Though I Side with Carnegie on the Justification, I Know for Sure that I Side with Roosevelt on the Policy
So much to talk about these days:
The London arrests (can we have them go get Osama, dang)
The London shooting of the innocent Electrician guy.
The Space Shuttle Program
Bolton the Terrible may also be Bolton the Perjurer…Hmmmmm…
The Minnesota Twins (sigh…it was a good run)
The fact that I just hit the 100 mile mark on my bicycle (and I’ve only had the cyclometer for two weeks; yes, I’m still fat, but…to be fair, it took more than two weeks to get fat)
My tendency to crave attention and praise
The fact that I’m eating a Dilly Bar as I type this (totally serious)
Instead, I’d like to talk about the estate tax.
Roosevelt formally proposed a federal inheritance tax in a message to Congress on December 4, 1906. His reasoning is quite different from Carnegie’s. Carnegie thought that the wealthy had a particular obligation to the poor. Roosevelt thought that the wealthy had a special obligation to the government itself. “The man of great wealth owes a peculiar obligation to the State, because he derives special advantages from the mere existence of government.” The wealthy individual needs to pay for the “protection” that the State provides for his or her property ¾ a military force that defends private property from foreign threat and a legal system/police force that protects private property from domestic theft. Roosevelt is echoing Adam Smith’s observation in the Wealth of Nations: “It is only under the shelter of the civil magistrate that the owner of valuable property can sleep a single night in security.”
The estate tax hits 1% of households.
The House voted to repeal it.
The Senate has blocked past efforts, but will vote on it soon.
Bush has indicated he will sign it.
Bush is in the top 1% of households.
Sometimes a coincidence is just a coincidence.
The estate tax produces approximately $85 billion in revenue each year.
If you repeal it (hold on, now, I’m fittin’ to decipher) the government will lose approximately $85 billion in revenue each year.
One Minnesota scholar wrote a letter to the editor arguing, “no problem, we could offset the lost revenue with a reduction in spending.”
That scholar might not understand that we are in a war (which tends to impact government spending by…well…making the government spend more).
I would also direct the scholar’s attention to the reality of current government spending (we’re seeing record deficits!).
On an unrelated note, the Energy bill contains between 3 and 15 billion in tax cuts for big oil (depending on whom you ask it’s either bad or comically bad).
On another unrelated note, gas prices are very high; and big oil is seeing record profits.
On a further unrelated note there is a provision in the Energy Bill to get an additional $1.5 billion to an oil and gas company that just happens to be in the home district of The Just and Honorable Tom DeLay (man, oh man, if I had a hammer!).
But sometimes a coincidence is just a coincidence.
On another unrelated note, there were reports last week that the gap between rich and poor has widened to a point not seen in 6 decades.
Let ‘em eat pork?
On a fourth unrelated note, only an absolute idiot pays the estate tax.
Here’s my reasoning, first, you have to be in the top 1% of household in terms of net worth. Those folks tend to be fairly savvy (but not always). Second, in spite of your savvy, you have to decide not to do estate planning (with a professional) at all. Third, in other words, you have to pretty much be willing to pay the tax and do it out of the kindness of your heart. Or you have to write your own will and completely blow it. Or you have to forget. Or you have to die on the way to your estate planning appointment, or you have to accidentally sign the documents with invisible ink, or…
Here’s a helpful hint/public service announcement: just to be on the safe side, if your net worth exceeds $500,000, then spend a few hundred bucks and hire someone to do your estate planning.
I’m told that there are some family farms with a net worth that qualifies them under the tax. Well, there are lots of simple options for these folks too. For example, for about $50 (in most states) you can incorporate. Oh, there’s lots of ways to avoid the tax, you just have to be willing to try.
By the way, has anyone ever seen a family farm lost due to the estate tax? Anyone? Anyone? If you want a crisis on the family farms, I’ll give you one: kids don’t want to farm their parents’ land. There’s a crisis for you.
Last, commentators and proponents of repealing the estate tax love to argue that “even though it doesn’t impact the average family, Americans favor repealing the death tax because they see it as fundamentally unfair to tax people when they die.”
Wow, that’s genius.
Did you catch it?
First of all “it doesn’t impact the average family.” Hmmmm…okay…unless our taxes go up to offset the lost revenue, or unless the deficit grows at a faster rate.
Second, you have to admire the guts in calling it a death tax. We’re taxing you because you died. Almost makes it sound like they’re taxing gasoline. Not quite. It really is more of an inheritance tax. So, the widow J.P. Moneybags has $300 million dollars and 3 kids. She decided not to take advantage of any of the thousands of laws that already exist to make sure that her heirs and assigns aren’t taxed to the poor house and left to soldier on with only about $180 million bucks. After a night of caviar and champagne, poor J.P. buys the farm when her mink stole gets caught in the door of her Bentley and strangles her to death. She is laid to rest in an exclusive cemetery with all the modern conveniences. Her mausoleum is a spacious 1200 square feet and made out of granite that was raise and cut by migrant workers. As she is lowered to the ground, no tax follows. As J.P.’s estate is resolved and money is about to be transferred to the three kids – BAM, then comes the tax, and instead of getting $100 million each for winning the birthplace lottery, they get $60 million. And, just to carry on the absurd hypothetical to its practical conclusion, what do you think each heir has after about 5 years of sound financial planning? That’s right…about $100 million. Pardon me…it’s just that I get so upset…the tears are real, friends; the tears are real. Death tax or estate tax, granted, it’s a subtle distinction, but the real-life differences are profound. In the real world, the transfers tend to take place before J.P. dies. It’s how all the Walton kids got so dang rich (well, that and union busting).
Third, as long as we are eliminating unfair taxes, can we get rid of all regressive taxes and those stupid airport convenience fees and bizarrely usurious rental car taxes? In other words, in a world where the working poor pay taxes, I’m not sure my war against tax injustice begins at the J.P. Moneybags level.
My whole point is…what is my point? Oh yeah, my whole point is that repealing the estate tax is largely symbolic. One more gift to the rich from our friend W.
But the implications to the middle class are not symbolic. In fact, they’re very real. No one should imagine that Bush is going to repeal this tax on the upper 1% and then tax the upper 1% somewhere else. It ain’t gonna happen. It ain’t. Someone will pay the freight. All we’ll know if Bush signs the repeal is that it won’t be paid by the wealthiest.
[Closed Circuit to my readers whose net worth is not in the top 1%: watch your wallet!]
In conclusion, here’s a (dated, but) wonderful article on the estate tax.