Jane Galt has an interesting look at the politics and policy of the death tax. She notes that the tax is hardly effective at “leveling the playing field” as the left claims:
…America’s widening income distribution cannot be blamed on bequests. According to Piketty and Saez, while in 1929 the wealthiest Americans derived more than 70% of their income from invested capital, and only 30% from wages or entrepreneurship, by 1998 the very rich got only 20% of their income from investments. Wealth may be more worrisome, but it’s hardly a growing problem right now–though there’s a decent argument that it might be, without the estate tax. Currently, however, it seems the problem is shrinking, not growing. In 1985, over half of the Forbes 400 had inherited at least some of their wealth, but only 145 of the people on the 2005 list said the same, even though estate tax collections have been at historically low levels in the interim. These days, the most important things affluent Americans bequeath to their children seem to be expensive educations, soaring ambition, and the right connections–all difficult to tot up for the taxman.
The death tax, at best, provides a piddling amount of revenue to the government. Because it’s so easy for the über-wealthy to shield their assets from taxation, it mainly hits small business owners and farmers – those who don’t always realize how much they have in assets. The Hilton family can easily shield their estates from taxation through as series of charitable trusts or other shelters. Hilton Family Farms generally doesn’t worry about such things – although they should. It’s hardly surprising that 120 ultra-rich Democratic activists are campaigning against the death-tax repeal – they’re unlikely to pay much of it, and when you’re a multi-billionaire, who cares if you lose up to 60% of your assets after you die? A few trust funds can ensure that their relatives still grow up filthy, stinking rich, rather than merely filthy and stinking.
Galt observes why the death tax doesn’t do Democrats any favors:
This may be why, despite the superficial allure of sending Paris Hilton to the poorhouse for a dose of reality sans television, Americans don’t seem very keen on the estate tax. That explains why the Republican congress is focused on abolishing this rather insignificant tax, rather than serious tax reform—even among registered Democrats, polls show support for lowering or abolishing it. Abolition looks politically unlikely. But even with a tough midterm election looming in November, the odds Republicans will secure some sort of reform look almost as certain as, well, death and taxes.
The battle over the death tax works well for the Republicans – it motivates Republican voters while most others are ambivalent about the issue at best – and it further cements the idea of the Democrats being the party of higher taxes. All in all, having the death tax repeal being defeated is probably a net political win for the GOP, even if it is a policy setback.
“The death tax, at best, provides a piddling amount of revenue to the government.”
Hundreds of billions of dollars is hardly piddling revenue. And my money’s on a ramped-up and regressive “sin tax” counterproductively nannying America’s consumption choices in the near future….hyped as a necessity in the wake of the lost revenue from the estate tax. Then again, the GOP is perfectly happy with the current course of defunding government as a means to eventually bankrupt every social programs on the books.
“it mainly hits small business owners and farmers”
Liar. It hits a couple dozen small businesses and farmers per year….and they could be exempted if the ceiling were raised on the wealth threshold with which the tax took effect. Democrats have repeatedly offered amendments to help make that a reality, but Republicans have repeatedly voted against them because the GOP’s real priority is helping people like Paris Hilton, coasting on inheritances and the family stock dividend fortune, from paying one nickel in taxes in their entire lives. That’s the Republican dream.
“It’s hardly surprising that 120 ultra-rich Democratic activists are campaigning against the death-tax repeal – they’re unlikely to pay much of it, and when you’re a multi-billionaire, who cares if you lose up to 60% of your assets after you die?”
If that’s true, then why are you people so obsessively attempting to exempt them of this tax against their wishes. As usual, your argument melts in the face of common sense.
“The battle over the death tax works well for the Republicans”
It may have in 2001, but I think at this stage Americans see the deficit, and the corresponding need not to further diminish the collection of revenues, as a priority over codifying the birthright entitlement of children of privilege to receive tax-free inheritances. The only people likely to take issue with this are the small number of “small” business owners and “small” farmers whose estates are supersized enough to possibly be impacted by this tax. I doubt that’ll swing too many elections.
Check your spam trap. I had an outstanding fisking of your argument that simply can’t go to waste.
Which assumes that the death tax has no other macroeconomic effects – that simply isn’t true. The $300 billion in revenue argument (from a liberal policy institute, of course) seems highly unlikely. If the only people affected by the death tax are the super-rich, how many super-rich people die in a given year? You can’t produce that kind of revenue unless you’re taking from a much broader segment of society than the proponents of the death tax would like you to believe.
Furthemore, the death tax isn’t progressive. Smaller estates take a bigger hit that estates worth over $20 million. It isn’t hard for a small farmer to find that his land is worth $3-5 million as land prices increase. Chances are that farmer has done little to nothing to shield those assets from taxation – while the Hilton family can hire the people necessary to sheild those assets and pay only a fraction of what a smaller estate does.
Which is pure bullshit – the death tax hits disproportiately on medium-sized estates. Paris Hilton can sheild her assets. Farmer Hilton can’t. Billions are spent on estate planning to avoid taxation, a luxury which the typical farmer or small business owner can hardly afford, but the rich can. In fact, so much money is shielded that it could easily make a repeal revenue-neutral.
Even Bruce Bartlett, who’s no fan of the President’s fiscal policies admitted that the death tax doesn’t hurt the rich, only the business owner who can’t afford to shield his/her assets.
Given that 50% of American workers are employed by small business and understand the stakes in all this, it could very well be enough to swing elections. The people swayed by class warfare already vote Democratic – the people swayed against the tax will vote Republican – and the death tax motivates Republicans more strongly than it does Democrats.
“If the only people affected by the death tax are the super-rich, how many super-rich people die in a given year?”
Well, we’re told that 97% of estate tax revenues come from the top 0.2% wealthiest Americans, so let’s do the math. There are 290 million Americans, limiting the top 0.2% to 580,000. Figure an average lifespan of 80 years and you have 7,250 super-wealthy Americans dying each year. Multiply that by $5 million in taxable estate dollars and you have more than $36 billion per year in lost revenue. Not exactly chump change.
“Furthemore, the death tax isn’t progressive. Smaller estates take a bigger hit that estates worth over $20 million. It isn’t hard for a small farmer to find that his land is worth $3-5 million as land prices increase.”
So raise the exemption for which the estate tax takes effect to $5-7 million and make the estate tax more progressive. Oh wait, that would negate your entire argument for further tax cuts on the super rich, so I guess that’s out. As for farmers worth $10 million, no sympathy here. If you want to be the biggest farmer in your county, be prepared to deal with some consequences.
“Farmer Hilton can’t”
Something like a half dozen farms are lost per year due to the estate tax. Three percent of estate tax revenue comes from people below the top 0.2% wealthiest Americans. Eliminating the estate tax has nothing to do with saving family farms, particularly with the Republicans resisting every attempt to raise the exemption level of when the estate tax takes effect that would help save the pittance of huge farms lost to the estate tax annually.
“In fact, so much money is shielded that it could easily make a repeal revenue-neutral.”
I would hope even you aren’t naive enough to believe that.
“Given that 50% of American workers are employed by small business and understand the stakes in all this, it could very well be enough to swing elections.”
And I’m sure in the midst of stolen pensions and health care plans, soaring energy costs, and stagnant wages, the prospect of the estate tax hypothetically driving their employer into bankruptcy will be the first and last thing on voters’ minds when they enter the voting booth in November.
“and the death tax motivates Republicans more strongly than it does Democrats.”
Funny how that works when earlier today you established that America’s wealthy elites (those who pay the estate tax) are all Democrats. If that’s the case, and Republicans are fighting so vigorously to exempt the liberal “coastal elites” they so thoroughly despise from the estate tax, then Republicans really are as stupid as the caricature suggests.