Carol Platt Liebau: Abolish the Death Tax

Monday, June 05, 2006

Abolish the Death Tax

The Washington Post's Sebastian Mallaby believes there is "no excuse" for abolishing the death tax.

Really? How 'bout the fact that it's just wrong?

Everything taxed by the death tax has been taxed at least once before. Why, simply because someone has died, is the federal government entitled to put its hand in his pocket a second time?

What's most remarkable about Mallaby's piece is its assumption -- that government is as entitled to peoples' money as they are. People of good conscience can certainly disagree about the merits of inheirited wealth, but that's a far cry from decreeing that, because one doesn't favor it, there's "no excuse" for the government not to implement his or her policy preference.

Apparently, Mallaby sees the death tax as a great social equalizer. It's noteworthy that he sees the equalizing in terms typical of the left: Rather than trying to put in place policies that will help those with less have the opportunity to gain more, it's just faster and easier to take away from those who have earned more and want to pass it on. It's a little bit like using plastic surgery, not to make everyone beautiful, but to make everyone plain. There. Good. Now we're all the same.

And despite Mallaby's stated concern about the erosion of the meritocracy, it's hard to believe that there will be no more Howard Schultzes (who grew up in a housing project) or even Bill Gateses if the death tax is abolished. In fact, what promotes ingenuity and meritocracy is the absence of government "equalizing" schemes, not a profusion of them.

There's no law that prevents billionaires who are suspicious of inheirited wealth from donating their money -- either to charities or, if it's their desire, to the US government. Let them do it if they want to, just like the liberals who always want tax increases should feel free to pay over and above their tax bill. (Funny how that never happens.) But as for the rest of Americans, let them decide for themselves, please. There's hardly a government entitlement for a second bite at the taxing apple.

By and large, Americans oppose the death tax, because at a visceral level, most understand that one of the primary reasons for "getting ahead" is to ensure that one can provide (in some cases, handsomely) for one's children. That desire is natural and it's good. It shouldn't be thwarted by those who believe it's their right to take from some twice in order to give to others.

25 Comments:

Blogger RovingWireTap said...

This comment has been removed by a blog administrator.

1:06 PM  
Blogger wrabkin said...

This is simply ludicrous. The tax is not on the dead person, it's on the estate -- paid by those who inherit.

But according to Republican logic, if you work hard to make $40,000 a year, you should be taxed.

But if you don't work and inherit $40 million, that shouldn't be taxed.

Because Republicans hate the people who do the work. Those icky people with dirty hands. They don't deserve to get ahead.

The only worthy ones are the rich. They deserve everything. Everything. Everything.

1:39 PM  
Blogger Greg said...

Wrabkin,

Get a grip, man. You're losing it.

1:48 PM  
Blogger wile e coyote said...

RovingWireTap and wrabkin are entitled to their opinions, but should, as a courtesy to the rest of us, make an effort to inform themselves before taking up time and cyberspace with their opinions.

RovingWireTap: The applicable exclusion (exempt amount) is currently $2 million. This exlcusion can get used up quickly if you have a modestly sized family business/farm, or die young with a house and substantial life insurance. And obviously, if anybody with more than $3 million could avoid the tax with a crafty lawyer, no Estate Taxes would ever get paid. Such is not the case.

Wrabkin: The tax is imposed on the estate, which has to file an estate tax return. Those who inherit do not pay the tax, but they might have to take their property subject to the tax. For a family business owner, this often means mortgaging the farm or business to get the cash to pay the tax.

Your other comments about earnings are also off base. At some point the money that generated the $40 million you mention was taxed. While you may have images of trust fund babies sitting on verandas eating bon-bons, the fact is that the vast majority of estates that pay estate tax belong to people who worked hard to earn money (paying income tax on it), denied themselves to save the money, and worked and took risks to invest the money (often paying income tax along the way).

There are serious policy positions on both sides of this debate. Maybe venting feels goods, but it makes your position (and you, for that matter) less credible.

2:15 PM  
Blogger Dr Faust said...

This comment has been removed by a blog administrator.

4:54 PM  
Blogger wrabkin said...

I'm now a Republican. So from now on, I don't have to pay sales taxes -- because I have to pay them out of money that's already been taxed!

And I don't have to pay property taxes -- because I have to pay them out of money that's already been taxed.

And I don't have to pay to register my car (the "car tax" in Repub lingo") -- because that money has already been taxed, too.

Also -- liquor taxes. Cigarette taxes. (Hey, I don't smoke, but I can buy them for my mother in law!) How about the taxes on my phone bill? Naw, all that's paid out of money that's already been taxed, so I don't have to pay it!

Oh, no, wait. The only time -- THE ONLY TIME -- that this exemption comes into play is when it applies to the two or three hundred wealthiest families in America. Because I can afford to be taxed over and over, while their heirs might have to forgo their ninth yacht.

Oh, and this nonsense about selling the family farm? There is not a single documented case. You got evidence, you prove it. Otherwise, it's just a lie -- and part of the huge marketing campaign bought and paid for by five families with billions of dollars at stake... a huge marketing campaign aimed at morons.

Congratulations, suckers.

5:54 PM  
Blogger wile e coyote said...

"effective rate" and "not an issue" are terms requiring considerable unpacking.

I suspect that the estate-tax returns in the study you cite would show zero taxes paid when a first spouse dies and the marital deduction shields the first spouse's estate from tax.

When the second spouse dies, the estate tax can then take a considerable bite. There is currently an actuarial "overhang" of surviving spouses (mainly widows) from the generation of the parents of the Baby Boomers whose demise will trigger considerable estate tax.

If we use the numbers you cite, and assume that every couple with enough money to pay estate tax takes advantage of the marital deduction(through proper planning), then the tax bite on the couples's estate should be approximately twice the average rates you cite, in other words, 20% and 40%. These are not small amounts, particularly since the source of that money has already been taxed once when earned, subjected to the risks of investing and taxed on an ongoing basis where the money has generated interest/capital gains.

Arguing that the estate tax should be preserved because it raises little revenue seems internally contradictory. I would agree, however, that for the time and effort spent collecting the tax (and planning its minimization), the estate tax is an inefficient means to raise revenue.

This said, the vigor with which people fight to get the tax repealed suggests the tax remains very much an issue, even with proper planning. Normalizing your own data for couples, rather than individuals, supports this argument. (By the way, using median rather than average figures might be illuminating.)

6:07 PM  
Blogger wile e coyote said...

Here is a family farm example:
http://news.findlaw.com/prnewswire/20060501/01may20061129.html

A quick Google search will show that the family farm / family business issue is a political ping pong ball, so if anyone is aware of an impartial study of this matter, a link would be helpful.

The estate-tax is imposed under Congress's power to levy taxes directly on the income of individuals. From an income tax policy perspective, one should not tax income twice. This makes income tax different than sales or property tax, the fairness or efficacy of which can also be debated.

There is a pure policy question whether an estate tax is even properly an income tax (which Congress can levy) or a direct tax on the property of individuals (which Congress has no consitutional power to tax). The Supreme Court, rightly or wrongly, has decided that the Estate Tax may legitimately be considered an income tax. I don't see the Supreme Court revisiting this issue.

Dr Faust can probably cite from the study he read how many estates had to pay estate tax. It will be considerably more than 300-400 wrabkin estimates. Moreover, when the trust fund babies wrabkin so despises go to buy their ninth yacht, they will have to pay sales tax on it.

The Alternative Minimum Tax was enacted to catch the two or three dozen millionaires who paid no income taxes in a given year. Decades later, this tax has been catching hundreds of thousands of middle class families. (The Republican Congress recently enacted changes to the AMT to prevent this.) The Estate Tax is no different; it was "sold" to the public as a tax on Vanderbilts and Rockefellers and has reached will into the middle class; the current exempt amounts are very recent, large increases that revert to $1 million in 2011, with the rate going back up to 50%

The WSJ discusses estate-tax repeal efforts.http://online.wsj.com/article/SB114946486603871066.html?mod=opinion_main_review_and_outlooks

If the estate-tax rate is amended to equial the long-term capital gains rate, then the estate-tax will function as an income tax on those who inherit, and would make more policy sense.

I see that wrabkin considers anyone who disagrees with him on this issue a "moron" or a "sucker"

How comforting.

6:38 PM  
Blogger Mr. Twister said...

Not suprisingly, Carol decides to kick this thread off with a lie. We read, "Everything taxed by the death tax has been taxed at least once before."

As Carol is surely aware this is a bald-faced lie. The vast majority of taxes brought in by the estate tax are on items that were never taxed at all. The capital gains from Wal-Mart shares, for example.

Also not surprising is the willingness of some posters to eat the big plate of poo Carol is dishing out. Yum, yum.

7:31 PM  
Blogger Bachbone said...

I see it has taken the commenter (just above) a few short months, after Carol's warning to clean up posts or risk being banned, to resume his usual, brilliant, ad hominem attack, masquerading as argument, and sewer-level descriptive shtick MO. Tsk, tsk, tsk. Childish and boorish, but to be expected from such deep thinkers, I guess.

Now, re: capital gains taxes: Everyone gets the same tax write-off on a portion of them. If someone has a large portion of their portfolio in such investments, it stands to reason they will gain proportionately more. So what? The class warfare card is getting as old as the race card and recognizable in leftists' hands by its dogearedness.

8:10 PM  
Blogger wrabkin said...

Sorry if Mr. Rzafft (sp?) misunderstood me. I certainly never meant to say that anyone who supported estate tax repeal was a moron or a sucker.

Carol, for example, has very good reasons to support the repeal. As do George Bush, Dick Cheney, Don Rumsfeld, the Walton family, and a few hundred others.

What I meant to say is that anyone who supports the estate tax repeal and doesn't have an estate worth at least $10 million is a moron or a sucker.

Although I did love that one poster who wrote that he hoped to become rich some day, and he'd hate to have that fortune taxed, so he wanted the tax repealed.

Because he can't quite put two and two together and realize that since no one is actually going to cut government spending, that money is going to come out of someone's taxes. So he's shifted the burden from his fantasy life to his real life.

This is what's called a sucker.

8:10 PM  
Blogger Mr. Twister said...

Wow, I mean, just wow. Rzafft has managed to find a Press Release from the primary anti-Estate tax lobbyists where they give a single example of a family that didn't lose their family farm due to the estate tax. Color me impressed, Rzafft.

Hahahahahaha.

Rzafft, there is no actual debate on the underlying facts here. Neither WIPP (the aformentioned lobbying group) nor the anti-Estate tax American Farm Bureau can find an actual example where a family farm was lost due to the estate tax. If the main reason for repealing the estate tax was its effect on family farms, you would think someone somewhere would find an example where the estate tax were truly an issue.

8:11 PM  
Blogger wrabkin said...

Sorry if Mr. Rzafft (sp?) misunderstood me. I certainly never meant to say that anyone who supported estate tax repeal was a moron or a sucker.

Carol, for example, has very good reasons to support the repeal. As do George Bush, Dick Cheney, Don Rumsfeld, the Walton family, and a few hundred others.

What I meant to say is that anyone who supports the estate tax repeal and doesn't have an estate worth at least $10 million is a moron or a sucker.

Although I did love that one poster who wrote that he hoped to become rich some day, and he'd hate to have that fortune taxed, so he wanted the tax repealed.

Because he can't quite put two and two together and realize that since no one is actually going to cut government spending, that money is going to come out of someone's taxes. So he's shifted the burden from his fantasy life to his real life.

This is what's called a sucker.

8:11 PM  
Blogger Dr Faust said...

This comment has been removed by a blog administrator.

8:21 PM  
Blogger dodger said...

The estate tax does not fall into any category of taxation where the source of revenue for the fisk is related to the activities of the fisk. Property taxes, for example, are related to government services that enhance the value and use of the property. Sales taxes are related to the infrastructure provided by government that makes retail activity possible. Tariffs are imposed in order to have foreign producers contribute to the support structures in the country where their goods are sold. Estate taxes are not related to any contribution of government to dead people. Hence, death taxes are simply grave robbing. Taking from the dead. During life the decedent paid taxes in the forms noted above, there is no basis to say that those taxes were not enough, more must be extracted after death. As to capital gains, there is a theory that says if one has a house it may increase in value but upon sale there is not income, merely conversion, conversion from real estate to cash. This concept is recognized in what are known as section 1031 exchanges where real property, for example, is exhanged for real property and no tax is extracted. In conclusion, Carol is correct re estate properties already having been taxed.

9:09 PM  
Blogger wile e coyote said...

Fellow Bloggers,

I was asked to provide one example, and, in my opinion, I did.

The citation I gave contained the following: "The Clawson family had been farming southwest Illinois since the 1870s. Prudent and skilled, they had managed to expand their farm over the years so that, by the time their properties were incorporated into a land trust in 1977, they had four plots in all. Yet when the aunt who had established the trust passed away in 1996, the estate tax on the property came to $1.2 million. The Clawsons were forced to break up their farm, selling two of its plots, on which stood historic farm houses."

If "lost" means Grapes of Wrath-like foreclosures, then this doesn't qualify; but having to sell big chunks of the farm, looks like losing to me.

I also explicitly mentioned how politicized this issue is. Just because I referenced an anti-estate -tax website doesn't make the reference incorrect any more than if wrabkin or others referenced an anti-estate-tax-repeal website.

Here is what appears to be a dispassionate discussion of the effect of estate tax on the family farm: http://www.ers.usda.gov/publications/aer800/aer800.pd. The paper states that presently, most farms are able to avoid estate tax, but with results that skew their behavior and that of the market for land as well.

The thought of Farmer Smith and his wife losing the homestead tugs at the heart strings but is certainly not the whole of the estate-tax debate.

I don't know how statistically robust dr faust's survey of his wealthy acquaintances is, but they are welcome to donate their extra income to charity. Or to give it to me c/o Carol.

Finally, wrabkin, if voting for the Republicans in the hope they would control spending makes one a sucker, then I am a 6'2" Tootsie Pop.

10:00 PM  
Blogger dodger said...

It was a Roosevelt who dreamed up the estate tax. It was believed that wealth was evil. The theory was that in three generations a family could/should go from rags to riches to rags. In other words it was designed to do exactly what it does. Create hardship, sell off family farms, etc. That doesn't make it right because, after all, wealth is not evil.

Now, as to the capital gains tax. If I pay $100 for some real estate and later sell it for $200 the simple answer is that I have $100 of income, subject to income tax. In reality there has been a conversion, namely the $100 had the same buying power when I bot the property as it has today when I sold it for $200. Proof: in order to reacquire the property I would have to pay $200. So, I ask, have I really gained? Answer: no.

10:49 PM  
Blogger Dr Faust said...

This comment has been removed by a blog administrator.

11:09 PM  
Blogger dodger said...

doger,

You can apply the same to any equities investment.

I buy a share of Apple for $ 20. Two years later I sell for $ 120. If I want to buy it back the next day, I probably have to pay $ 120 for it. So did I make a return on my investment? Do you still say no?

Of course, why would the fact that its equities change the thesis?

Some European countries already have adopted the thesis. Which doesn't necessarily make the thesis right, but ....

War is expensive. What a revelation. I didn't know that. Well, hell, we better not have any wars, right. Just kidding. Ben Hogan was once told that, Ben, its at least 110 degrees in the shade out there. To which Ben replied, well, then, better stay out of the shade.

11:23 PM  
Blogger RovingWireTap said...

This comment has been removed by a blog administrator.

12:41 AM  
Blogger wile e coyote said...

I hate to be the one to break it to you, rovingwiretap, but you don't know what you are talking about.

Federal estate and gift taxes are calculated and imposed on the estate and on the giver, respectively, not the beneficiary.

Do you really believe FDR was trying to move the tax burden off the wealthy? Then why he was so loathed by rich Republicans and so beloved by the working man?

8:58 AM  
Blogger wrabkin said...

Here's the hilarious thing about the estate tax:

The dead don't pay it.

See, the dead, they're dead. As in, dead. They can't pay a tax because it's so hard for them to write a check, what with their fingers stiffening up and all.

And since the tax isn't imposed until they're dead, then it's going to be paid by the person who would otherwise get the entire estate.

That is, the living guy.

Is that really so hard to understand?

1:46 PM  
Blogger wile e coyote said...

One last time.

The estate tax is imposed on the estate of a dead person. The dead person's Executor/Personal Representative (if named in a Will) or the court-appointed Administrator (if the person dies without a Will) must gather the dead person's assets and file and pay debts and applicable taxes.

Example 1 -- In 2006, a widow dies leaving an estate of $10 million to her son the billionnaire corporate raider whose annual income is $200 million per year. Estate tax is imposed on $8 million ($10 million - $2 million) at a 46% rate.

Example 2 -- In 2006, a widow dies leaving an estate of $10 million equally among her 20 children who all work for minimum wage at a soup kitchen for the homeless. Estate tax is imposed on $8 million ($10 million - $2 million) at a 46% rate.

Because the estate tax is imposed on the estate (with the Executor/Personal Representative/Admiistrator filing the return and writing the check), the tax result is the same. If the tax were imposed on the beneficiaries, their differing incomes and differing amounts of inheritance would result in a different amount of tax being paid.

I hope the above clarifies how the estate tax works.

8:49 PM  
Blogger wrabkin said...

Rzafft:

I'm sorry, are you claiming that the problem with the inheritance tax is that it's TOO PROGRESSIVE?

It's amazing how far you have to reach to defend a morally bankrupt idea like abolishing the estate tax.

9:01 AM  
Blogger wile e coyote said...

I was trying to demonstrate to you that the estate tax is imposed on the estate of a dead person and not on the beneficiaries.

The examples I gave indicated how the estate tax can be REGRESSIVE.

I suspect that, having been flat wrong in your understanding of the mechanisms of the estate tax, you are now trying to change the subject.

You claim that abolishing the estate tax is "morally bankrupt" but have done nothing in this long string to prove it.

I think we are beating a dead horse and would propose we agree to disagree.

If you want the last word, have at it.

9:16 AM  

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