Why The Liberals Still Don’t Get It

Matthew Yglesias, who’s normally one of the more level-headed writers of the lefty Blogosphere has a simple message on estate taxes: "f*ck the small businessman". At least he’s honest about Democratic tax policy.

Of course, what Yglesias (and most of the Democratic Party) still don’t get is that small business represents 97.9% of all employers. Small businesses employ 50% of all American workers. Small businesses are as integral to the American economy as they ever were. Perhaps Mr. Yglesias would prefer that everyone worked at Wal-Mart or some megacorporation instead?

Yglesias then gives another excellent reason why the estate tax should be repealed permanently:

Here you are, you inherit a store worth $X. You owe $Y in taxes, with Y being less than X. So you are “forced” to sell the store, and accept “only” $X-Y as your inheritance. Note that X is a figure in the millions, and Y a small proportion of X. This is a very good problem to have, abstracting away from the fact that someone you love has probably died and this is probably a bigger concern of yours that the tax bill. This is, in other words, a non-problem. The government ought, perhaps, to facilitate some kind of lending arrangement so that people who prefer to keep the store and pay the tax down over time out of operating revenues can do so.

First of all, that argument is economically ignorant. Y isn’t a “small proportion” of X, it was 55% before the estate tax-phase out. In 2011, it goes back to 55% unless Congress acts to end it permanently. Let’s say you’re a small business owner who gets a 10% return every year. Taxation reduces those earnings to 5% per year. You drop dead of a heart attack. Now the inheritors of your business have to pay 55% of the value of that business to the government. It would take 11 years to pay off that debt — but of course, Uncle Sam wants that check right now. You can’t just give Uncle Sam the keys to the business, they want a check, and they want it now. You could go to the bank and get a loan, but then every cent you make in the store ends up going to the loan officer, and not back into the business. If your cash flow dips, you’re in default.

All Yglesias’ plan would do is make the government the lender instead of the bank. The business would still be in hock for quite some time, and they wouldn’t be able to reinvest in their business for at least 11 years.

What does that mean? At the very minimum it means Johnny the stockroom boy and Jan the bookkeeper won’t get a raise — and chances are it means that both are out of a job, along with everyone else who’s employed by that small business. The business will go under, and another small business is lost. If people want to know why Wal-Mart can take over a small town, it’s partially thanks to a regulatory climate that does exactly what Yglesias would like it to do – f*ck the small businessman. Small businesses are the backbone of the economy, and the liberals seem to have no qualms about screwing them over.

For all this much-vaunted liberal compassion, if you’re not one of the groups that the left deems worthy of special consideration, they’re perfectly fine with utterly screwing you over. Of course, small businessmen aren’t the only ones who’d be getting f*cked — so would be people who work for them, their customers, the people who make a living supplying them with the things they need, and society at large.

The estate tax is an extremely destructive tax because it gives incentives to shield income from taxation (which takes time and resources better spend on wages and business growth) or to simply spend it all before you die so that Uncle Sam can’t take his half. The estate tax is a wasteful and stupid tax that screws far more productive members of society than does the ultra-rich. The Hilton family can afford to pay armies of lawyers and accountants to ensure that Paris gets enough cash to whore around America for a few decades. Ma and Pa of Ma and Pa’s Family Store don’t have that luxury, nor should they be forced to do so. The estate tax repeal should be made permanent.

3 thoughts on “Why The Liberals Still Don’t Get It

  1. With all the hand-wringing about the estate tax pushing family farmers off the land, the Des Moines Register decided a few years back to do a feature on all the Iowa farms lost to the estate tax. The problem was, they couldn’t find a single one. The New York Times attempted to do a feature story about farms nationally lost to the estate tax. Again, the number was zero. I suppose the story could be entirely different with “small businesses”, but let’s just say I have my doubts.

    The simple solution to the false premise of businesses being lost to the estate tax is to raise the tax’s eligibility ceiling to $5 million or higher. Oh wait….that was tried a couple Congresses ago but failed to get approval by Republicans. I wonder why?!? Because eliminating the estate tax is not about saving small businesses, it’s about continuing the shift of the American tax burden from the wealthy to the un-wealthy. 98% of the estate tax’s revenues come from the richest 0.5% of the population. In other words, the George Bushes and John Kerrys of this world who won the genetic lottery and were passed through the loins of nobility at birth will receive preferential tax treatment for sitting on their asses collecting an inheritance than the construction worker does for a day of sweaty labor.

    There are two simple messages the GOP is trying to convey by eliminating the inheritance tax. First, they have zero interest in moving towards a balanced budget and are actually trying to launch the deficit still higher by stealing all this additional revenue from the U.S. Treasury. Secondly, the Republican Party views inherited income as being more valued that earned income. Wage earners will ultimately have to make up the difference by paying higher long-term tax rates to make up for revenue losses being incurred by giving break after break after break to the richest of the rich. The GOP’s spin machine on this tax has been incredibly effective over the last few years, but I hope the Democrats remember this act of working class treason when tax rates have to be increased on working people’s sweat due to the impending budget crisis.

  2. Oh boy, I’ll trust my father on this over you… given he’s a huge SUPPORTER of the estate tax, and a multi-millionaire small businessman, who has repeatedly argued that the estate tax is one of the most reasonable taxes there is…

    Tell him he’s being screwed. Please.

  3. The Des Moines Register and New York Times must not have tried very hard looking for farmers hurt by the Estate Tax. My brother-in-law’s parents’ farm in Eastern Carver County, Minnesota, had to be divided three ways among the siblings after the parents died. Then my brother-in-law got socked with a huge Estate Tax bill. It was the same year he had to have a lot of dental work done. The two big expenses just about wiped them out financially. They had to wait for the next year to fix a serious septic system problem. The Register and Times must have been looking for hurt “agricultural businesses” rather than hurt families.

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