Monday, July 31, 2006

Senate should vote against inheritance tax cut.

Several weeks ago I wrote a post about Congress' attempts to get rid of the inheritance tax. In the post I pointed out that the new limits of $5 million per individual and $10 million per family would be more than adequate to save farms and small family businesses. It is really about the plutocracy wanting to be able to pass on more future taxes and deficits to everyone else's grandchildren.

I wrote at the time,

They had in fact wanted to eliminate the tax entirely, but were prevented from doing it last year because the vote was to be taken just as the Katrina images were coming out of New Orleans and Americans would have been outraged by a tax cut for dead rich people when the bodies of dead poor people were being collected on sidewalks. And this year, there is an election coming and the Republicans are reading the poll numbers. So, there is only one year there will be no estate taxes at all-- in 2010 due to old legislation passed during the earlier rounds of Bush tax cuts. But it will still be back in 2011 (Wonder, in the event that they don't get a permanent repeal passed, whether in December of 2010 we will see a bunch of billionaires move to Oregon and get themselves declared terminally ill and get lethal injections?) and that is a good thing. With the new limits, any further estate tax cut would be clearly a tax cut aimed at plutocrats (which there are many of in Congress, and many more in Congress who have been wined, dined and given airplane rides by plutocrats). The case can be made that this cut was as well, but luckily it stopped short of going all the way.

And they are still pushing at it. Having failed to get it through on a straight up or down vote, Congressional Republicans attached it to the minimum wage bill going through the house. Now, I'd have no real problem conceptually if they, for example, wanted to give small businesses a tax break in order to prevent them from laying off any workers (although the list of jobs in America that are worth $5.15 an hour but no worth $7.25 an hour is a very short list indeed), but that isn't what this is about at all. It's a way to try and sneak their inheritance tax cut through on an unrelated bill.

And the Senate should stop this turkey cold. It may be necessary to raise the minimum wage on a state by state basis (possibly by referendum) and this may not be a bad thing-- although the current minimum wage is too low in every state, an argument could plausibly be made that a living wage in, say, Connecticut is significantly different from a living wage in Arkansas. However, getting rid of estate taxes is a bad idea, a tax cut for the super-rich that Americans as a whole realize that we will all have to pay for in the future, foolish in the face of enormous deficits, and the Senate should vote to defeat this bill, whatever else it may or may not have in it.


Chuck said...

Well Eli, I hadn't seen this entry when I posted mine up last night, but, as you know, I certainly agree. Thanks for the [TIC] comment!

Steve B said...

I'm on the fence on this issue. And you're not going to like most of my reasoning. But even though I'm never going to come even *close* to hitting the Estate Tax barrier during my lifetime, I feel very strongly that it's one of the worst taxes on the books.

There are two basic views of taxation: The first view is that taxes should be directly proportional to the wealth of the payer. This is exemplified by flat tax rates with few dedutions, and is, IMHO, fair. (We have a flat income tax here in Pennsylvania. It works extremely well, and has always boggled me that we don't do this nationally...)

The other view is that people should be taxed disproportionally based on their ability to pay. In other words, the richer you are, the higher a percentage of your wealth you ought to pay. This is the way most of our federal taxes currently work and is, IMHO, unfair. It's basically a Robin Hood scheme of stealing from the rich to give to the poor. Nice idea for the poor, but it's still stealing from the rich no matter how you pretty it up.

The Estate tax is, by far, the worst of the lot. Because what it does is futher disproportionally tax the rich, on wealth which has *already* been disproportionally taxed when it was earned. Under the laws before they started tweaking the Estate tax, and depending on which state they live in, a rich person's heirs could conceivably inherit as little as 25% of what you earned in their last year of life, the rest of it going to pay for various and sundry taxes. That's, IMHO, grossly unfair.

Sure, repealing the estate tax would be effectively a tax cut for the rich, but it's a tax that NEVER should have been implemented in the first place.

The only reason I'm on the fence on this issue is that they haven't cut spending to match. I'm opposed to tax cuts without equal cuts in spending. Spending is already *way* out of hand, and this won't help. Until they include that in the repeal, I can't support it. But it really needs to be done sooner or later -- they just need to do it the right way.

Eli Blake said...


Let me hit the nail on the head then and give you the most direct, honest answer I can:

Given that the new limits on taxable estates protect pretty much all farms and small businesses (once a business hits this level it is no longer a 'small' business), and that many European countries tax estates at much higher rates than we do (and are no worse off for it)

why SHOULD the rich person's heirs get all of the money? They didn't earn it (if they had, then the rich person had the right to make them partners or otherwise pay them what they earned in wages). All allowing these large sums of money to pass from one generation to the next does without taxation is continue what is effectively an American caste system of class and birth-based plutocracy. And the rich person's heirs have already benefitted a great deal from their wealth, having been born and grown up with it, and in many cases having gone to school financed by it. That already puts them ahead in the game of life of someone who was born into a household that had nothing.

Leaving aside the racial connotations of this (since rich people tend to be whiter than poor people) the whole concept of 'social Darwinism' embodied in just handing large sums of wealth from generation to generation smacks of the whole royalist system in Old Europe that our founding fathers fought a war to get us away from.

If you honestly support such a system, then either you support affirmative action (perhaps income based?) to help those whose birth wasn't so lucky to get on an equal footing, or else you would be guilty of the worst kind of hypocrisy.

Also, a rich person can still duck the inheritance tax, even to 100% of it-- by giving it to charity. So there is a very good case to be made that having it encourages philanthropy.

Steve B said...

I'm afraid we're just going to have to disagree completely on this one. I don't believe in redistribution of wealth. You apparently see it as a zero sum game, where if rich people keep their money and pass it on to their descendents, poor people have no chance to earn more. If you truly believe that, then nothing I can say will ever convince you.

I, on the other hand, see it as a positive sum game. The rich can keep their wealth, and the poor can still raise themselves up and become wealthy if they apply themselves to it. Those without wealth in this country have plenty of opportunity to build wealth without having to steal it from the rich, which is effectively what you're advocating.

I kind of have to see it that way. My parents were poor. None of us went to special schools. None of us got any big breaks. None of us were given special advantages. When I was 17 and my dad died, he left us nothing. But every last one of us managed to work hard and been fairly successful. The opportunities are there if you want to take them.

cpmaz said...

Steve - you write "I don't believe in redistribution of wealth."

I agree with that in principal, but you fail to acknowledge that the current system is *all* about redistribution of wealth - from the poor, working, and middle classes to the wealthy.

The repeal/reduction of the estate tax would be supportable if instead of being tied to a minimum wage increase, it was tied to true campaign finance and government ethics reform.

The kind of reform that takes corporate and PAC out of the political process entirely and severely limits the amount of money individuals can give to candidates.

The kind of reform with severe penalties for violations, such as prison, permanent ineligibility for office at any level, and forfeiture of assets (think: RICO applied to politicians and corporations).

The kind of reform that isn't going to happen anytime soon.

cpmaz said...

Arrghhhh - must learn to proofread better!!

Not "principal", but "principle"


Eli Blake said...


I'm not sure that this is 'redistribution of wealth.' No one is suggesting taking it away from the rich person while they are alive, and the ultimate 'redistribution of wealth' comes when they die-- everyone enters the next life with the same amount of money. Even all that gold that was buried with the pharoahs has only become loot for centuries of grave robbers to plunder.

It is not 'redistribution of wealth' to say that a person who had the good luck to have the best background growing up, now must start at the same place where you did, and work hard to succeed, just as you did. In fact, given the $5/10 million limits, they will still start out much higher on the ladder than you did. Mostly, the people who are behind this are the Wal-Mart heirs, who apparently feel gypped that they are worth 'only' $20 billion apiece after the estate of their late father was reduced by inheritance taxes. What did they do to earn it? Nothing at all. But they sure have been spending it to get this one bill passed in Congress.

Steve B said...

I think you're seeing this only from the point of view of the heirs. What of the people who earned the money in the first place? *They* want to pass on their money to their children, too. (And if they don't, they can make a will to pass it elsewhere...)

If I scrimp and save and work hard to earn lots of money (and yes, paid taxes on every red cent I earned...) in my lifetime, I want to pass that effort down to my kids. I don't want it stolen away from them just because I happened to die.

The typical argument which comes back to that is "well, there are plenty of ways to pass the money on in advance to avoid the estate tax - lots of loopholes to take advantage of." But that's a silly argument because it basically means anyone who isn't clever enough to weasel their way out of the estate tax through loopholes *deserves* to lose their money. In other words, you're taxing stupidity, not wealth.

I'd rather get rid of the estate tax *and* the loopholes and put everyone on an even, flat, everyone treated *exactly* the same, footing.

Either that, or we make the estate tax across the board (again, getting rid of loopholes), whether you pass on one dollar or a billion. That would be fairer than what we have now, although it's still taxing the money twice...

Eli Blake said...

And you can still pass on $5 million to your kids, or $10 million if you are couple. Even if you had twelve kids and then got into a messy divorce and your ex gambled it all away and has nothing to leave them, that makes $5 million/12 = $416,000 plus to pass on to each kid before a penny of taxes is collected. Not chump change at all. And even after that, a tax is only a percentage, so that most of it still ends up going to heirs even if you start taxing 50% once you get past the first 5 million (and I doubt frankly that it will ever go above 15%).

As for the point of view of the person who earns the money, there are things you can do and there are things you can't. They know that. You can build big monuments or get yourself elected to office, but you can't get yourself crowned king or legally corner the market for cocaine. Leaving it to your heirs is a 'can,' just you can't leave all of it. Most of it, sure. So why should 'all' be a sticking point? Heck, I wonder what Sam Walton, who actually had to earn all that money, thinks now (from wherever he is) about all his heirs snivelling about how they got 'ripped off' by 'only' getting $20 billion each. I mean, maybe they think they should have, because their father worked so hard, automatically had so much that Bill Gates would never have passed them on the Fortune 500 list.

As for getting rid of the loopholes, I don't have a problem with that either. Money given to philanthropy isn't a 'loophole' because it doesn't duck the tax by finding a backdoor way of giving it to heirs (the government has been keeping a pretty good tab on defining what is a 'legitimate charity' based on how they spend their money since the United Way scandal of a few years ago). It goes, as does taxes, for the betterment of society (though if it is given to philanthropy, the individual making the gift does have more control over how it is spent.)

Steve B said...

Sigh. You obviously haven't understood my point, which is understandable, because your point makes no sense to me either. I think we'll have to agree to disagree and leave it at that.