Surprise surprise!! Guess who opposes the repealing of the estate tax

Great Debates
141

So, at what magically rate does it qualitatively switch from being simply a tax to being evil incarnate?

Well, I pay social security tax on my income, then that same income is taxed again with by the income tax, then I take that money to the store and buy something where it is taxed again with sales tax. Me thinks you are making a distinction without a difference. Besides which, as has been pointed out ad infinitum, not all of the income has been taxed even one time…The capital gains hasn’t been.

You still haven’t answered my question of how you can be making statements like this unless you think the only point of view that has any relevance whatsoever is that of the deceased and it simply doesn’t matter at all that the heirs are being so unequally advantaged over others.

Well, I am glad it helped you. Can’t say it enlightened us all that much though! :wink:

142

Apparently your interpretation was not mine. Confiscatory at 50% My objection was the scare words, confiscatory, seizure… Well, its a bit subjective so we’ll leave it at that.

Well, I don’t believe I used the term aristocracy myself. I think I phrased things somewhat differently, but again perhaps this is mere semantics.

Okay, we got our obligatory commie baiting comment into the thread. Would you care to deal with the free market justifications for the tax, which as I recall were the ones put forth?

143

No, I think I’m going to go sulk and mumble incoherently to myself for a while. :wink:

Maybe later.

144

I am struck by the hatred and contempt so many posters have for people who have a lot of money. And yet, I have never met anyone who didn’t wish they had more than they did.

Should it be the job of our country’s government to confiscate the lawfully obtained wealth of its citizens and deposit it in the General Fund? If so, why wait until death? Why not simply cap the earnings of all citizens? To make it simpler, the government could regulate and control all wages and prices and industry and production. Such a totalitarian state would result in total equality and happiness among all of the utopian workers because there would be no jealousy or greed. Oh, wait, that’s been tried, and didn’t work for JACK SQUAT!!!

Let’s say Mr. America works real hard, or hits the lottery or somehow lawfully amasses and pays taxes on $100,000,000. Further, he pays taxes on any property he buys and any interest his wealth generates. He has a wife and 3 kids and lives a nice wealthy life and the kids grow to adulthood. Now he and his wife drop dead. Why is it such a bad thing that his three kids should inherit his money, if that was his desire? Where is it written that each American must toil for his own money? We may be envious, but let’s recognize that the kids have not done anything wrong and shouldn’t be punished for having a wealthy parent who wanted his possessions to become theirs.

And let’s further suppose that each of these kids did get a third of his estate. And suppose they never had to “work” a day in their lives, living off the interest income from investments. Who have they injured? If they pay their property taxes and taxes on the interest income, why should they have half of their money taken away?

I guess that is the point I need to have explained to me. I understand taxing income made in commerce. The country provides the framework for tree trade and commerce and the cost of that is tax on income derived by individuals and groups utilizing that framework. But by what rationale do we tax the gifting of money from one person to another, through no act of commerce. The rationale up to now is that we CAN tax it, the governemnt has an appetite for money, and so we DO tax it.

God bless President Bush. And God bless all the people working hard to make money. And God bless them if they succeed. And then what?

145

You mean like calling them sanctimonious? You mean like claiming that their input on the issue is less warranted because they are so rich that they are not teh most severly impacted by this tax?

Yeah, I know what you mean. Good thing the ultra-rich have some commie liberals to stick up for them around here.

What I am continually amazed at is the unwillingness/inability of people arguing for the abolishment of the estate tax to deal with within the context of all taxes collected. Over and over again I hear arguments about confiscation and “who earned the money” as if those issues pertained particularly to FET. If you want to arue that no tax should be collected, go ahead, but please go elsweher. We have had such threads before. We can certainly survive another one. But this thread was opened specifically to deal with estate tax.

If all you have is an appeal to sentimntality, then make your appeal to sentimentality. If you have an economic or ethical argument that makes sense within the context of the total tax structure, then I am sure many of us would be happy to hear it.

146

Spiritus Mundi:

Sincerely, do we have to the discussion as to why the estate tax is different from other taxes?
Jshore:

How many times have we gone over the double taxation issue? Look on to my first post for a direct address of this issue, as well as previous threads.

Bottom line? Get rid of the estate tax and you have to get rid of the free step up in cost basis at death. This could actually result in more government income, and a more reasonable and equitable taxation system.

147

If your position is that those differences justify abolishing this tax and not others then, yes, I would expect to see some thoughtful support for that argument.

148

awwrighty, but following your logic to an extreme would seem to indicate that we should consider a tax on breathing or excreting as equally acceptable.

Given that the purpose of taxation is to provide funds for government, then one should be willing to pay his fair share without complaint.

Those who are most successful clearly have a higher responsibility towards meeting these needs and should be taxed appropriately.

What is not needed should not be taken, and any excess should be returned to its rightful individual owners.

The purpose of the estate tax is not to provide government funds, but to prevent the creation of an aristocracy. The proper role of taxation is not to enforce policy (unstated or not,) but to provide needed funds. Therefore it is not a valid tax, but a confiscatory one, and should be abolished. Any shortfall in budgetary matters should be made up by higher income and sales taxes.

149

I’m personally struck by people who dont’ read threads before posting. You didn’t read the thread, did you?

Nope, didn’t read the thread. Bzzzt. Don’t win a prize. Come back again when you read the thread and respond to the actual argument.

Scylla:

Firstly, yes we do have to discuss the difference between estate and other taxes. Or perhaps not, depends on the real goals.

Let’s break this discussion out. Forgive me if I accidently put words in your mouth, but I’m trying to get to the heart of the matter.

There is the objection to taxation. I’ll be frank. It appears to me that the real motivation behind the attack on the estate tax is the following: a desire to radically reduce taxes, frustrated by apparent failure so far to win popular consensus on the issue. Estate tax looks vulnerable, so the attack is on a weak point, politically, regardless of the inherent merits or dismerits of the tax.

Well, that’s politics. Not saying that to put it down, that’s the way the game works sometimes. (I’d like for the discussion not to get to the level of liberal this, right-wing that. Firstly, I don’t care for that kind of discussion very much, secondly I think it tends to obscure the real issues.)

However, I’d like to focus on the tax as an economic item of analysis. Every once in a while I get all happy and think some rational analysis might win the day. (Hmm, maybe Izzy has a point, perhaps people have misjudged me. I am idealistic! I feel all warm and fuzzy, I’m not a cynical bastard, I’m an idealistic bastard!)

So, what do we have?

First, we have the reality of taxation. Good enough. Now, if we want to argue relative levels of taxation, relative levels of government and its participation in the economy etc. we should really have a separate thread or clearly signpost that this is the real subject and estate tax is just a stalking horse.

Second, we have the effects of taxation, relative to both economic and social results. I hope we can leave out cheap crap about social engineering. All government policy is social engineering. Of course some of it may be bad, some may be good. I’ll hazard the opinion that we can agree on this without necessarily agreeing on specific policy.

So, taking taxation as a given and that all taxes have specific (if perhaps unclear) social and economic effects, we should judge a taxes utility by its effects, economic and social, assuming there is some revenue raising needs to be met.

So, we have the estate tax. I won’t repeat the same arguments already put forth above.

I shall, however, take a look at these statements:

Scylla, I am not ashamed to admit I am unable to fathom your logic here.

Second,

This strikes me as ARL (sorry ARL, I love you in a platonic sort of way, but…) white and black thinking. As noted above, once you have a revenue need — and of course one does — the next logical step is to craft your revenue raising methods to best fit (a) your capacity (b) your economic goals. Ergo, the estate tax as one among many.

No, a well-conceived tax can and should do both. Obviously one does not want to deliberately use taxes whose effects work directly against one’s larger socio-economic goals. And if one can get a two-fer with a tax which helps work towards greater economic efficiency in the long run, the why the hell not?

Bizarrely enough, either of which is actually less-helpful in a market sense.

Scylla, old boy, your position is just untenable if we’re following each other here.

150
  1. Given that essentially everyone pays some taxes, figuring out exactly who the ‘rightful owners’ of a surplus are, is a tough gig.

2)There were years when what was needed was not taken, but rather borrowed. What converse of this rule should we apply to those years? Everyone wants their piece of the surplus; nobody was clamoring to make up their piece of the deficits. Or of the $5T national debt whose interest burns up 11¢ of every tax dollar.

  1. Hi, Opal! (And I bet she doesn’t even open this thread. ;))

The ‘purpose’ of a tax is in the eye of the beholder. I read a (conservative) op-ed piece a few months back that claimed the purpose of the FET was to fund some WWI-era program that had long since bit the dust.

The function of every tax is to raise money. The reality is that every tax has other functions (or consequences, if you like), intended or unintended. I think it makes perfect sense to consider those other consequences when examining tax policy and compare them with one another in order to minimize the negative effects of Federal and state taxation.

To the extent that we do so, every tax is ‘enforcing policy’, and the failure to do so is dereliction of duty on the part of our elected representatives. Any strategy for minimizing the harm of necessary taxation is necessarily going to be minimization by the standards of some sort of world view, and will thus have some unstated idea of what constitutes a ‘good society’ behind it.

In other words, you can apply taxes by applying them blindly, heedless to their effects. I call this bad. Or you can do your best to minimize their consequences, but that implies a political philosophy that is furthered by such minimization. I call this better.

Different political philosophies will have common ground. The standards that I stated early in this thread (and late in the previous one) to judge taxes by aimed to be fairly neutral, within the range of American political viewpoints. I don’t know if they completely fall in common ground or not, but no one’s challenged them yet. (They didn’t include the aim of preventing hereditary aristocracies.) I still contend that, by their standards, the FET, as presently constituted, has a more minimal negative effect, for the buck, than any other significant tax going. Nobody’s challenged that either, and I’ve been asking people to do so, because I want to know if my ideas here are any good.

I happen to agree that the effect of the FET of countering hereditary aristocracies is good, but I feel the FET is easily defensible on more politically neutral principles, and have done my best to defend it primarily on those grounds.

151

Scylla. Well…this is exactly the question I have been trying to find the answer to, i.e., whether the free step up in cost basis would be eliminated or not. You claim it would have to be, but I wasn’t sure the answer was so simple. It took some doing but I finally found an article that addresses this, at least in the bill passed by The House to repeal the estate tax signed last year. (I don’t know if it was the same in the final bill vetoed by Clinton after Senate passage. Or the same as what Bush is proposing. I leave that as an exercise to the reader.) Here is the link: http://www.cbpp.org/7-7-00tax.htm

The article is hard to summarize in a few sound-bites, but the gist of it is that, yes, in principle the free step up was eliminated in this legislation, but with some very important caveats:

(1) that provision of the law to eliminate the step up did not take effect until the phase-out of the estate tax was complete in 2010.

(2) it contains lots of exemptions, as are detailed in the article.

(3) there are serious questions about the workability of this, particularly for assets that have been around for quite some time. To quote from the article:

Of course, additional issues are that the capital gains rate is considerably lower than the estate tax rate, so there would be considerable loss of revenue here. And, some assets can be held on into perpetuity. The general philosophy of taxation is that it is applied at the time that a transaction occurs. While one can justify some reasons to treat transactions such as gifts and bequests differently (and clearly they are in some ways treated differently), I personally do not like the idea of allowing unlimited transfer of assets at death without applying a tax at the time of this transaction.

152

Collounsbury:

Feel ashamed. Feel very ashamed.

The free step up in cost basis allows no Federal taxes whatsoever on appreciated assets in small to medium sized estates (up to about 1.35 million for a married couple.) Those assets completely escape.

If Grandma has $600,000 worth of GE that she payed $20 for during the Jurassic period, that appreciation may never be taxed.

lots of assets escape due to the step up. Let them be passed on but taxed with regular capital gains when sold, and the loophole is closed. You also save the need for people with large appreciated assets to borrow against the value of those assets to protect the step up, and encourage diversification, which is smarter more responsible money management.

Let the cost basis carry through to the next generation and it will increase tax revenue when sold, as well as encourage sales in the present.

More capital gains = more revenue, pure and simple.

Alternately one may leave the step up but insist the gain be paid at death and accomplish the same thing with greater surety.

My position is untenable? Attend to thy own straw men.

RTF:

I am amazed by how somebody so cogent and reasonable can be so completely wrong wrong wrong

Have you any evidence or even a half-assed rationalization to suggest that the FET exists as a form of social engineering?

We want the same Government that brought us mandatory busing of High school students, and spends $250,000 on a toilet to be designing the society of the future?

Pretend for a second, that it should. Should there be controls. Just because you think stopping legacies is a good thing doesn’t mean that a confiscatory tax is justified. Stopping sabotage in WWII was also a good thing, but it didn;t justify the incarceration of Japanese American citizens.

Social engineering is neither law nor public policy and the government oughtta stay out of the business. Whose agenda will we be following? What assurances do we have that we actually know what we are doing when we tamper thusly?

The assets that fall to FET are owned free and clear without encumbrance to the Government. They belong to that citizen after societal dues have been paid. Subjecting them to recapture to satisfy someone’s ideal of egalitarianism is not within the purvue of reponsible or fair government. The fact that they are owned free and clear after tax makes makes them as sacrosanct in my eyes as the air I breathe. The government should tax neither.

153

Scylla:

Nah, I’ve had a lot of damn good rum (which is staggeringly difficult to obtain here) this late night and I’m way too happy to be ashamed. Anyways, I don’t deal with US stuff too often.

Eh? In any case, it appears from my sodden reading of your hypothesis that you are assuming sale of assets which itself is not sheltered. May I politely inquire as to the reasonability of this assumption?

Further

Sigh, Scylla, can we leave aside these sort of distractions. Any government action, even * choosing * inaction is designing the society of the future. This is hardly an argument.

This is also not an argument. It’s an appeal to emotion based on a rather poor, in fact totally unsupported analogy…

Social engineering seems to me to be a scare phrase used in relationship to some forms of public policy that some folks don’t like. Else, could you please give a cogent, logical explanation of what the difference is?

Hmm, this is a democracy. How about, the same assurances we have in general regarding public policy, in general?

Hmm, again we are resorting to scare words. I’ve tried to frame this in terms of economics, in fact free market economics. I really wish you that would address that instead of, well this speachifying.

Hmmmmmmmmm. How does one argue against sacrosanct? How about… What’s the relevance to the points raised re the economics?

154

I’ll deal with you when you’re hungover. :slight_smile:

155

Sorry about that…I definitely prefer being right, but I’m still wrong every now and then.

My ‘evidence’ is what I claimed above - that every tax is inevitably social engineering, intended or not. My thinking is that if we face up to that fact and try to deal with it, we’re still gonna be wrong a great deal of the time, but we still ought to do better than we would if we just ignored the socioeconomic effects of our taxes - and we might even learn from our mistakes if we realize we’re in a situation where we can make mistakes. But as long as we don’t think of our tax policy choices as having consequences, we won’t learn anything over time about how to manage them.

Yes and no. Do I want a Soviet-style command economy? Definitely not. Do I want an economy with no public sector whatsoever? Definitely not. Do I think the government’s capable of screwing up big-time? Absolutely. But where government has to be acting anyway - in this case taxing us to pay the bills - I want it to think about the comparative effects of different taxes, and take those effects into account in making its choices.

You’ve expressed considerable indignation at the Estate Tax rate schedule (which I’ve pulled from the FET Return Instructions - time to get this link handy again), and I agree with you that the rates start out too high (37%, soon to be 41%) and that the maximum rate of 55% is reached too quickly. As I’ve explained, that’s basically a historical artifact, a combination of two facts. The first is that when this table was written, many decades back, $3M was a far more awe-inspiring figure than it is today. The second is that the expansion of the Unified Credit to exempt more people from the FET, without otherwise modifying the table, has done away with all those lower-rate brackets you see on the table, starting at 18%.

However, I hardly think a maximum rate of 55% on the FET is much more punitive than a top rate of 40% (well, 39.8%) on the income tax - especially since, with the income tax, the earner is getting taxed and losing out, while with the FET, the earner is dead when he’s taxed and suffers no harm, while his children are generally self-supporting by that point (and if they’re not, the $1M/$2M exemption should get them through to where they are). So like I said a few pages back, they’re still in a much better position than the child of the average non-estate-taxed soul, but their advantage isn’t quite as great as otherwise.

Like I said, it’s there intentionally or unintentionally, blinders off or blinders on.

None, but we’ve got solid assurance they don’t know what they’re doing if they don’t think about what they’re doing.

And why isn’t the same true of income? Spiritus’ point seems to apply here.

I buy jshore’s argument that our system is to tax money when it’s transferred. This is a transfer, and it’s the one where the earner of the money’s dead, and the recipient didn’t earn it himself. If you’re gonna tax and tax high, this is the place to do it at - simply because it has the fewest negative effects on both the persons directly involved, and on society as a whole.

Again, I consider the egalitarian benefits of this tax to be a very nice ‘extra’, but that the tax would be justifiable, completely aside from that.

Again, I can’t see why this is any different from my paycheck being hit up by state income tax, Federal income tax, Federal payroll tax, and then I gotta pay state sales tax on stuff I buy with that twice- and thrice-taxed money, and pay property tax on my house even if I’ve already bought it. You’ve indicated the strength of your feelings, but you still haven’t explained very clearly the distinction that, for you, is the basis of that passion.

Well. Bedtime.

156

Since noone seems to be clammering to read that link I posted on how capital gains is treated under an estate tax and repeal thereof, I will throw in a few more quotes from it and repeat the link…I really think it is worth your while: http://www.cbpp.org/7-7-00tax.htm

Regarding how much revenue repeal of the estate tax coupled with the elimination of the step-up might net:

Regarding why one has reason to believe the elimination of the step-up might never happen:

So much for the great idea of substituting the carry-over basis provision (i.e., elimination of the step-up) in place of the estate tax!

157

Well, they seem to be able to carry over with gifts just fine. If the proposed system is too complicated, that doesn’t prove the idea is flawed, just the implementation.

You may have drawn to much of a conclusion there.

158

Scylla,

Read that article for a fuller accounting of the problems. And of the evidence that the House may never have really had any intention of implementing a carry-over. (I don’t even know if it is being proposed this time around…I thought I heard a report where they said that Bush had said that substituting a capital gains tax for the estate tax was unacceptable, although maybe this was in reference to actually taxing the capital gains at death rather than the carry-over…I tried a quick search on the web for more info but to no avail.

159

The fundamental problem with the carryover is that of one person buying the capital asset, and another person, often decades later, selling it. When the seller has no records of the stock’s purchase, no idea when the stock was even bought (as frequently occurs), and the purchaser has left this world for the next, what usually ensues (when the seller tries to discover the stock’s basis) is a long and fruitless search through a deceased parent’s ancient records.

I think the basic idea of the stepped-up basis is that we’re all responsible for keeping records of our own transactions, but we can hardly be held accountable for the failure of someone else to leave proper records when they go.

160

RTF:

This persistence of ours in being reasonable and even-handed is not entirely a virtue.

The Government does not simply tax transfers, else every time you moved cash from checking into savings they should take a piece of that as well.

What the government taxes are exchanges. You exchange work for $. Something has been done or created and the government gets a piece, as it should.

In an estate transfer, nothing has been done or created, the government is just taking an extra piece.

As for the step-up, it’s really not that hard. It would be reasonable to have the estate of the deceased be responsible for Capitol gains at the time of death as a part of the probate process.
Jshore:

We still seem to be discussing pretty basic ideas concerning estate tax, and don’t seem as yet to have found common agreeable ground. I would be happy to conceed that there are flaws in the current plan regarding the step-up. I’d only ask in return that you consider the concept itself as potentially viable unless and until it has been broven unfeasible.