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Wednesday, May 31, 2006

The Real Lunacy

Harold Meyerson has an op/ed piece called "The Estate Tax Lunacy" in today's WaPo. Through the whole thing, Harold beats up on the rich who will get away with robbery if the Estate Tax (death tax, to me) is permanently repealed.

The Estate Tax has gone away, at the federal level, for most everyone except those folks with an estate over about 2 million bucks. The 'million' part is the important number there, because it's big, and therefore, immoral according to liberals.

The truth is, it's the estate tax that is immoral, regardless of the level. For in all of his bluster abotu it, what Meyerson forgots to mention, is that these estates have already been taxed on their value.

Either through income taxes on the money they've earned to buy the things in the estates, capital gains on their portfolios that they have, or other state and federal taxes, the folks have already been taxed once on what they have.

The Estate Tax is simply the government's way of taxing you a second, and sometimes third time on what you've earned, because you are dead and can't fight back.

And while Harold will wax poetic about the enviable amount Dick Cheney's kids would get in their inheritance without the estate tax, he doesn't mention how much Cheney has paid in taxes already in accumulating his wealth.

He also makes it sound like only the superwealthy are affected, but that simply isn't true. I know a mid level DC guy, career civil service who makes about $90,000 a year who would get whacked by the tax, to the point that his family would lose most of their income if he died.

Why? Well he was smart and invested in some DC area property years ago. He pays taxes (at about 33%) annually on his rental income from them, but that doesn't matter. He also pays capital gains when he turns the properties over in his portfolio, because they are investment properties, not his home.

When he dies, because the combined values of the properties and other savings will most likely exceed the $2 million cap, he'll get whacked with a 50% tax bill for them. Which means most of what he's gathered as income earning items over the years would be wiped out by the estate tax. Not only would his family lose his primary income, but probably half of the rental income they earn from those properties to pay the tax man.

We talked about this a while back, and he's now working with a professional advisor to shield the income from the estate tax should it make a come back. Hell, if Ted Kennedy can hide his, he should be able to shield what he has too.

No, Harold, the lunancy of the Death Tax isn't that "rich people" get to keep what they've earned, the lunacy is that the liberals think that in death you should be punished for being successful, even though you've already paid your taxes on the stuff.

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Blogger Praguetwin said...

Er, sorry. Couple of problems here.

First of all when you say...

....these estates have already been taxed on their value.

Either through income taxes on the money they've earned to buy the things in the estates, capital gains on their portfolios that they have, or other state and federal taxes, the folks have already been taxed once on what they have.

You are arguing that since I pay income tax, I shouldn't have to pay tax on my capital gains, because after all I have already paid income tax. Also, usually in the case of a large estate, a huge amount of capital has been added to the main part of the estate which is usually property, without any tax being paid on it whatsoever.

But more importantly in your scenario..

He also pays capital gains when he turns the properties over in his portfolio, because they are investment properties, not his home.

When you turn over commercial property, you pay absolutely no capital gains tax on what you re-invest into commercial property. You have 3 months to do this. I know many people who have turned relatively small investments into multi-million dollar real estate kingdoms, only paying tax on the cash that they take out.

I feel really sorry for your hypothetical person that he does not know about this clause in the U.S. Tax code.

Finally, just my take on estate tax. There are several ways to make living gifts to your children. You can give up to $10,000 per year per child tax free, for example. You can set up trusts and buy life insurance policies for your kids. There are a myriad of ways to avoid the estate tax if you plan ahead, but it requires giving your money to your kids before you die. The people that get hit hardest are people who are just set in their ways and say things like "no one gets a penny until I die. Then you can split it all up."

You see, one of the main reasons for the estate tax is to force the cash out of the steely grips of older people to stimulate the economy. And it works.

Sorry, also, if you have a $2 million dollar estate, you should have a fat life insurance policy to cover the taxes in the event of your untimely death. A smart guy would know this.

2:20 PM  
Blogger shoprat said...

I remember watching TV a number of years ago and some prominent feminist was saying that "inherited wealth" was morally unacceptable and inexcusable and that all wealth should pass to the state when a person dies. The death tax people seem to believe this is the case.

2:58 PM  
Blogger Crazy Politico said...

Praguetwin, you are correct, I don't think you should have to pay capital gains if you've already been taxed on the money pre-investment.

As for capital gains, it depends on values, and a number of other things as to whether or not you get taxed on a sale, even with a flip.

True, someone could give 10,000 a year to their kids tax free. And, as long as they can do it for an extended period (200 years) they wouldn't have to pay an inheritance tax on that 2 million.

Forcing money "from the steely grips of old people" to the bottomless pit of the government doesn't stimulate the economy. Since most of that money in those sized estates is already invested, it's doing plenty to stimulate the economy.

I think Shoprat's comment is a pretty good summation of your arguement.

4:06 PM  
Blogger Praguetwin said...

10,000 isn't the only way. There are plenty others. I didn't mean into the hands of government, but into the hands of the young.

If you give a kid 10,000, that money gets back into the economy and fast.

12:25 AM  
Blogger on-my-mind said...

Interesting points on both sides; but the bottom line is that we should only be taxed once on the money we earn. Any further taxation should only be placed upon further earnings. Period. That's my take on it.

1:58 AM  
Anonymous Anonymous said...

The death tax -- you are 100% correct in calling it what it is -- has got to be the pinnacle of liberal thinking.

9:58 AM  
Blogger Praguetwin said...

It would be great if we were only taxed once, but that is not the case. The simplest example is income tax and then sales tax (or property tax, or, or, or...).

Sounds good, but it aint reality.

10:18 AM  
Blogger on-my-mind said...

Praguetwin - Yeah, I know. What do you think about the "one flat tax on consumer goods and no other taxes" idea? Do you think that would work in the real world?

10:26 AM  
Blogger Crazy Politico said...

Praguetwin, unfortunately you are right. And, every country that has enacted a VAT to kill their other taxes has instead raised the rest of their taxes, to fund ever more social(ist) programs.

On My Mind, if Europe, Canada, and Australia are any indication, no, just a consumption tax won't work.

Though many advocate it, unless we amend the Constitution to get rid of income/corporate taxes at the same time, fwe'd just be saddled with ever growing taxes.

6:51 PM  
Blogger CP's Big Little Bro said...

OK, folks. The "Death Tax" is taxation without representation to the Nth degree. It's like taxing every breath we take, or each heartbeat, dying is not exactly avoidable. And no, flat consumption taxes wouldn't work, but a flat income tax (with NO loopholes) would. No tax returns, no tax bills, no tax penalties, etc. It has been estimated that a 15% flat tax, eliminating the need for about 95% of the snarled red tape we call IRS, would not only save the average taxpayer a bundle, but the axing of the IRS as we know it would create enough savings (and additional income) to the government to save Social Security, AND start-up that national health care plan Billary promised us 14 years ago. Of course it would also eliminate the largest plain-sight hiding place for the mis-appropriation of our hard-earned money. And where would all those anal-retentives find work?
HMMM... I'll have to give this more thought...


9:55 PM  
Blogger Praguetwin said...

Crazy Politico is right. A strait consumption tax won't work. I'm afraid the tax monster has gotten out of control but there is little that can be done. The key is getting it faily even in the world and then it doesn't matter what percent it is, it is just an accepted cost of doing business.

What is sad about over taxation in the states is that you get very little beside a military for that, unless of course you pull social help. If you are a working stiff, you get some roads, and well, some roads. Everything else you pay user fees for, except the military.

The point is in the sates, the working guy gets really shafted because he pays very high taxes, plus sales tax and all the rest, and he gets very little in return. The public education system is in ruins, he gets no medical coverage (again, unless he is poor). Europeans pay more tax but they get more public works and they get health care. The social security system is equally worthless.

Yea, it is a monster and out of control, and a flat consumption tax stifles growth and would be sorely insufficient to meet the needs of the system.

Whether that system is largely meant to fund a military, or largely meant to spoil its citizenry, the beast is the same.

4:35 PM  

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