Is Abolishing the Estate Tax

[AUman43 5]

Reward for the Hereditary Elite . . .

By Sebastian Mallaby

Monday, June 5, 2006; Page A15

It doesn't matter if you are liberal or conservative, Democrat or Republican. There is no possible excuse for doing what Congress is poised to do this week: Abolish the estate tax.

The federal government faces a future of expanding deficits. Thanks to the baby bust and medical inflation, spending is projected to rise by nearly 3 percent of gross domestic product by 2030, a growth equivalent to the doubling of today's Medicare program. What is the dumbest possible response to this? Take a source of revenue and abolish it outright.

The nation faces rising inequality. Since 1980 the gap between the earnings of the top fifth and the bottom fifth has jumped by almost 50 percent. The United States is by some measures the most unequal society in the rich world and the most unequal that it's been since the 1920s. What is the dumbest possible response to this? Identify the most progressive federal tax and repeal it.

The nation faces the prospect that inequality will damage meritocracy. When the distance between top and bottom widens, it becomes harder to traverse the gap; people of low birth are stuck at the bottom, and human talent is wasted. What is the dumbest possible response to this? Take the tax that limits what the super-rich pass on to their children and get rid of it. Send a message to hereditary elites: Go ahead, entrench yourselves!

For most of the past century, the case for the estate tax was regarded as self-evident. People understood that government has to be paid for, and that it makes sense to raise part of the money from a tax on "fortunes swollen beyond all healthy limits," as Theodore Roosevelt put it. The United States is supposed to be a country that values individuals for their inherent worth, not for their inherited worth. The estate tax, like a cigarette tax or a carbon tax, is a tool for reducing a socially damaging phenomenon -- the emergence of a hereditary upper class -- as well as a way of raising money.

But now the House has voted to repeal the estate tax, and the Senate may do the same this week. Republicans are picking up support from renegade Democrats, such as Blanche Lincoln of Arkansas, Bill Nelson of Florida, Ben Nelson of Nebraska and Max Baucus of Montana. Several more may go over to the dark side if a "compromise" bill, which would achieve nearly everything that abolitionists dream of, is introduced in the Senate. President Bush, who has already muscled a temporary repeal of the estate tax into law, would be delighted to sign a bill making abolition permanent.

If the abolitionists succeed, some other tax will eventually be raised to make up for the lost revenue. So which tax does Congress favor? The income tax, which discourages work? A consumption tax, which hits the poor hardest? The payroll tax, which is both anti-work and anti-poor? Really, which other tax out there is better?

The abolitionists don't respond to this question because there is no convincing answer. Paul Volcker, the former Federal Reserve chairman, has written that "we would be hard-pressed to find evidence that, compared with the alternatives, a reasonable estate tax significantly discourages work or innovation or savings." In other words, killing the estate tax and raising some other tax instead would damage the economy. And that's before you take into account the positive distortions introduced by the estate tax, such as more social mobility and higher charitable giving. Charitable bequests will fall by at least a fifth if the estate tax is repealed permanently.

People often remark on the perversity of popular support for estate-tax repeal. A majority wants to abolish the tax, even though only the richest 2 percent of households have ever had to pay it. Yet this shoot-your-own-foot weirdness is easily explained: Most people just don't know that, under the law's current provisions, a couple can bequeath $4 million without paying a penny to the government.

But I'm fascinated by the spectacle of elite support for this policy. How can the president and the abolitionists in Congress, who understand the tax and its details, possibly want to kill it? They all say they accept the principle that the tax system should be fair -- Bush officials are constantly claiming that their tax cuts are progressive. They all accept the principle that free trade and competition get the best out of American firms, so what about subjecting rich heirs to competition from ordinary Americans?

Repealing the estate tax is like erecting protectionist barriers around the hereditary elite. It is anti-meritocratic and unfair -- and antithetical to this nation's best traditions.

LINK

smallaby@washpost.com

[DKW 86 7,429]

PLease tell me that you postd this as a total joke...

It is obvious that you and the author have never had one economics course in your lives. This article is so full of holes that I just dont have time to refute each and every one.

Lets pick a few of the big ones:

Presley Estate loses 73% of value due to Estate Taxes.

Look, the funds in an estate are:

1) Taxed as Income, whether from labor, rents, profits, or dividends. If they are profits they already likely taxed as corporate income then taxed further as personal income, dividends, etc.

2) Taxed as assets gaining in value, capital gains taxes, further dividend taxes, taxes on interest, interest on 401(k)s either future or present, etc.

3) Taxed again at Death.

You work like a dog all your life. You pay your payroll taxes. You work 2-3 jobs. You sacrifice to provide for your family. You play fair and by the rules. You invest and do without. You scrimp and save and do without. You accumulate a little bit of money in your passbook savings plan and then the Feds come and tax your interest earned.

So you buy into some assets, whether cash, bonds, stocks, assets, real estate, etc you buy into them and struggle mightily to invest and keep them maintained etc. The Feds then tax you again, either now or later. You begin to wonder why save at all?

You struggle all your life, you pass on your assets to your kids and then the Feds come again and bend them over the table and rape them openly and tell them they are bad folks for their parents being such good people and saving and sacrificing for their kids.

The 1980 date is picked because of the 70% marginal tax rates being lowered in 1981. Sly trickster the author is...

Or as Ayn Rand said ...

Why is it immoral for you to desire, but moral for others to do so? Why is it immoral to produce a value and keep it, but moral to give it away? And if it is not moral for you to keep a value, why is it moral for others to accept it? If you are selfless and virtuous when you give it, are they not selfish and vicious when they take it? .... It only stands to reason that where there's sacrifice, there's someone collecting the sacrificial offerings. Where there's service, there is someone being served. The man who speaks to you of sacrifice is speaking of slaves and masters, and intends to be the master.

[DKW 86 7,429]

http://www.outsidethebeltway.com/archives/...e_tax_nonsense/

Estate Tax Nonsense

By James Joyner

Sebastian Mallaby posits that, “It doesn’t matter if you are liberal or conservative, Democrat or Republican. There is no possible excuse for doing what Congress is poised to do this week: Abolish the estate tax.”

This is a rather odd position to take for something that has wide, bipartisan support among both the American people and their elected representatives [The House voted 272 to 162 for the phase-out in April 2005]and the opposition to which can not even muster a sufficiently sizable minority to mount a credible filibuster.

For most of the past century, the case for the estate tax was regarded as self-evident. People understood that government has to be paid for, and that it makes sense to raise part of the money from a tax on “fortunes swollen beyond all healthy limits,” as Theodore Roosevelt put it. The United States is supposed to be a country that values individuals for their inherent worth, not for their inherited worth. The estate tax, like a cigarette tax or a carbon tax, is a tool for reducing a socially damaging phenomenon — the emergence of a hereditary upper class — as well as a way of raising money.

Of course, the estate tax has not actually succeeded in this goal. Names like Bush, Kennedy, Rockefeller, DuPont, and others remind us of that. Indeed, of the top ten people on the most recent Forbes 400 list of richest Americans, five spots are taken by the Walton Family. The Cox and Mars families are getting by, too. One suspects that, a couple decades hence, so will the Gates, Buffett, Allen, Dell, and Ellison heirs.

If the abolitionists succeed, some other tax will eventually be raised to make up for the lost revenue. So which tax does Congress favor? The income tax, which discourages work? A consumption tax, which hits the poor hardest? The payroll tax, which is both anti-work and anti-poor? Really, which other tax out there is better?

An income tax only “discourages” work if it is so graduated as to be confiscatory. The days of 90 percent, or even 70 percent, tax rates on the upper reaches are thankfully over. (The Carter Years) And a consumption tax can certainly be targeted so that food, medicines, and other basic necessities are omitted with “luxury” items hit at a steeper rate. And the payroll tax–i.e., the Social Security tax–exists solely to provide for the poor; the very wealthy surely do not need the government pay them a retirement stipend.

People often remark on the perversity of popular support for estate-tax repeal. A majority wants to abolish the tax, even though only the richest 2 percent of households have ever had to pay it. Yet this shoot-your-own-foot weirdness is easily explained: Most people just don’t know that, under the law’s current provisions, a couple can bequeath $4 million without paying a penny to the government.

Perhaps Americans simply understand a basic principle: Earnings belong to the earner, not the state. Microsoft pays corporate taxes and Bill Gates and Paul Allen pay hefty income taxes on their shares, in addition to various sales taxes and fees. The idea that the state has the right to take another huge chunk of their money when they die, rather than allowing them to pass it on to their children, simply strikes most of us as outrageous.

Update: Bruce “McQ” McQuain provides a libertarian defense of an estate tax repeal, including a quote from Ludwig von Mises. The upshot, though, is that Mallaby and his ilk are concerned about social re-engineering rather than raising revenue for government.

[TexasTiger 12,956]

Please tell me you posted this as a joke:

You work like a dog all your life. You pay your payroll taxes. You work 2-3 jobs. You sacrifice to provide for your family. You play fair and by the rules. You invest and do without. You scrimp and save and do without. You accumulate a little bit of money in your passbook savings plan and then the Feds come and tax your interest earned.

So you buy into some assets, whether cash, bonds, stocks, assets, real estate, etc you buy into them and struggle mightily to invest and keep them maintained etc. The Feds then tax you again, either now or later. You begin to wonder why save at all?

You struggle all your life, you pass on your assets to your kids and then the Feds come again and bend them over the table and rape them openly and tell them they are bad folks for their parents being such good people and saving and sacrificing for their kids.

So you don't understand economics, the real world, or estate taxes.

[CCTAU 3,328]

Please tell me you posted this as a joke:

You work like a dog all your life. You pay your payroll taxes. You work 2-3 jobs. You sacrifice to provide for your family. You play fair and by the rules. You invest and do without. You scrimp and save and do without. You accumulate a little bit of money in your passbook savings plan and then the Feds come and tax your interest earned.

So you buy into some assets, whether cash, bonds, stocks, assets, real estate, etc you buy into them and struggle mightily to invest and keep them maintained etc. The Feds then tax you again, either now or later. You begin to wonder why save at all?

You struggle all your life, you pass on your assets to your kids and then the Feds come again and bend them over the table and rape them openly and tell them they are bad folks for their parents being such good people and saving and sacrificing for their kids.

So you don't understand economics, the real world, or estate taxes.

239206[/snapback]

Head, meet sand.

It must be nice living near you. I mean with all your good heartedness, giving away every penny you have to the lazy and poor. Sure wish I lived near you so I could be equal with you while doing less.

Hypothetically speaking!

[DKW 86 7,429]

Tex, I have posted before, the average Millionaire in the US is something like 90-95% likely to be first generation wealthy.

Besides Tex and AUman, all the wealthy do is create a Trust and dodge the tax altogether. There are two-bit ways around this incredibly unfair tax and they are utilized daily.

This is just Lib "Class Warfare" crapola. Tex I will openly give you the truth on the Gay Marriage Bans being "Turn the Troops Out" But this is just the Lib version of it. The estate tax is just taxing income for the third and fourth time. It is criminal to say it is righteous. Reps use the social issues just like the Dems do.

Gay Marrige Issue = Estate Tax, Pure but from different sides.

[TexasTiger 12,956]

Please tell me you posted this as a joke:

You work like a dog all your life. You pay your payroll taxes. You work 2-3 jobs. You sacrifice to provide for your family. You play fair and by the rules. You invest and do without. You scrimp and save and do without. You accumulate a little bit of money in your passbook savings plan and then the Feds come and tax your interest earned.

So you buy into some assets, whether cash, bonds, stocks, assets, real estate, etc you buy into them and struggle mightily to invest and keep them maintained etc. The Feds then tax you again, either now or later. You begin to wonder why save at all?

You struggle all your life, you pass on your assets to your kids and then the Feds come again and bend them over the table and rape them openly and tell them they are bad folks for their parents being such good people and saving and sacrificing for their kids.

So you don't understand economics, the real world, or estate taxes.

239206[/snapback]

Head, meet sand.

It must be nice living near you. I mean with all your good heartedness, giving away every penny you have to the lazy and poor. Sure wish I lived near you so I could be equal with you while doing less.

239220[/snapback]

You realize that in that scenario you're saying you are the lazy and poor, don't you?

[AUman43 5]

I suppose your philosophy embraces the fact of leaving the Walton Kids some 80Billion$ while the national debt is approaching or passing 8 Trillion.........maybe so..... And yes, I had economics in college, both undergraduate and graduate....

[BamaGrad03 0]

I suppose your philosophy embraces the fact of leaving the Walton Kids some 80Billion$ while the national debt is approaching or passing 8 Trillion.........maybe so..... And yes, I had economics in college, both undergraduate and graduate....

239325[/snapback]

OF COURSE...because his philosophy is RIGHT.

I dont care if they have 80 trillion dollars...that money has been taxed and taxed to death.

Everybody say it with me "AMERICA IS A DEMOCRACY NOT A SOCIALIST GOVERNMENT"

AUman43, your ONLY argument is that because they have more than the average middle class family...they should be taxed more...and more often.

By definition that is SOCIALISM.

The liberal democrat way: "you got 5, i got none, give me one"

And what do they do? They roll out the tales of how the rich people live. "They have big houses they dont need and big ole swimming pools and maids...while poor ole bubba joe cant feed his family" So what. Who are they to judge what is reasonable for someone else to own?

Every rich person isnt born with a silver spoon...and every poor person isnt the product of unlucky circumstance.

And frankly it doesnt matter if they inherit the money or not. That money has ALREADY been taxed many many times. And "thats a whole lotta money and we got a big debt" is not a valid argument.

Its an awfully slippery slope you get on when you begin to define what is excess and what isnt for someone else. Since it isnt YOUR money and you dont have to part with it...its easy for you to say "give me some of it".

AUman43...do you own a car? If so...it must be nice to be so wealthy. Maybe you should donate your car to the "liberal democrats give working people's stuff to lazy folks so we can get reelected" fund and take the bus...because afterall...you dont NEED your car...many people would say you are uber wealthy.

[CCTAU 3,328]

The liberal democrat way: "you got 5, i got none, give me one"

Like hell. They want four. You can afford it.

[DKW 86 7,429]

I suppose your philosophy embraces the fact of leaving the Walton Kids some 80Billion$ while the national debt is approaching or passing 8 Trillion.........maybe so..... And yes, I had economics in college, both undergraduate and graduate....

239325[/snapback]

1) 8 Billion on a 8 Trillion Debtr is chicken feed.

2) Deficits are all bad. I say we have a balanaced budget amendment tommorow. THink I could find a Dem that would support it?

3) If you had the classes you say you did, either you had poor instructors or you never went to class. You simply do not have a grasp on REAL economics. You certainly have a good grasp on the POLITICS of economics.

[AURaptor 1,125]

The nation faces rising inequality. Since 1980 the gap between the earnings of the top fifth and the bottom fifth has jumped by almost 50 percent. The United States is by some measures the most unequal society in the rich world and the most unequal that it's been since the 1920s. What is the dumbest possible response to this? Identify the most progressive federal tax and repeal it.

So which is it? The purpose of taxes is to fund the running of the Gov't, right? But when a Gov't becomes TOO large and intrusive, and the hunger for more $$ becomes more and more ravenous, it seems that 'equality' becomes the clarion call for those on the Left.

People, rich or poor, don't really mind paying taxes to a Gov't that doesn't abuse its power and is responsible w/ the revenues raised. But this excessive soaking of the achievers for the purpose of 'making things fair' is going well beyond any Constitutional duty of the Gov't.