It’s maybe worth pointing out that the estate tax is perhaps the least economically distorting tax imaginable. Taxes discourage the taxed activity. But you can’t discourage dying. And if the estate tax discourages accumulating a large estate*, that’s probably a good thing, too.
*Bonus hypocrisy watch: when Obama proposed capping itemized deductions at 28%, we were told that this would cause charitable contributions to dry up, because who would donate to a charity if they would only save 28 cents on the dollar instead of 35? But somehow that argument gets forgotten when it comes to eliminating the estate tax.
IIRC the credit for charitable deductions in Canada is 17% or some ridiculously low number. The logica at the time went “why should the rich guys get half their charitable contributions back as credits when the poor only get the lowest tax rate”?
Actually, how much you get back as a credit doesn’t really matter to the average Joe. It’s just a year-end bonus on your tax refund. As for the richie-riches - if the amount they get back really bothers them, either they’re cheap bastards or they really are donating a huge chunk of their assets. It’s hard to imagine someone with a million dollars cash saying “I can donate $10,000 but I cannot afford $20,000”.
I just don’t like the class warfare aspect of it. When I pass on and leave my family a couple of hundred grand, I am glad that will be tax-free as it should.
I see no reason to stand at the door like vultures when Warren Buffett goes just so the government can put its hands in the till. He acquired that money lawfully and as a matter of fairness, he should be able to leave it to his kids.
Wait a second–you’ve just gone from disliking the estate tax to protect small farmers to disliking the estate tax to protect the wealthy against class warfare. That’s a remarkable reversal.
Is it class warfare that the wealthy pay more tax, in terms of the total dollar amount? No–because the wealthy have much more money. Further, from at least one way of looking at it, the wealthy don’t necessarily pay more tax in percentage terms–and often pay much less–for example, Warren Buffett’s tax rate, in terms of the percentage of his income paid, is actually lower than the percent of income his secretary and his cleaner pay.
If tax is class warfare, which side is the target?
The real class warfare I see going on isn’t the estate tax–it’s the wealthy trying to enlist people who are better off with an estate tax in the fight for estate tax repeal.
It’s the politicians who are out deceiving people by framing the estate tax as big bad government coming to take away farmer Bob’s farm–to gather popular support–the farmer Bobs of the nation–in favor of estate tax repeal, which is really (as you point out) a move to protect Warren Buffett.
Warren Buffett can speak for himself–and disagrees with you. He approves of the estate tax.
I agree that, as a matter of fairness, Warren Buffett ought to and can leave much more money to his children than you or I will ever see in our lifetimes. I don’t see why it is a matter of “fairness” that he can leave 100% of it, not 80%, or 55%–especially when we’re talking about a minimum of seven million, and above that, 55% of an amount often measured in tens or hundreds of millions?
By the perspective you seem to take, there’s no reason to stop at the estate tax— you can use it to argue that all taxes are unfair–I earned that money, I should get to spend it how I want–what right does a government have to take it from me?
In my opinion, that viewpoint is crazy–taxes are the price of living in a society of laws, in which wealth can be accumulated without fear of some other person or the government just plain stealing it.
For one thing, as has come up in this thread, taxes ought to be viewed in the aggregate–so that (for example) a state “double taxing” you by having both an income and sales tax ought to be evaluated in terms of how much you pay in total–not whether it’s collected in one way, two, three, or twenty.
In other words, if you measure “fairness” in terms of overall tax burden in percentage terms, it’s just not unfair to tax me in way X, and you in way Y if it comes out the same–for example, one state with no income tax another with no sales tax, and a third with both may end up taking an identical percentage of income–how is it “unfair” to collect both, if the end result is the same?
As I pointed out above, Warren Buffett’s taxes are, right now, a lower percentage of his income than his secretary’s are of hers. Is it inherently “unfair” to have a system that makes up the difference by collecting a tax from Buffett’s estate, but not from his secretary’s estate?
Realistically, the the estate tax probably doesn’t even bring WB’s tax burden up to that paid his secretary, if you take the time value of money into account–since the secretary has to pay up front, but WB only has to pay a little up front (as most of his income comes from capital gains), and gets to use that money until he dies, and the estate tax hits.
Finally, I see the ability to reliably pass on your wealth at all to be one of the biggest benefits of living in a developed society.
He acquired that money lawfully because he lives in a nation of laws–that regulated the markets he made so much money in, keeping them more honest than they would otherwise be (and hence safer to invest in), and where he can rely on the courts (i.e. the government), the police (i.e. government) to protect his property against others trying to unlawfully take it.
Similarly, he can pass that money on to his kids because he knows this is a nation of laws–one in which his will will be enforceable, and he can be sure his heirs, whoever he chooses them to be, will be able to enforce his wishes.
I for one think that’s worth paying for. Buffett agrees.
We’re not taxing Warren Buffett’s money. He’ll be dead. It’ll be Susie, Howard, and Peter Buffett’s money we’ll be taxing. They’ll be receiving a few billion dollars.
Now let’s talk “class warfare”. Taxes exist so somebody’s got to pay them. I pay taxes on my income. Can you explain why I should pay taxes on the money I receive but the Buffett heirs should receive their money tax free?
You are absolutely right. The one element that hasn’t really been brought into thread, but has been alluded to, is trusts. Trusts are perfectly legal and are a method of transferring wealth while avoiding taxes.
It goes back to what I said in my original post; with a little bit of planning the estate tax is almost inconsequential. Those that are paying an exorbitant estate tax are those that did little or no estate planning. By simply setting up an insurance trust your descendants can pay the estate taxes with little or no effect on their inheritance.
The poster child for bad estate planning was Joe Robbie who owned the Miami Dolphins and their stadium. He died having either no plan or he got horrible advice. Under the law, the family had 90 days to come up with the estate taxes. The Dolphins and the stadium got sold at a fire sale price to raise the cash. Had he listened to anybody who knew anything about estate planning he could have set up a trust that would have protected the assets. The family then could have sold them at their convenience and realized a lot more money.
Anybody that cries about the estate tax deserves no sympathy. There are already enough legal mechanisms in place to allow someone to protect their estate so that their heirs get all, or almost all of what was left. The thing that is sad is that there are a lot of people that will never be affected by the estate tax that are gullible enough to buy into the argument of super-rich people that are only trying to further exploit the system for reasons that can only be defined as avarice.
I don’t think there’s any doubt that an estate tax is constitutional. However, it is wrong for the federal government to tax estates.
I don’t believe this because I believe it is wrong to tax estates. I believe that because prior to the New Deal era, the estate tax was primarily a state funding source. The federal government poached this revenue base.
Pretty soon, I’m sure the federal government will look into property taxes as well.
Well, the federal estate tax (in its present incarnation) was enacted in 1916. So well before the new deal. The first federal estate tax was, as already pointed out in this thread, enacted in 1797—so you really can’t argue the estate tax was exclusively for the states before the new deal.
Further, the constitution, as enacted in 1789, explicitly gives the federal government the power to enact excises like the estate tax. I’m a little suprised to hear you, who constantly argues in favor of a strict and limited interpretation of federal power, to take the position that the federal government can be “wrong” for using one of the powers explicitly granted to it in 1789.
Your fear of federal property taxes is misguided–since property taxes are the archetypical “direct” tax–something the federal government can only do if proportional to population (art I, S IX)–which makes a property tax ineffective (as such a tax only works if proportional to property holdings).
But more fundamentally–why can’t states and the federal government tax the same revenue base? They do so right now with incomes. Again, there is nothing inherently wrong with two taxes on the same person, or two different entities taxing the same revenue base–the question is what the aggregate tax level is.
It’s only “poaching” if the federal tax pushes out the state tax (which you haven’t shown, and which is, anyway, the federal government’s prerogative under the taxing and spending clause and the supremacy clause).
So (1) you haven’t shown it’s “poaching” for both federal and state governments to tax estates (any more than the federal income tax is “poaching” the right to tax incomes–we seem to get along quite well with both state and federal income tax in most states,) and (2) even if it is, the constitution explicitly says (a) that the federal government can tax estates, and (b) insofar as legitimate federal laws and state laws conflict, the federal government wins.
So if it is poaching, the federal government has the power to do so under the constitution in this case. It’s the downside of being a textualist–you have no defense when something is within the power granted to the federal government by the text of the constitution.
states are still free to impose their own estate tax.
Spartydog, I am not a trusts and estates tax expert. But, I’m pretty sure that GSTT (generation skipping transfer tax) and the fact that trusts can be taxed as part of your gross estate make the notion that you can transfer “almost all” of a large estate perhaps incorrect.
But, I freely admit I do not know the nuanced details of this. I would like more info if you have it.
The government takes 45% over a certain amount. It’s just not feasible for states to get much more on top of that.
As for the history, yes, the federal government did the first estate tax in 1916, but it was reduced sharply and then eliminated, or nearly so(my memory is faulty) under the Coolidge administration for the express purpose of leaving that revenue base to the states.
Why? Seriously–this is just a bald statement–why is this infeasible?
In fact, it’s just plain feasible for states to tax estates, and to get a decent sum. This could include taking another 10% on top of the federal tax, but it need not do so.
Another, perfectly good method, is to tax the portion of an estate the federal government exempts. For example, many states have lower exemptions–so the federal government takes 45% of the amount above 3.5 Million (for an individual estate), but Nebraska’s estate tax only has a $1 million exemption–so Nebraska gets to exclusively tax 2.5 Million dollars of estate.
Only 120 years off. (the 1797 estate tax didn’t last all that long–but it set the precedent) The precursor to the modern estate tax was enacted in 1916.
Cite?
further, as I pointed out–the federal government may choose not to tax estates. Part of the lawmaking power is choosing what laws not to make. It may choose not to do so in order to let states do so, or because it thinks estates shouldn’t be taxed.
The Constitution, however, gives the federal government the power to tax estates. Choosing not to exercise that power simply does not equal giving up that power.
Know what I don’t like? Class warfare against the poor, the people without any ammunition. Know what you shouldn’t like? Class warfare against yourself. Unless you think that you should pay more in taxes to keep the downtrodden children of billionaires from being able to afford that extra private jet, you are shooing yourself in the foot. Unless, that is, you plan on inheriting a bunch of money in the near future.
Know what I’d like to see? Zombies showing up at teabagger demonstrations picketing against the estate tax.