Ba-baawwwwk!
I haven’t seen these numbers posted yet, so here we go:
In 1999, only two percent of estates were “over the limit” and paid taxes. Of the estate tax collected that year, more than half of the total tax was paid by just 3,050 families. Raw numbers are in this Excel spreadsheet from the IRS. The net estate tax is in column E on lines 280-282; the 3,050 families with gross estates of more than $5 million paid $12,214,413,000 in taxes, out of a total of $22,920,156,000 collected.
By contrast, in the same year there were 49,898 people who paid tax with estates under $1 million. They paid a total of $803,997,000, for an average of about $16,000 of estate tax per family. That ain’t too bad at all, considering their estates were at least $600,000 in size to begin with. And by 2006 on the current schedule, estates of this size will pay no tax at all.
(Something Spavined Gelding mentioned on the first page needs to be repeated: if you’re married, you effectively have double the credit. A shrewd estate planner can help you maximize the benefits and pass on a full $1.35 million to your heirs tax free, or $2 million in 2006. We really ought to be using the latter numbers; how many millionaires die as lifelong bachelors?)
So, estate taxes disproprotionally affect the very rich, which is exactly what they were designed to do. The only question remaining is, is that fair? I would have to answer with a resounding “yup”. The question shouldn’t be framed as, “Why shouldn’t I be allowed to keep the wealth I worked for?” but rather as “Why should a person be allowed to transfer large amounts of appreciated assets to others without paying tax on it?” Such transfers trigger a tax in every other circumstance; I see no reason why death should be treated differently.
That isn’t really all that much of an estate, depending where you live. I live in an apartment complex in Alexandria, VA where I pay $802 for a one-bedroom, 700 sq. ft. apartment. Believe me when I tell you they’re not luxury digs. Right next door there is a subdivision of new, moderate single-family homes selling for $600,000 and up. Here in the metro DC area, if you want a fully detached single-family home with even a small yard, paying $300,00 to $600,000 is to be expected. Add in a few investments and other personal belongings, you’re up over a million bucks in no time flat.
Uh, I’ve been wondering about this. How does splitting an estate between a married couple work? Upon the death of one of the partners in that marriage wouldn’t the decendent’s assets accrue to the remaining partner? I don’t think both members of a married couple often die at the same instant, do they? Or are you saying a will should be set up so that the decedent’s half of the estate transfers directly to, well, anyone except the decedent’s partner?
And yeah, what Phil said. $600K ain’t really that much when you consider what home prices are in some regions of the U.S. Here, go look for yourself:
http://www.martysellsabq.com/content/Worth/
Actually, to me, this makes them sound just the opposite of “fair.” It indicates a disproportionately small percentage of the population pays a disproportionately large percentage of this particular tax.
Great thing about wills: you don’t have to include exact dollar amounts, or even percentages. You can say, “I give to my dear wife the largest possible sum such that the remainder of my estate will result in the maximum use of my unified credit” or some such, I forget the exact language. So, say you have a million bucks that’s yours alone, not your wife’s. The proper magic words give your wife $325,000 and the rest goes to the trust fund for Number One Son or whoever, maximizing the use of your unified credit.
Anyway, see a qualified lawyer or estate planning professional for the exact language. Incidentally, well-written wills for married people will often contain language taking into account the possibility that the couple might die together. Say, you both go down on the same plane. Both wills will probably say something like “if my wife dies within 5 days of my death, she will be deemed to have predeceased me,” and then contain additional instructions. A clause like that is quite common.
And that’s why the exemption amount was set to gradually increase.
“With great power comes great responsibility.”
Seriously though, so what? Huge companies don’t get to exert monopoly power, even though “they earned it.” Do you feel the same about the anti-trust laws?
UB replied to me: *“For example, why are different forms of expenditure taxed differently? Why do you get a fat tax deduction for owning a home or raising a child or donating to charity but not for buying a powerboat or consuming Doritos?”
You make a salient point. I dunno why we tax expenditures at different rates. To provide incentives where the tax otherwise would be over-, or unfairly-burdensome? […]
However, what I’d really like to ask is “Why are we taxing expenditures at all? Is spending not the fuel of an economy?” […]*
Sorry, I phrased that misleadingly. What I really meant is not that we tax expenditure differently (although that does apply in the case of, e.g., exemption of certain types of items like food or clothing from certain state sales taxes), but that we tax income differently depending on how the taxpayer spends it. You get a deduction on your income tax for homebuying or childrearing.
So if it’s considered reasonable to tax income at different levels depending on what you do with it, I don’t see why it should be considered unreasonable to tax income at different levels depending on how you got it. In other words…
You guys keep saying this; this meaning “unearned income is justly taxed at a higher rate than earned income.” At least now it’s being admitted that it’s debatable, though. So, debate it. Quit stating the contention over and over, and let’s hear the rationale.
In general, isn’t it the same rationale as the one for “income not spent on children is justly taxed at a higher rate than income spent on children”? In both cases, it’s a balancing act between simple across-the-board extraction of tax revenues and providing economic incentives and disincentives for actions that we want to see more of, or less of. The two competing goals of taxation are “Let’s tax as high as possible to get as much tax revenue as possible now” and “Let’s tax as low as possible to provide as much incentive as possible for pursuing the taxed activity, thus guaranteeing more tax revenue in the future.” Earning income is usually more productive for society as a whole than simply receiving unearned income, because it involves actual work; so the relative importance of goal #1 and goal #2 isn’t identical in those cases.
Scylla:
That famous purveyor of voodoo economics has nothing on you! Your analysis is so…ah, unique…that it is truly an impressive piece of work. Let’s start with your original quote that said:
Now, in your new post this 80% “consumed by the bureaucracy of government itself” has miraculously transformed into 33%…a number, by the way, that comes from a “cite” consisting of an opinion piece that pulls this figure out of the air in the same way that you did yours (even using almost the same language, as chance would have it).
Then, you go on to pile additional things you don’t like in the budget on top of this. Never mind that this is double counting since presumably that 33% comes from many of the programs you don’t like. But, now we are supposed to equate social security payments and income security payments and the like with “consumed by the bureaucracy of government itself.” Where exactly do you think those monies go? By the way, even interest payments go to people holding treasury notes and bonds…it is hardly “consumed by the bureaucracy”.
If you meant to say, “80% of the revenue the government received goes to programs that I, Scylla, do not like” then why didn’t you just say that or at least say it now rather than take us on this post-rationalization of a completely absurb figure.
Finally, I have tracked down your $1.20 to $1.60 removed from the economy to this quote from (not surprisingly) the Cato Institute:
Of course, the problem with this analysis (as near as I can tell, since they don’t give a reference to the actual analysis) is that it imagines that the dollar taken in taxes vanishes into nowhere. It doesn’t calculate how that tax dollar is, say, paid out to a senior citizen who spends it thus pumping money into the economy or is used to reduce government borrowing and thus to perhaps keep interest rates down.
I meant to throw in the cite on that: http://www.cato.org/dailys/05-24-01.html (Must have been a Freudian slip that prevented me from linking to Cato!)
jshore:
Very well. I’ll recant to some degree from my original quote. Such is the danger in posting something you heard without remembering where you heard it.
However, you do not do justice to my little analysis.
Social security does nothing. It takes money from one person (regardless of their needs) and gives it to another (also regardless.) The only justification for this is age.
So, a single mom trying to raise a kid, and working as a secretary for 25k a year has deductions made from her salary which are given directly to people like my grandfather who is in his 90’s, a multimillionaire, and a receiver of a large pension. That’s not what government should be doing.
Why are you worrying about the estate tax when one third of that money is being wasted, and more than another third is simply being given back to the elderly
I don’t understand why you posted all this below a statement of mine that does explain, e.g., how earned income like salary might justifiably be taxed at a different rate than unearned income like inheritance, which bears absolutely no relation to compensation received because of the value of some work performed. Now, admittedly, there are other forms of income that could be considered “unearned” that are taxed at the same rates as earned income (and, in fact, capital gains is taxed less). But, my point here isn’t to prove to you at what rate each of these should be taxed but simply to say I see no a priori reason to require that all forms of income be taxed at the same rate. And, in fact, our current tax structure does treat things in different ways and also allows various deductions, etc. as Kimstu has noted (and noted also the justification for).
It seems to me that it is not incumbent on me to prove that inheritance must be treated differently than some other forms of income are treated. (In fact, I can’t prove it since it is a matter of opinion.) It seems to be you who are trying to formulate some a priori law about all income having to be treated the same and I am saying that I just don’t see why this necessarily has to be the case.
And, I as to whether I am open to alternatives to the estate tax, I noted that I am in principle open to them although I also stated my concerns that would form the basis of whether I supported or opposed them. At any rate, the most relevant debate, in my opinion, pertains to the vote in Congress on a specific idea: to repeal the estate tax permanently (and replace it with that step-up basis with $1.3 million exclusion). So, this is the concrete piece of legislation that I expressing an opinion on. I am somewhat less interested in “Uncle Beer’s” bill because it is all very hypothetical…Sure there may be other potential alternatives to the estate tax but they are not really out on the table right now.
Well, social security is a complicated thing. Before it was instituted, the percentage of seniors living out their golden years in abject poverty was very high and now it is much lower. As part of the deal in setting up the program, the government decided to do something that was in-between being a savings program for people (you pay the money in and then get it out when you retire) and a program to supplement the incomes of those who really most need it. As a practical matter, this was probably necessary to get the broad support. Is it the best of all possible worlds? Probably not. But a society without it would be, in my opinion, even worse.
Well, I explained the S.S. part above. As for the “waste”, well, I am in favor of intelligent ways to reduce waste. But, I question this figure that I pointed out was unsubstantiated. Also, we have to recognize that some waste is inevitable. For example, my company is incredibly wasteful in so many ways. Our private health care system spends much more on bureaucracy than the government insurance systems of other Western countries and is thus very wasteful. The money that Coke and Nike spend on advertising is obscenely wasteful. And, people who drive down to the corner grocery store in a gas-guzzling SUV are not only being wasteful but are doing it at the expense of my lungs and my nephews’ future…That sucks a lot more than someone wasting a little bit of my money. I guess I also try to remind myself that even these bureaucrats in government, in my company, and in the health insurance industry have mouths to feed, etc. so while I am not happy that I am “wasting” money on them, it is not like the money is simply being burned or something.
jshore:
Bullshit. SS is a Ponzi scheme. It’s a simple con. If the government were not doing it, it would be illegal.
It’s very simple. Some greedy and shortsighted people figured out how to get more taxes in the short run, by seeming to give a benefit. When it started there weren’t as many elderly people, and the Gov spent the difference. They didn’t stop when it evened up, and they didn’t stop even after the outflows exceeded the inflows. Now we’re screwed, and it’s a mathematical impossibility that it can hold up for the next forty years.
Now it’s no longer a tax, it’s simply a redistrubution of wealth from the employed to the retired. That’s all.
No. Not at all. As I said, it was a method to increase Government revenues.
I know, people paying their own way just sucks.
Pure and simple, the Government as an arm of society has the responsibility to take care of people who can’t take care of themselves. Nobody denies that. Need however is no part of SS at all.
Well, let me try to give you an intelligent methodology. If the government is accomplishing it’s duties with one third waste, and taxes place a drag on the economy, then it would seem to follow that taxes should be reduced by a third or government services should be increased by 1/3. Why are you looking for more taxes?
No. It’s very substantiated. Both the Congressional Budgetary office, and the Cato Institute produce the figure. If that is not enough substantiation for you, please produce an argument that supports your reasons to doubt it.
Why? That’s a statement not an argument.
And, even if it is, is 1/3 inevitable? How about we get it down to 5% and then we talk about more taxes?
Ok, so your company sucks. I won’t hire them. Nor do I feel particularly morally obligated to pay taxes to a government that pisses away one third of what I give them, and redistributes 22 cents of what’s left to old people just to get votes.
I wouldn’t accept such waste from a private contractor. Why should I feel any different about my government?
You’re kidding me, right.? Both companies can and do prove beyond the shadow of a doubt on a quarterly basis the efficacy of their advertising programs. They go to herculean efforts to ensure that those dollars are spent effectively to produce sales, and both corporations have blown away much of their competition and become market leaders capturing tens of billions of dollars in sales per quarter as a direct result of those adcvertising campaigns.
A good analogy might be bait. You invest the cost of 1/4 of an ounce of worm on a hook, throw it in the water, and land a ten pound bass. They literally get thousands of percent return on that investment, and yes, they do demonstrate that it is the advertising that causes the return by advertising in sample markets to determine net increase of sales before they launch a campaign.
Yes, I may have slightly blundered by citing 80 cents with questionable support, but this is an embarrassingly huge mistake you’ve made out of ignorance.
Not true at all. My Durango is a late model, and it’s emmisions meet California standards. It’s a lot cleaner than somebody’s 10 year old Ford Escort. Plus, my Durango habitually carries many passengers, large cargoes, and trailers. Me, my wife, my kid in my Durango is a much more environmentally friendly solution than one guy driving his economy car. I get 18 miles to the gallon. He’d have to triple that catch me, and even when I do drive it unloaded and by myself, it is still a more efficient solution than purchasing and consuming the resources for a whole other vehicle. Finally, I live 3 miles from my place of work. I consume less gas driving to work and am friendlier to the environment than Joe Uberenvironment with his “green” Honda Insight who has a half hour commute. So, your little SUV tangent is complete and insufferable bullshit. It’s not so much what you drive. That’s only a factor. More important factors are how efficient a use your drive is, and how efficient your emmisions are. You should know better than to spew this kind of crap, my friend.
Oh dear God! Are you listening to yourself? This has got to be your worst all time post!
If what you say is true, than ithat invalidates your previous argument. The guy that makes the SUV and the guy that sells the gas also have mouths to feed, don’t they? At least their spending contributes to the economy instead of reducing it.
Besides, waste on the scale that you’re suggesting is rare in the private sector. Few if any businesses have a profit margin that allows a 30% blow-off. Most businesses operate in the single digits, some very lucrative ones operate in fractions of a percent. If they are not efficient enough to make a profit they go out of business. They are answerable to their stockholders and boards as to thier efficiency.
And, the money is being burned. It is being wasted. It’s even worse because the people (if there are any) who are on the recieving end of this free lunch are not meaningfully contributing to the economy as they would otherwise be. You not only have the loss of the money, you have the loss of the benefits of the goods and services that the recipient of the waste would produce.
Jesus man. That was terrible. Embarassingly bad.
Nice, ** Scylla**. I was foaming at the mouth reading that post. But, my response wouldn’t have been nearly as eloquent as yours.
The only thing I see being left out of the Social Security arguement is interest. They are taking my money now, to be paid back to me in oh, 40 years or so (I am 26). And I am getting no (or very very little) interest. If I was allowed to keep my payroll tax and put it into my IRA or 401k I would certainly retire a millionaire. To me, this is the real crime of Social Security. And the real best example of waste in government.
Oh, and my gas guzzling SUV (a Ford Explorer) gets 18 miles per gallon also. The sedan I drove before that (Pontiac Bonneville SSEi) got much less.
Also, can somebody tell me what ponzi means? Dictionary.com is giving me nothing.
Er, well, your gift for hyperbole is going to get the best of you one day, Scylla. Coca-Cola Enterprises’ most recent quarterly income statement (for the quarter ending 3/29/02) shows $3.642 billion in revenues, with $10 million in after-tax income. Selling, General and Administrative expenses were around $1.2 billion. That’s pretty consistent with the prior quarter and the year-ago same quarter.
Similarly, Nike’s 2/28/02 quarter showed after-tax income of $126 million on revenues of $2.26 billion, with SG&A of $682.5 million. Even combined, these two companies don’t rake in $10 billion in sales per quarter, let alone multiple tens of billions.
Let’s all try and be as accurate as we can, please.
Scylla,
I won’t digress too long into the social security debate since it has been discussed before in other threads. But, the problem I have with people criticizing these things is that they do so with no sense of history. If you look historically at the sort of problems that led to the implementation of social security, you get a different view. Those who don’t learn from the mistakes of history are condemned to repeat them (as we have recently learned with the savings and loan scandals and the Enron affair).
Oh, don’t be so melodramatic! A mathematical impossibility…fooey! That’s only if you read those like Cato who want to destroy the system. Here are some links discussing social security in general and the phony crisis in particular:
http://www.cepr.net/Social_Security/
http://www.epinet.org/Issueguides/socialsecurity/socialsec.html
http://www.prospect.org/print/V11/14/matzzie-t.html
Yes, projections show that the system would become insolvent in some 35 years but these projections are way out in the future and the trend has been for the date to move further out as the years go by. Furthermore, there are some fairly small changes that would keep it solvent for much longer. Of course, the same people who give dire predictions of the social security system going insolvent are the ones who are trying to make their predictions into reality by giving away tax breaks to the rich.
I didn’t see that 1/3 figure coming from the CBO. The figure that we were discussing here that was from the CBO was that $1.20-$1.60 figure and that was Cato saying “the CBO said…” which is very different than the CBO saying it themselves. (I made an attempt to find the figure on the CBO website but it didn’t seem easy to track down.)
My reasons to doubt it: It comes from the Cato Institute with no substantiation or explanation.
As I pointed out, but you can’t seem to see through your rose-colored glasses, there is waste all around us. Humans just haven’t figured out how to organize things very efficiently. I get the impression that you are self-employed or with a very small company. If you worked for a larger one, I think you would understand this. If you read Dilbert you would understand this. It ain’t that my company sucks compared to all the others, it is that organization of a large number (even a moderate number) of people requires bureaucracy and bureaucracy is inherently inefficient. Hell, even individual people are no great shakes when it comes to efficiency but you put them together and the problems multiply.
Like I said, I question this 1/3 figure. Obviously, it also depends on what you define as waste.
Two points here. First, if they really get thousands of percent return, then they are being idiots to not invest more in advertising since it would pay for them to invest in it to the point where each dollar they put into it only gets them an additional dollar out. So, I question this estimate. Second, I meant “waste” on a grander scale. Okay, so it pays off for them, but don’t you think it is a bit wasteful of society’s resources if billions of dollars are spent to get me to drink Coke instead of Pepsi and billions more spent to get me to drink Pepsi instead of Coke. No wonder that sugar water that costs literally nothing to make sells for so much!
Note that my phrasing here was that someone was driving an SUV to the corner grocery store. Maybe I should have specified that they were driving alone and not getting a full SUV load of groceries. At any rate, I do agree with you that the issue of the efficiency of the car that you drive is related to the number of passengers, etc. And it is good to hear that your SUV meets stringent emission standards. One of the problems with SUVs relative to, say, mini-vans is that they were exempted from meeting the tougher emissions standards and fuel efficiency of cars. This was a holdover from the days when such vehicles in the light truck class were actually used mainly for hauling stuff around. (They are still exempt from tougher fuel efficiency standards but I believe the tougher emissions standards are being phased in.)
At any rate, yes, you are right that one has to look at the needs and the occupancy of a vehicle in order to determine how efficiently or wastefully it is being used. I still stand by my statement that an SUV being driven to the corner grocery is a very inefficient use of resources. Even if they person needs the SUV for other things and has some good excuse why they can’t bike or walk or something, it doesn’t change the fact that it is very wasteful. As I have been trying to point out, it is hard to eliminate all waste.
Thanks…But, just as my company tells me, it is important to strive for continuous improvement. So, maybe this post can beat out the last for “worst all time.” 
Well, I didn’t mean this to claim that the “waste” in bureaucracy is not waste. I simply wanted to point out that one will have a coronary at an early age if one gets too stressed about waste and so I try to keep these things in mind in order to keep my blood pressure down.
By the way, this argument that the SUV guy is contributing to the economy and government spending isn’t is just total hogwash! Joe Bureaucrat uses the money the government pays him to buy stuff and contribute to the economy too.
Yes, but I haven’t seen your same friends who came up with the 1/3 waste figure apply the same accounting principles to the company that I work for. The fact that profit margins are small does not invalidate that one would find lots of waste depending on how it is measured. As I noted, there is a lot of inherent waste. My guess is that the same accounting that led to the 33% figure, if applied to almost any company, would also lead to quite a high figure.
Scylla, I think you have been reading too much Cato Institute propaganda. [Speaking of which, the July/August issue if Sierra Magazine (which alas doesn’t seem to be up on their website yet SIERRA: The national magazine of the Sierra Club | Sierra Club ) has an interesting article on where Cato and some of these other industry-mouthpiece think-tanks get their money from.]
—Social security does nothing. It takes money from one person (regardless of their needs) and gives it to another (also regardless.) The only justification for this is age.—
It’s worse than that. Remember: we all take a turn at being young and being old.
Or do we? Some of us die young: those who are old are already assured of having a long life: those of us who are still young cannot count on it as absolutely.
If the elderly can in any fairness demand a share of my money now to cover their retirement, then I demand a share of theirs to insure me against the possibility that I may never live to retire.