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Feb 27, 2007

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DrFrankLives

Thanks for the link.

jc

the death tax is problematic for me because if I work all my life, I have already paid taxes on this money. Why should I have to pay taxes again? Why shouldn't I be able to leave all that I have worked and saved for, to my children?

Ed Cone

It's possible that not all of the assets in an estate large enough to qualify for the estate tax been been taxed. For example, there could be substantial capital gains on assets (say, Wal-Mart stock or real estate) that pass from generation to generation.

Beyond that, there is a philosophical argument about enormous hereditary wealth, social obligation, and the health of a society.

I think the solution is to raise the tax-exempt estate to a level that reflects current reality on middle class home values, business values, and asset accumulation -- certainly the $600K prior to the current round of changes was too low.

Bubba

"Why should I have to pay taxes again? Why shouldn't I be able to leave all that I have worked and saved for, to my children?"


Because that would defeat the entire premise of wealth redistribution and social engineering that the Death Tax is designed to accomplish.

Ishmael

While we're on the subject - why don't we take it to the extreme?

I don't know why the wealthy should have to pay people at all. In fact, let's bring back slavery! It created vast amounts of wealth and benefitted...well, we know who it benefitted. Why should the wealthy have to pay any tax at all? More money for them to distribute throughout society in the form of high wages, excellent health care, reduced poverty, as well as better golf courses for everyone to play on.

Trouble is, in the past few years the wealthy have gotten wealthier while health care, education, and the incomes of the lower wage earners have gotten worse. The middle class is barely holding on to old gains. Something in the scenario of lightening the tax load on the extremely wealthy to benefit the rest of the country does not compute.

The upper 1% might not be demonized so much if they worked harder to keep their business operations in the good OL' US of A and stopped trying to just make money for those people who invest in the stock market. Innovate, keep jobs in the US, and get the hell out of politics. Paying taxes should be the least of their worres - living in a strong and vital country where the children are well fed, housed and educated should be the primary thing on their minds because that is the role of a good citizen.

Roch101

I agree with Bubba, it is social engineering, as Ed practically admits--that the health of a society, as it might be envisioned, is better served if we don't have inherited aristocracy. But that is really the nut of the question, not whether or not it is social engineering. Rejecting something because it is social engineering would require that Bubba line up against drug laws, marriage laws, immigration laws and a slew of other laws that have as a consequence the shaping of society.

The left and the right are both, at times, in favor of or against social engineering through law depending on the issue, so it is really superficial to argue against the estate tax because it affects the structure of society. I would suggest that the meaningful way to address this issue is to ask do the societal benefits outweigh the negatives?

Bubba

"Rejecting something because it is social engineering would require that Bubba line up against drug laws, marriage laws, immigration laws and a slew of other laws that have as a consequence the shaping of society."

Only if you take it to extremes, as the Death Tax does.

Wealth redistribution is extreme.

Doug H

"Wealth redistribution is extreme."

Excuse me? Even I have to chime in here. Any social engineering is extreme for the individuals affected.

Sheesh.

Roch101

It's extreme if I don't like it, acceptable if I do.

Ed Cone

Bubba, are you saying the estate tax is extreme because of the rates involved, or by its very existence?

Doug H

That's about what it boils down to, Roch, I agree.

But if you can't get married because the "State" doesn't permit it, that's pretty extreme. Or immigrate here legally, or whatever. I'm trying to be considerate of others here, and think on an individual-case basis. But I guess that'll make me a bleeding-heart liberal. :)

PotatoStew

"Wealth redistribution is extreme."

All taxes are wealth redistribution. So at face value this statement seems to label all taxes as "extreme".

Bubba

"Bubba, are you saying the estate tax is extreme because of the rates involved, or by its very existence?"

Yes.

Regarding your earlier statement re: "....drug laws, marriage laws, immigration laws and a slew of other laws that have as a consequence the shaping of society."

Those laws generally have valid purposes to protect society.

What valid purpose does the Death Tax have to protect society?

Bubba

"All taxes are wealth redistribution."

Not in the sense of being punative and confiscatory, as is the case of the Death Tax.

The Death Tax addresses a volume of wealth, rather than its method of accumulation.

Ed Cone

The value of the estate tax is the same as any other tax: raising revenue to pay for government services.

A secondary value ascribed by some would be a check on dynastic forces that might threaten democracy and meritocracy.

Doug H

Society needs protecting? Oh, yeah, from:

Fire and brimstone coming down from the skies. Rivers and seas boiling.
Forty years of darkness. Earthquakes, volcanoes...
The dead rising from the grave.
Human sacrifice, dogs and cats living together - mass hysteria.

(Courtesy "Ghostbusters")

Bubba

"The value of the estate tax is the same as any other tax: raising revenue to pay for government services."

Then why wait until the time of death to tax "estates"?

Let's make it an annual affair, similar to property taxes.

The CA

It is the taking of property without due process, that's what is wrong with the estate tax. A person should be able to leave his or her property to whomever they want. The property has already been taxed by the government once, under what theory are they entitled to more? Why should a person be forced to escheat their property to the government when they die? It's socialist, pure and simple.

By the way, has anyone here benefited from money received from a trust ? Are any of those same people now arguing in favor of a higher estate tax or railing against inequality? Just a question for your consideration.

DrFrankLives

Without due process? Did you even go to law school? Or did you order that degree over the intertubes?

Ed Cone

And as noted above, the double-taxation argument may not apply in some cases involving appreciated assets.

Jim Caserta

By the way, is any of this discussion different from a generalized debate of the estate tax? Did anyone read the linked article? I liked the indictment of the media (and those who watch):

Here's the thing about the system of news coverage we have today. If the Walton family, or Lee Raymond, or the heirs to the Mars fortune actually needed the news media to work better than it does now, believe me, it would work better. But they have no such need, because the system is working just fine for them as is. The people it's failing are the rest of us, and most of the rest of us, apparently, would rather sniff Anna Nicole Smith's corpse or watch Britney Spears hump a fire hydrant than find out what our tax dollars are actually paying for.

Ed Cone

The change in topic is a subtle gesture of concession, as one sees so frequently in these threads.

A discussion of the actual issue -- tens of millions or even billions of dollars in appreciated assets passing untaxed unto generations, even as average Americans face cutbacks in services they want and need -- would not be a very pleasant one for the dynasts and their pawns.

David Boyd

I still can't believe the Republicans missed the compromise last summer that would have raised the exemption to a few million and lowered the rates. They probably could have even indexed the thing for inflation.

Bubba

"A discussion of the actual issue -- tens of millions or even billions of dollars in appreciated assets passing untaxed unto generations, even as average Americans face cutbacks in services they want and need -- would not be a very pleasant one for the dynasts and their pawns."

Translation: "Wealth redistribution and social engineering is good for you, and you will like it, (whether you like it, or not) and we're not above pandering and telling lies to get you to swallow our line."

Good work, Ed.

Doug H

Wow, how off-the-mark can you get?

Ed: Rich people would be unhappy explaining to 98% of Americans how they get to pass on "appreciated assets" (look it up) while the rest of the country struggles.

Bubba: You're a dirty socialist who wants "social engineering."

"Four legs good, two legs bad!" (look that one up, too)

Jim Caserta

I don't think the republicans want a comprimise, they want complete elmination.

Almost every dollar we spend gets taxed twice (or more) - once as income, then with sales taxes, and other taxes like property or vehicle taxes.

Not to get completely off topic, but I'd like for our tax system to get more complicated. I'm pretty good with #'s but every year I am boggled by the "goto page 37, if you qualify, then completely recompute tax", loops.

David Boyd

I know they want complete elimination. So do I. But, damn, when you're going to get something that's going to help 90%+ of the people affected get rid of the burden altogether, including the small businesses that are at the center of this thing, take it and argue principle later. Especially given that you had an election coming up in a few months that even in June was obvious was going to be tough.

Bubba

"Wow, how off-the-mark can you get?"

For starters, write a post like yours.

Good boy, Astro.

Debra

Its not the death tax, its the Paris Hilton tax. The estate tax affects only estates of considerable size (presently, over $2 million, and over $4 million for couples) and provides numerous credits that allow a significant portion of even large estates to escape taxation.

DrFrankLives

Debra - you're right.

And all the stories about family farms and businesses being lost to the Paris Hilton tax are, in the main, untrue, as there are provisions to avoid those consequences. Such as the formation of an LLC and family trust.

Dave Dobson

Where is it written that you get to leave a pile of cash to your heirs? In feudal and even industrial Europe, where our system has its roots, ONLY the wealthy and the aristocrats got to do that - nobody else owned much of anything of value.

What about a 100% estate tax, with some reasonable (couple of million dollars? Ten million?) deductions for homesteads, farms, heirlooms, and gifts, and 100% deductions for charitable contributions or foundations? I really don't see a problem with that, other than the rich would never let it pass.

The criticisms raised here and elsewhere (double taxation, social engineering, socialism) strike me as merely a weak defense of aristocracy and unearned wealth. Earned wealth, from hard work, is supposed to be the American dream, I thought, not living in mansions and yachts from birth and having your parents leave you $100 million and five Ferraris.

David Boyd

I find it mind-boggling that people feel no shame advocating empowering the government to take 100% of someone's wealth when they die.

Ed Cone

If that was the proposal, I would find it mind-boggling, too.

But since he actually said something different ("reasonable (couple of million dollars? Ten million?) deductions for homesteads, farms, heirlooms, and gifts"), I merely find it over-zealous.

Bubba

"I find it mind-boggling that people feel no shame advocating empowering the government to take 100% of someone's wealth when they die."

After so much of that sort of thing, its become the expected routine.

We will just have to find and distribute an immortality elixir to to whomever wants it, thus forcing the Death Tax Drumbeaters to be intellectually honest about their social re-engineering quest/wealth re-distribution scheme.

Until them, we will most certainly have to bear hearing these same lame justifications from these same folks.

Percy Walker

If there is an elimination of the estate tax, there would also be an elimination of the stepped-up basis that Ed has referred to a couple of times in this thread. I wonder what the revenue reduction amount would actually be after factoring in the increase in capital gains tax revenues using a carry-over basis.

As for the Taibbi article's listing of the savings to a number of wealthy families, it seems misleading. His source is a Bernie Sanders speech. Is Sanders just assuming that the Walton and Mars, et al. families would not deploy any of the tax avoidance options available to them under current tax law?

Bubba

"Not to get completely off topic, but I'd like for our tax system to get more complicated."

Can we assume you meant "less complicated"?

Bubba

"As for the Taibbi article's listing of the savings to a number of wealthy families, it seems misleading."

It's just a diversion from information like this.

Excerpt:

"A 1994 study found that the estate tax’s 55 percent rate at the time had roughly the same disincentive effect as doubling an entrepreneur’s top effective marginal income tax rate. The estate tax has also been found to impose a large compliance burden on the U.S. economy. Some past economic studies have estimated the compliance costs of the federal estate tax to be roughly equal to the amount of revenue raised—nearly five times more costly per dollar of revenue than the federal income tax—making it one of the nation’s most inefficient revenue sources."

But what the heck.....why let a little something like that stop the proponents of the Death Tax from trying to fulfill a cherished social agenda item?


The CA

There is no theory I can think of other than Socialism that justifies taking the property one person earns or accumulates over a lifetime and giving it to someone else regardless of the size of the estate. This debate is about philosophy, not the details. There is no substantive difference between 100% or 20% or 5%. The estate tax is statism, and offends liberty and property rights. The purpose of government is not to make people equal, or even more equal in a free society.

Bubba

This discussion has been centered on the Federal death Tax. Let's take a look at the implications of states' Death Taxes.

Noteworthy:

"Estates that are too small to trigger the federal tax can easily rack up thousands of dollars in state death taxes and probate costs. With the reduction of federal estate taxes, state death taxes are increasing. Many states are imposing new estate taxes to make up for the revenue lost from the discontinued federal state-tax credit. Some states also have expensive and lengthy probate systems that apply to an increasing number of estates."

It's important to note that increased state taxes of all types were an unintended consequence of the federal tax reductions, generally attributed to the greed of those who raise taxes on this level.

Dave Dobson

CA -

The estate tax does not suggest "giving it to somebody else" - that's being deliberately silly. If you're going to run a government, you need tax revenue. The estate tax gets some of that revenue from those most able to pay, and excludes the other 99.5% of us who aren't that wealthy. That makes sense. You're not going to make it not make sense, regardless of whether you call it the death tax, socialism, or satanic goat raping.

Andrew Carnegie, arguably America's richest person ever aside from John D. Rockefeller, and one of our most successful capitalists, once said:

The parent who leaves his son enormous wealth generally deadens the talents and energies of his son, and leads him to a less worthy life than he otherwise would.

And also, he wrote in The Gospel of Wealth:

Why should men leave great fortunes to their children? If this is done from affection, is it not misguided affection? Observation teaches that, generally speaking, it is not well for the children that they should be so burdened. Neither is it well for the State....For it is no longer questionable that great sums bequeathed often work more for the injury than for the good of the recipients.

Full text here: The Gospel of Wealth

The dude knew wherefrom he spoke - he grew up poor in 1830's and 1840's Scotland, where inherited wealth had a long, pernicious history. Rockefeller also started out similarly poor, and also became a great philanthropist.

Joe Killian

I would argue there is, in fact, a substantive difference between 100% and 5%.

I'm not known for my math acumen, but I feel pretty comfortable with that assertion.

DrFrankLives

The CA is an absolutist. Until he's not.

Dave Dobson

OK, I said the 100% thing to make a point - obviously, that's not a politically tenable position. But really, what are your kids going to do with $200 million, or $10 billion, that they can't do just as well with $20 million?

DrFrankLives

Dave:


this.

Now THERE's a societal good. Who cares about feeding the poor, caring for the mentally ill, building proper floodwalls around New Orleans, health care insurance, roads, police protection, a functioning military (all those are just redistributions of wealth.)

What America needs is a good entrenched upper class with more money than they could ever spend in 1,000 lifetimes.

Percy Walker

To the CA's point -- and to repeat what Ed has already said a couple of times -- there is a substantive difference between 5%, 20% and 100%. People can die with assets that have never been taxed. The heirs then get a stepped-up basis so that the increase in value over the lifetime of the decedent is never taxed and never will be taxed unless (1) captured under an estate tax or (2) the stepped-up basis rule is removed. Who knows what the capital gains tax will be when you finally sell an asset, but if appreciated assets in an estate are not taxed at least at the 15% rate, then you are actually creating a death windfall, not a death tax.

meblogin


....geez....why not eliminate most charitable deductions...talk about spreading some wealth...gold mine. Uncle Sam knows what to do with our dollars...right?

These people being helped...same ones with the color TV, DVD's and so on?

The CA

As I said, this is a philosophical debate. Before one can decide what policy to have, one must first decide whether there should be a policy in the first place.

Percy, the assets will be taxed 1) when they are spent by the heirs, 2) as property tax, 3) as capital gains tax for gains made during the time the property is held by the heirs. Even if there is a windfall, so what? There is a windfall to those who aren't subject to the estate tax and receive property.

Again, this is about philosophy. At what point does the government have the right to say "you have too much, therefore we will make you give up part of your inheritance even though we don't make everyone do this"? And how do you reconcile this with the Constitutional provision against taking of property without due process of law? Dr. Frank, since you seem to have a problem with this, do you really believe the framers intended to exempt the estate tax from the takings clause? I know what the Courts have said about this, but does that make it right? How is the estate tax not a "taking"?

All the arguments about the "greater good" surely occurred to the framers as well, yet we had no estate tax until 1916. Further, if the "greater good" is the argument to be advanced, why wait until death? Why not just take it now? I realize that would prevent John Edwards from building his mansion, but if you really want a wealth transfer, just take it now. That would provide instant equality, right?

I for one am far more interested in the philosophical debate than the details. Debating the details is only conceding the validity of the tax in the first place, which is something I am not willing to do.

The CA

Dave, if you are interested in generating more revenues to spend on social programs for the greater good, then I suspect you favor tax cuts because they have resulted in increased revenues everytime they have been implemented. If you are merely interested in getting even although it means less revenues for the programs you desire, then by all means, you want to oppose tax cuts.

Dave Dobson

I'd love to see you justify that with real data - it's the most backwards argument I've ever heard politicians make. You have to presume that the dollars you don't tax somehow exponentially grow themselves in taxable ways in the economy. So, if I cut taxes in half, I actually create quadruple the income base. I don't see Bush's tax cuts causing the economy to grow enough to offset them, do you? Economic growth was much larger under Clinton than under Reagan or the current Bush. Or are you arguing that tax cuts wait a decade to take effect until there happens to be a Democratic president?

Even if I'm willing to accept your premise, which I'm not, the tax cuts AND the hypothetical additional income go to the wealthy folks who've had their taxes cut, not to lower-class and middle-class folks whose dollar-for-dollar quality of life increase is vastly greater than that of the wealthy. You still have the same distribution of wealth issue that the estate tax addresses well.

Percy Walker

Death taxes existed well before the Constitution was ratified and Congress itself passed a legacy tax in 1797 while the Framers were still alive and kicking. Given this history and the fact that the power of Congress to tax is explicitly set out in the Constitution, I don't understand how the 5th Amendment could even be thought to bar an estate tax. I also don't understand the idea that the estate tax doesn't apply to everybody. Everybody is subject to the same $2 million exemption and everybody has to pay tax on amounts above $2 million.

All of the philosophical arguments presented against estate taxes apply equally to income taxes. Arguing at that level get us nowhere. We need revenue and we need a tax system that is as efficient as possible and properly aligns incentives and disincentives.

The problems with the estate tax are: (1) it has little effect on inequality in a knowledge economy, (2) it encourages costly avoidance behavior, (3) it raises only a modest amount of revenue and (4) it reduces incentives to form family businesses and other entrepreneurial activity. Also, if one of the aims of the estate tax is to reduce the effect of inheritances on inequality, then it doesn't tax the right base. The heirs, not the estate, should be taxed.

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