Wealthy members of U.S. society have succeeded in shifting the tax burden from themselves to the middle class by a careful choice of words. An estate tax is only paid when large estates are passed to heirs. However, in renaming it as the death tax, many poor and middle-class voters support its repeal. In the process, the government loses revenue that is typically offset by increases in other taxes and fees, the burden of which falls disproportionately on the middle-class and poor.
It is astounding how people vote against their current self-interest because of an illusory perceived future benefit.
Joseph Schumpeter's Business Cycles
-
Business Cycles
The link above takes you to a pdf file of Joseph Schumpeter's book.
14 years ago
This tax needs to go away and never come back. It destroys jobs, ruins small businesses, lines the pockets of life insurance companies in a sick corporate welfare scam, and has never produced more than 2% of the federal budget. The only reason anyone supports it is because they are die hard hold outs to a discredited class warfare ideology. Get the facts at www.estatetaxtruth.org
ReplyDeleteMichael,
ReplyDeleteSo what is your plan for raising sufficient revenues to fund the government services that society collectively demands? The projected U.S. budget deficit for 2010 is $1.4 trillion. Can you specify that much in combinations of tax increases and spending cuts? It is easy to favor tax cuts. It is more difficult to demonstrate fiscal responsibility.
Perhaps voters vote more based on the principle of the matter (the penalty on a transfer of property should be avoided after death), as opposed to perceived economic benefit.
ReplyDeleteMaybe voters are more rational than you consider--maybe they judge the potential revenue loss (in terms of crowding out, or other fees and taxes to be raised) against the cost of the estate tax: unproductive activities to avoid estate tax ("estate planning"), estimated job loss (170K-200K), and reduced capital formation. Of course, voters may not be able to express their opposition in these terms, but many base their opposition in rhetoric which may be derived from these points.
No one has a true view of the big picture at all in regard to the estate tax, or, more correctly stated, death tax.
ReplyDeleteI heard one prominent supporter say that with his expemptions, applied to each of his two children, his little girl can inherit 3.5 million dollars tax-free. But if I and my spouse die, my little girl can inherit only 1.4 million tax-free cause she has more siblings to share with.
Is his girl more deserving than mine? Perhaps, as a spouse can inherit without obligations (and rightly so), immediate family members should be granted the same status, or at least a meaningful substantial exemption.
Or should a new spouse of six months have a substantial advantage over grown children as far as taxation goes? Think about fairness.
Estate tax is not fair, at least the way it is structured.
Two wealthy men may have arrived at a point where they leave a substantial estate. One bought Yahoo and made a killing. When he sold his stock, he paid only 15% capital gains, and his estate is cash rich (Did you know the hedgefund operator who earned three Billion in 2007 and paid only 15% tax?).
The other man labored for forty years sixteen hours a day with help of his sons, building a small business, which at his death had nearly 100 employees. He paid the union salaries and benefits, payroll tax, bought health and welfare for all non union employees, hired accountant services, cleaning, paid rentals, utilities, lawyers, insurance companies. In short, generated employment, acted as a bank (credit) to his customers, and produced huge tax revenues for the government. Millions yearly, if one adds up all the income of every employee and contractor - including his personal income tax obligations paid, not at 15%, but the top IRS rate.
Now the estate includes the book value of the business with its equipment, assets, and accounts recievable. But will the IRS accept that as the value? Oh no! - - lets add what the business might make for the next five,six or seven years. Now a business that was worth
Let's say 7 million is now valued at 35-50 million. Can the estate come up with tax on that? No way! Can the kids keep the father's business going--with that kind of debt? IRS says we'll take decedents home, bank accounts, and other assets right now.
Does the 2nd man's little girl get anything near what Yahoo's little girl gets? Maybe a tenth? Maybe his watch?
Liquidating the business to try to pay part of the tax puts 100 on unemployment as they scramble to look for a new job. Also The accountant, lawyer and service providers suffer. The small retailers who used the business as a bank (credit) hope to find another source. The government has lost a well established rich source of revenue for a short-term one-time confiscation.
Class warfare says the rich can afford it.
Since 70 percent of US employment comes from small business, should there not be fairness in a death tax that penalizes small family owned business? 'Should the yacht-cruising Wall Streeter who never paid more that 15% tax and produced nada be treated the same?' Now there's class warfare! !
In all seriousness, an estate tax IS a death tax. It should be repealed, or should be adjusted to reflect the tax rates at which the estate was accrued. And the business should be evaluated at book value for tax pourposes so that it can survive and continue to produce income and taxes for years to come.
Loathe tho I am to even suggest it, a small incresed tax on earnings of a family business would seem better than the unjust unfair death tax.
Exellent post great stories news.
ReplyDelete