - Thomas Jefferson
Income taxes take away from those willing to work. Estate taxes, if anything, have the opposite effect if the exemption is high enough (as I've mentioned in previous comments, it's reasonable to raise it to $10 million or even more).
So let me make sure I understand you GT -- you're saying that there's no way we'll be able to cut government spending because...well, because government spending is going to go up.
I will hereby stipulate that you are correct -- if we don't cut government spending, we will not in fact have any decreases in government spending. I will also stipulate that for government spending to go down, we will in fact have to cut some government spending.
Whew, this circular argument is making me dizzy!
Tom G,
I don't recall arguing that cutting the estate tax was anti-elitist. I do recall saying that Matt and GT's arguments against repealing the estate tax were framed in ways that much of the population finds repugnant. For clarity, I'll remind you that they were:
1. Fuck small business.
2. Government spending will never, ever be cut.
3. Everyone else is stupid.
But kudos for the way you took down that straw man -- he never stood a chance.
Which I think means neither of us gets Jane's initial comment that 'Middle America' is for the repeal of the estate tax and Blue-staters are for it.
I don't think she was necessarily talking about those who actually pay the tax, although you can certainly find some extremely wealthy liberals in 'blue states'. Most states have a winner-takes-all electoral system, so 'blue stater' and 'red stater' have become a kind-of shorthand for the type of person who tends to dominate the political climate in those places, even if they only make up 55% of the electorate.
Even more than his support of the estate tax, I think the 'blue state' comment referred to Matthew's arrogance (e.g. "fuck the small businessman"). I have no idea where Matthew is from, but the quintessential 'blue stater' is a young urban sophisticate who votes Democrat and talks pretty much like he does. I guess the quintessential 'red stater' would be a small businessman from the midwest who votes Republican and goes to church every Sunday. Obviously this is a ridiculously over-simplified abstraction of American political and cultural life, but the schism is not entirely imaginary.
No DRB,
I am saying that the historical evidence PLUS current demographic projections make any expectations of spending cuts highly, highly unlikely. That's all.
Right now the evidecne shows that any tax cut simply means some other tax will have to be raised. Could the political/demographic landscape change dramatically so that spening falls in the future? Maybe, but I have seen no reasonable layout of how that can happen.
Tom G.-
The estate tax is (or should be) a real concern for most farmers. Most of the pro estate tax arguments here have focused on liquid assets-money. It makes the "Paris Hilton" argument more pallitable, she's getting so much money, why shouldn't she pay the government half. But everything gets appraised in an estate. Some people have rightly pointed out that this tax can be ruinous to people trying to hold on to a family owned small business.
The same point holds true for family farms. The land itself is taxable at fair market value as part of an estate. As cities and suburbs creep into what was once "rural" areas, the fmv of land is going up. It becomes harder for developers to find large enough chunks of undeveloped land for one more subdivision, golf course or strip mall, and thus the farm land becomes more valuable.
If you told Farmer Brown today that his land was appraised for 1 million dollars and he was being taxed for 500 thousand, he would probably reply that he didn't have that kind of money, didn't have a hope of having that kind of money and that no bank was going to loan him that kind of money. The same would likely be true for Farmer Brown Jr. on Papa's death.
Lisa
Lisa,
AFAIK there has not been one documented case of anyone losing the family farm over the estate tax. I could be wrong but that's what I have read many times.
The "family farm" issue is completely dealt with by raising the exemption. Which is something that should happen, since the estate tax was never intended to hit family farms at all.
GT, or anyone else in favor of the estate tax...
...can you give us a moral argument for why the government deserves the money more than the family that earned it? If you can do that without assuming the overall amount of wealth in the US is a fixed amount and without sounding envious, I'll be especially impressed...
Jane Galt: And where do you think the character traits that make them work hard come from?
Life's lottery, as former Missouri Rep. Dick Gephardt would say.
From MY's piece: "What about those sad folks forced to sell the family business? Don't cry for them."
Maybe you could cry for the employees?
"Here you are, you inherit a store worth $X."
Who gets to set that value?
"You owe $Y in taxes, with Y being less than X. So you are "forced" to sell the store, and accept "only" $X-Y as your inheritance."
Oh, so simple, said the man who knows nothing about it.
How many buyers are there for a family-owned dry cleaner, for example? Just because it is appraised for X, doesn't mean it will sell for anything like X, or that it will sell quickly enough to pay the tax. Businesses can sit on the MLS for years and years. Don't you understand that when the heir is forced to sell, that means he is usually forced to sell at a huge discount, because the buyers KNOW he must sell? Meanwhile, this heir who may or may not care bout running the business may let it decline in productivity... further depressing its value. In fact, much of the worth of a small business in real terms is the leadership, an intangible that the IRS never seems to grasp. They only look at revenue and assets, ignoring that the cash flow will almost certainly fluctuate as a result of the death of the owner.
"Note that X is a figure in the millions, and Y a small proportion of X."
But a figure in the millions is often an illusion. How much is a printing press worth? Or a silo? The 'book' says one thing, the market another. You can't easily move a silo, and the value of the purchase is affected by this difficulty. In spite of this, the IRS will declare a value regardless of reality.
As Sweeney above explained, there is a concept known as liquidity. Cash is liquid, a tractor is not. And there aren't an infinite supply of buyers for such things, no matter what people like abb1 think.
"This is a very good problem to have, abstracting away from the fact that someone you love has probably died and this is probably a bigger concern of yours that the tax bill."
Is it a good problem to have? To tell the employees you're selling the business in a hurry to pay the tax? To deal with vultures who want to give you 30% less than the IRS is valuing the business? To see you mom and/or dad's dream turned into a chaotic mess? Is it really a good problem to have? You say so because you know nothing of it.
Also, there may be siblings who may disagree with the disposition of a family business. (of course that's a probate issue)
"This is, in other words, a non-problem."
Only to those ignorant of the facts, like Wallster.
britain33: that last comment was a bit of sarcasm (obviously). you'll notice that on social security arguments, leftists talk about a "trust fund". they also yell at those of us who mention that it doesn't exist outside of accounting fiction. but all other arguments they discuss how payroll taxes go to general revenues. interesting. one could think that they were all lying thieves!
we (kapos) don't trust socialists (liberals, leftist, communists, whatever).
you will always raise taxes, not raise limits, and complain that no revenue is enough.
dog: you've said that we can simply raise the exemption. Yeah you can, but will you? will you do it frequently enough? will you attack people for creating a deficit by raising these limits in the future? have people in favour of taxes raised AMT limits in the past 30 years? oh, right, you are never in favour of a tax cut, or a slow down in tax growth, or people anywhere accumulating money.
the only assuyrance that the government won't take things (or that it will be hard) is if its illegal for them to do it. thats why people want estate taxes eliminated. sure there may be few farms captured now (although whether thats simply because of effective planning or a lack of farms or businesses that meet the criteria is another question), but look at real estate prices, look at the exempt limits, and look at how much faster the value of real estate is rising that the rate at which exemptions rise.
A better plan would be to eliminate deductability of state and local taxes. taht would raise hundreds opf billions of dollars. Why isn't MY (or dems) arguing for that? Oh it would raise taxes on the blue states!
but overall, taxes should be efficient and cheap to administer. estate taxes aren't on both counts. a flat tax on incomes with a significant personal deduction (20k) is the cheapest, fairest, most efficient tax. it would starve liberals and their social programs too, as the cost of government was obvoius, which is why they want lots of hidden taxes that "few people" or "the rich" pay. Stop stealing!
No reasonable layout? GT, if government spending does start to approach the levels your estimates are predicting, even the hard-core are going to eventually acknowledge that it's got to be reined in. Plenty of people think it's got to be reined in right now. Just as an example, Social Security used to be the entitlement that no one would ever dream of touching -- but just recently we had a President take a run at it. Is he going to be successful this time around? No way. But the fact that he was even willing to take a shot at it suggests something is changing. And in five years, ten years, who knows what might be politically viable?
You think it's stupid and unreasonable to believe that Americans will in the future accept spending cuts as a solution; I think it's stupid and unreasonable to rule that out.
I think it's unlikely that Americans will accept being taxed back to the Stone Age as a solution -- but I'm realistic enough to acknowledge that I could be wrong and I don't think someone who suggests it is stupid or unreasonable.
I think that this argument -- whether in the future we'll cut spending or raise taxes -- is something that smart and educated people can disagree on. I think that smart and educated people can agree that as the situation changes and spending starts to become a bigger and bigger part of GDP, attitudes could change and options that aren't being implemented today could in fact become viable. I think that smart and educated people can agree that as European nations creak and crumple under the weight of their own entitlement systems it will inform and change the American debate.
You don't believe that -- you just figure that anyone who doesn't share your view must be too stupid to understand what's going on.
Well, okay. I guess there's really not much point to further discussion then, is there? Thanks for proving Jane's point, and good luck catching flies with that vinegar buddy.
wow, lot's of action here... amazing how irrational the anti-estate tax people are! of course there will be some amount of taxing this gov't does. of that what is the proper blend of estate/income/sales/corporate taxes?
if you're making a 'moral' argument (which are really unpersuasive so far btw) against estate taxes, that's the same as making moral arguments for income/sales/corporate taxes.... so which is it that you support so much? if your moral arguments are genuine then let's hear the moral value of income taxes...
besides the moral benefit of income taxes, they really help an economy grow.
Really, Jim, I'd say that Brian's argument contains some fairly persuasive moral arguments...
Too many people just look at taxation with such a short-term mindset. The idea of "balance" has infected our culture. Consider the idea of the political center, which is really the center between two parties that are willing to accept slightly different levels of socialism. As many have said before, the only useful spectrum is from no government to tyranny.
The reason I bring this up is that the level of taxation and spending today is seen as the benchmark for what should be done, but it's completely arbitrary. It just keeps creeping up more and more, but it's based on nothing in the way of principles.
The level of revenue the estate tax brings is completely irrelevant. The idea that the government can take money that has *already been taxed* because someone dies is sick. Whether or not the children "deserve" the money should be the decision of the person who earned it. Do you really want the government to have this much power to take money at will? Why not tax us additionally at each multiple of 5 years? How about when a pet dies? When we attend more than 5 baseball games in a year? After all, who really *deserves* to go to that many games??
Happy Tax Day.
amazing how irrational the anti-estate tax people are! --jim
Speaking of which, f**k the small businessman. --Matt Yglesias
Jay,
I never said I supported the estate tax.
DRB,
I can imagine a lot of things. But I usually try not to confuse what is likely with what I wish for.
You haven't provided any scenario where spending will fall from current levels. You say that if spending rose a lot support to contain it would grow. Probably. That is not the same as cutting spending though.
Right now the reality is that there is no support to cut spening in any meaningful way. The GOP, and a conservative GOP at that, controls Congress and the WH and they passed the largest entitlement expansion since LBJ. And spending is only going to go higher.
Reality is what it is. You and Joan dreaming of a world where we cut spending may make you feel good but has no basis on reality.
That's why smart conservatives like Bruce Bartlett are already talking of a large tax increase. It's inevitable.
Hey, I am a tax professional and was doing estate work (not much, but some) when Matt Ygelsias was filling diapers (as opposed to blogs). The only thing that exceeds his bad-tempered envy of the truly productive is his ignorance of the subject.
The reality of the matter is that Little Matty is a 25 year old punk with a degree in Philosophy. As such, he's talking out his ass when it comes to anything and everything to do with estate taxation. And as a C-List pundit, he can talk out his ass without fear of consequence for gross incompetence. He has a crowd to play to, and quite frankly, they don't know anything about the subject either.
So the bottom line is as follows: This isn't about Matt discussing policy, it's about confirming and validity his public's already held prejudices.
The fact that he feels it necessary to shoot his mouth off about a subject that he knows absolutely nothing about is not only annoying to red staters, it is annoying to those of us who actually happen to know the subject and understand the practical difficulties that arise from the estate taxation for those who are actually productive and want to remain so.
Given that, there isn't really much to do than to note that Ms. Galt is completely correct. Little Matty and folks like GT can prattle on in full class-warfare mode until the cows come home; it will avail them nothing.
It's roughly akin to having to listen to Josh Marshall proclaim that George Bush has secret intentions of defaulting on trillions of dollars of government debt to bankrupt Social Security...We adults just roll our eyes heavenward, shake our heads and mutter "Whatever".
GT - For what it's worth, I've seen a family lose the family farm to the estate tax. In fact I've seen the same family bankrupted by the estate tax. The value of the farm land declined to less than half it's value for estate tax purposes. The farm did not produce enough cash to pay the interest due on the tax bill. No one would lend nor could we find anyone to buy. Three years after the death that triggered the tax, the government took possession of the farm and a 70 year-old women was forced to leave the home she was born in, the home she lived in with her husband, the home in which she'd raised her children, the only home she'd ever known.
"Screw'em!" I've seen it done and it's not a pretty sight.
David,
I know the GOP has been looking for such an example for a while. I guessed they missed it.
I haven't noticed any discussion of what happens to the economy and to ongoing income tax revenue if the estate tax goes away. It appears to me that whatever assets the state does not tax away in an estate tax are additional assets that will produce taxable income going forward. I'm not prepared to argue that this will replace all of the 'lost' tax revenue but it will have an impact.
GT-
Your concern for the "average taxpayer" and the "little guy" and the "poor farmer" and the "senior citizen", as demonstrated by response to David Walser's post, is as touching as it is revealing.
You and Matt seem to think that being overtly contemptuous of those you claim, at various times (when convenient), to represent and/or protect (in absentia) is somehow going to win the confidence of those same average taxpayers/little guys/poor farmers/senior citizens who would rather vote for any Republican, no matter how incompetent or corrupt, than those Democratic candidates you champion.
Did it ever cross your mind (such that it is) that the permanent sneer you wear might be offputting to others? Or were you too busy boning up on the Tax Code with Matty to give it any thought?
"In fact I've seen the same family bankrupted by the estate tax." come on.... that's self-contradictory
that is an example of the silly moral arguments used, similar to the class-warfare arguments on the other side.
"amazing how irrational the anti-estate tax people are! --jim
Speaking of which, f**k the small businessman. --Matt Yglesias"
demagoguing at its finest...
i am a small business owner and a very strong libertarian, but these are beside the point. what tax blend is most efficient for the economy, remembering that if you argue against one type of tax, you're for another?
dog: you've said that we can simply raise the exemption. Yeah you can, but will you? will you do it frequently enough?
I've stated that even a $50 million exemption, implemented today, doesn't overly compromise the estate tax's most important functions, the functions it was designed for when it was created. As far as raising it frequently enough, you could just index the $50 million to inflation; any discrepancy between growth in land value and inflation is far more than compensated by the enormity of the original $50 million. In fact, I find it unlikely that $10 million, the number I've been bandying about in most posts, is not enough, but this technicality really isn't that important. If the Democrats were rational, they'd be very flexible in negotiating these details.
The big picture is, the estate tax was never intended to hit family farms. Because it does, the current opposition to it is warranted, and everyone should be united in eliminating that problem. Once the exemption is raised enough to solve that, however, and the estate tax really only hits the super-rich, the anti-estate tax people need to explain why Thomas Paine was wrong in his advocacy of an estate tax to keep inherited economic power under control.
because i've asked for other people's perferred blending of taxes - here's my assessment
comparing an estate tax vs. income tax (i obviously don't like either, but the gov't will take $ one way or another, so i think it's most constructive to compare taxes) the majority of rich people are rich because their parents are rich, and once you're rich then your income is mostly from investments, savings, etc. savings are taxed at a relatively low level. why should a fortunate son get to inherit billions of $ for doing absolutely nothing besides being born to the right family not be taxed on this unearned income? wealth is already accumulating at the top in our economy.
whereas when you're a young person working at a high-paying job who is not from a wealthy family, then you probably have negative wealth (read student loans) but the highest taxes possible in our current system. it is that type of person who is most valuable to our economy because obviously he/she must have gotten there on merit.
t. heinz-kerry reported to have an effective tax rate below 15% while her husband argued for raising income taxes on the highest-income americans who already suffer from more than twice that, such as our proverbial industrious genius above. no wonder dems can't win.
the downside to estate taxes are the negative incentive to save, i'd balance that with a sales tax. the income tax is so ugly and complex, it just keeps talented people employed doing tax returns rather than something productive for the economy.
Jim, I'd be for a national sales tax (the FairTax plan put forth by John Linder). And I should note that with the investments I hold, this plan would actually hurt me by taking away many, many deductions. But I know that on the other hand it will boost the wealth and freedom of the country so tremendously that I'm all for it.
the anti-estate tax people need to explain why Thomas Paine was wrong in his advocacy of an estate tax to keep inherited economic power under control.
Ever hear the expression "shirtsleeves-to-shirtsleeves in three generations"? It's an American expression, but there are old Chinese and Irish proverbs which are curiously similar. It speaks to the overwhelming tendency for an entrepreneur's wealth to dissipate as it filters down through the generations, due both to disbursement among many heirs as well as the near-inevitable financial missteps eventually taken by those heirs. This tendency was noted long before the enactment of a U.S. Estate Tax in 1918.
I haven't read Paine (well, maybe a little in a high-school History class, but that was way back), so I can't speak to his specific concerns. But it seems to me that if you think inheriting a fortune that someone else made is a bad thing for the nation, it's incumbent upon you to explain why simply possessing a fortune that you made yourself is any different. If Bill Gates leaves his entire fortune to a single heir, that heir still doesn't have any more "economic power" than Bill did. Is the concern simply that the heir didn't earn it himself? It seems to me it's nobody's business who a billionaire wants to leave his money to.
If the concern is that Gates' fortune translates into political power, I don't buy it. More than anything, the super-rich and their business interests are high-profile targets for demagogues and regulators.
I have no problem with taxing inheritances, because an inheritance is income, as surely as wages, lottery winnings, or rental income is. There's no need to devise a special rationale to do so, though, and they're all specious anyway.
Ever hear the expression "shirtsleeves-to-shirtsleeves in three generations"? It's an American expression, but there are old Chinese and Irish proverbs which are curiously similar. It speaks to the overwhelming tendency for an entrepreneur's wealth to dissipate as it filters down through the generations, due both to disbursement among many heirs as well as the near-inevitable financial missteps eventually taken by those heirs. This tendency was noted long before the enactment of a U.S. Estate Tax in 1918.
I haven't read Paine (well, maybe a little in a high-school History class, but that was way back), so I can't speak to his specific concerns. But it seems to me that if you think inheriting a fortune that someone else made is a bad thing for the nation, it's incumbent upon you to explain why simply possessing a fortune that you made yourself is any different. If Bill Gates leaves his entire fortune to a single heir, that heir still doesn't have any more "economic power" than Bill did. Is the concern simply that the heir didn't earn it himself? It seems to me it's nobody's business who a billionaire wants to leave his money to.
One of the main reasons capitalism works is because it does a good job of distributing resources to those who can use it best to create value. By the very act of earning his fortune, Bill Gates has demonstrated that he's unusually good at using resources to create value. So it's efficient, from society's perspective, for him to possess his fortune.
However, his heirs may not be so skilled -- inheritance is worse than the free market at distributing resources to those who can best use them. Not only that, but the evidence indicates that overly large inheritances discourage creation of value. Now, the very very large majority of the time, the amounts are small enough that human concerns (a family member died, after all!) are a bigger deal than these matters. However, when we get in the range of massive >$100 million fortunes, the inefficiency resulting from inheritance as compared to Carnegie/Gates/Buffett-style philanthropy is significant enough to justify a tax to compel the latter type of behavior. While I understand the aesthetic appeal of the "it's nobody's business who a billionaire wants to leave his money to", in practice it does matter enough to create a specialized incentive structure.
With inheritances, yes, sometimes you'll have "shirtsleeves-to-shirtsleeves in three generations", but how much waste is happening on the way down? And, far more dangerous (and more to the point), heirs not as skilled as the patriarch at competing in the free market will disproportionately tend to want to limit competition and innovation.
I have no problem with taxing inheritances, because an inheritance is income, as surely as wages, lottery winnings, or rental income is. There's no need to devise a special rationale to do so, though, and they're all specious anyway.
I suppose the net effects of our positions aren't too different, even if I think the historical rationale isn't specious.
Dog - In addition to taking into account the disincentive to work a large inheritance might create, you should also take into account the incentive there is for the current generation to create something for their heirs. I work a lot in this area (wealthy families) and my experience is that once someone's personal wants are satisfied, it's often a desire to provide something for their family that drives them to be productive.
Would we want Bill Gates to have quit after he made his first $100 million? Well, if we (society) take everything above some threshold away, what incentive does someone have to produce more wealth? Taxing away ONLY some percentage of "excess" wealth only dampens the disincentive for wealth creation.
Would we want Bill Gates to have quit after he made his first $100 million? Well, if we (society) take everything above some threshold away, what incentive does someone have to produce more wealth?
The catch is, as far as I can tell, leaving such a huge sum for your heirs tends to be counterproductive. More to the point, Bill Gates himself thinks so too -- he's leaving $10 million to each of his children, since, in his own words, "I won't leave a lot of money to my heirs because I don't think it would be good for them."
If the only thing that would drive you to build a fortune is to gain the ability to enslave a hundred people to serve your whims, then I guess our current system loses your potential productivity. Very large inheritances are of course nowhere near as bad an example of wealth misuse, but the same principle applies -- the wrong incentive could be counterproductive in the final analysis.
I acknowledge that there is definitely room for debate here, though, and it's quite possible other American institutions are already sufficient for preventing an old European-style stagnant inherited aristocracy.
inheritance is worse than the free market at distributing resources to those who can best use them
...and taxation is better at it?!? Let's not imply that the tax revenue collected will be loaned to IBM or used to fund biotech startups or anything like that. Also, let's remember that it's a relatively small drop of revenue in relation to total Federal tax collections, and would b