so why am i writing this? to vent. i'm warning you now, this has nothing to do with Atheism. nothing at all. move along if that's what you're looking for. on to the business.
i'm talking about Estate Taxes, aka "The Death Tax". i actually prefer the moniker Death Tax, and when discussing the matter that's how i refer to it. it's typically a Conservative slur to make it sound morbid and evil. i say why sugar coat it? it's a tax that the government collects on large estates after a wealthy person is diseased. i think it's quite fair to call it a Death Tax.
i love the Death Tax. i can think of no fairer or significant way to tax a person. why is it fair? for starters, it doesn't ever directly effect the individual earner. once it effects them they are already dead. it solely effects those set to inherit the estate. to be clear, the Death Tax only effects very large estates. currently, the tax is only applicable to estates larger than $5 million. so imagine a hypothetical dead guy worth $30 million. after taxes, the family of said dead guy will receive ballpark $20 million (35% current rate). not a bad haul for doing absolutely nothing other than remaining in the good graces of a relative.
so why do i think it is also significant? because the truly wealthy simply don't necessarily earn a lot of income on a year to year basis. most of their wealth is tied up in investments of some sort. imagine a hypothetical rich guy worth $12 billion. perhaps he is still earning a substantial salary of say $5 million/year. good living to be sure, but his tax burden is relatively light. even if he's cashed in on investments that year, say to the tune of another $10 million, he's still only paying a tiny portion of his net worth in the form of a yearly tax. what's more, many wealthy people tie up a large portion of their income on tax-free municipal bonds. the same hypothetical rich dude could own $1 billion of such low risk municipal debt, and earn $30-40 million per year tax free! it's good to be a rich dude!
back to the significance thing. given all that i've mentioned, it's easy to see that rich people paying their yearly taxes simply doesn't help nearly as much as it could, or some might argue should. my point is that you could increase the tax rate on high earners to 95% and it wouldn't make the slightest difference in paying down our national debt. as Conservatives love to point out, the Bush tax cuts which are set to expire at the end of the year, if extended for only 98% of Americans will only add about $80-100 billion in revenue, which is the equivalent of about 12 days of government spending.
the Death Tax, on the other hand, has teeth. once that hypothetical $12 billion guy croaks, the revenue on his estate is $4-5 billion! whoa! but here's the thing. i believe that it should be higher - much higher. that's right, if i were a lawmaker i'd propose a Death Tax of 60%, nearly double the current rate. the family that is set to inherit billions of dollars would simply have to do with a few less billion to parcel out. tough shit. you just inherited an assload of money for doing jack squat, so shut you pie hole and take your riches and be gone with you.
i can think of no better way to pay down our National Debt. rich old people die every day in America. i see no better way for them to pay back the contribution that this country has made to help acquire their wealth than to pay it back after death. when viewed in this light it's actually noble. it's a way to help ensure the prosperity of the entire country for decades into the future. if executed properly (no sure thing) it might even make a serious dent in out National Debt.
so why do i bring any of this up? for two reasons. one, Conservatives hate the Death Tax. Mitt Romney, for example, says that he would push to end it altogether. it's amazing that a group of people so motivated by their hatred of welfare seem perfectly ok to accept welfare (getting something for doing nothing) when it suits their interests. inheritance is precisely that - welfare. none of this is to say that people shouldn't be able to pass on their wealth to future generations. i'm not suggesting that the government seize 100% of anyone's estate. simply that they give more, and that the families who would stand to inherit any sizeable estate simply get less. i'm sure they'll survive just fine with $5 billion instead of $8 billion.
reason number two, the Estate Tax is set to increase after a decade long moratorium set in motion by George W. Bush. starting in 2013, the Death Tax will increase from today's 35% to pre-2001 levels of 55%. and it will be in effect for estates as small as $1 million.
so, depending of what circles you run in, or what types of conversations you have around the dinner table with family or friends, you might be hearing about the Death Tax in the coming months. if someone tries to tell you that the Death Tax is coming and you should be scared, simply take this discussion, copy and paste it and email them the next day. or perhaps you'll remember my rant and have something to counter their argument with.
i've presenting this argument to some Conservative friends, btw, and i've only heard one good criticism - that the government will simply waste the money they receive. while that's a valid concern, it could be easily alleviated by earmarking this tax stream directly and solely for paying down the National Debt.
if anyone can think of another criticism please have at it, and comment below.
Well first let's get a couple details out of the way. They only convolute the argument:
1. Municipal bonds that are tax free are so because the money is being lent to the government or government projects. Tax free bonds usually give much lower return as opposed to taxed bonds, so it's all figured in.
2. Investments aren't taxed until they are taken out, in which case they are taxed anyways. You can't use money that are tied down to an investment. But when you take it out, you get taxed (currently, long-term capital gains is 15%).
So in any case, if you want to bring this into the argument, would it make more sense to change how much investments get taxed rather than tie it into the estate tax? Because what does investments have to do with the estate tax to begin with? Suppose someone amasses $5 million and never invests a dollar in his life, the estate tax would still apply...
As for raising the estate tax, my personal belief is that the estate tax should never be higher than the highest tax bracket for one reason -- to eliminate loopholes. What the estate tax is is essentially a gift that occurs when one generation dies. It's easy to treat it differently, but it's not so different than if I wanted to give you $5 million, I have to pay taxes on that gift up to 35%. But with the estate tax, there are ridiculous rules, such as that if you skip a generation and gift directly to your grandchildren, you have to pay 35% again, so it would be close to 60%.
All this sounds fine and dandy, but who does this really affect? Hint: Not billionaires. It affects the doctors, start-ups, small businesses -- mom and pop stores, engineers that don't know any better to be ensnared by such a simple trap. The true billionaires will find a way around it. They will set up legal and financial counsels and plan for it. They might deposit some amount under $5 million for each year of their life into a trust that's not under their name. They might set up an overseas financial entity and pay the normal capital gains tax or whatever taxes the government imposes on overseas accounts, if it's less than the estate tax.
Would you do it? Let's say if you had $100 million. The government wants $60 million of that before you pass it to your kids. The alternative (simplified): Deposit $4.9 million into a trust fund every year for 20 years before your retirement. Or move your money to the Cayman Islands, move to Argentina or wherever, and rescind your U.S. Citizenship. Problem solved. Only the ignorant semi-rich guy would get pulled in for a quarter to 60% of their net worth.
The final result of all this is a more complicated tax codes, and more complicated tax codes put the average person at a disadvantage rather than the rich person with his team of financial advisers. What's next? The government might respond with increasing the tax rate for anyone who wants to move overseas. Or increasing the gift tax. Etc.
If you want rich people to pay more taxes, simplify the tax code. That's the only way. Personally, I wouldn't hold my breath. The simple truth of this is that it has nothing to do with the hatred of welfare. This country, and most other countries, are run by rich people. You could pass a law that hinders rich people by a little bit -- an acceptable sacrifice -- but do it too much and you'll be run out as fast as you got there. Increasing the estate tax by 25% more from 35% to 60% is like telling everyone over $5 million to set a quarter of their money aside. The real reason much of the rich do not pay as much taxes is not really as simple as haphazardly changing any single tax would fix. They know the loopholes. Fact: If you knew the loopholes, you could employ many of the same tactics to your advantage as well. There's no law that stipulates trust funds must exceed $5 million or even $10,000.
thanks Jonathan. you're right, of course. the truly wealthy do find ways around the estate tax. the world that i depicted is overly simplistic and utopian. still, i think it has merit, and it doesn't sound like you'd like it to go away, no?
one point of contention on municipal bonds. i'm quite familiar with them (i am actually a series 52 municipal securities representative, as well as series 7 registered representative) and am well aware that the interest rates are lower than on other taxable debt. that misses the point that a person with massive wealth could park huge sums in muni's and rake in large amounts of tax free income per year. that same person, who may be taxed at a high rate on other income if they make say $200,000 makes out like a bandit. they could make $500,000 in tax free income which benefits them substantially as opposed to buying treasuries or other low risk taxable alternatives (where they'd be taxed at 36% today). that's all to say that muni's are another way for the hyper wealthy to avoid contributing to revenue, in a relatively risk free manner at that.
who said you couldn't? you just don't get to give it all.
again, this is only for the wealthy. normal Americans don't pay an estate tax. wealthy people have benefited the most from the American system of free enterprise. death is a perfect time to repay their debt to society.
I disagree with Matthew's "repayment to society", but I'd like to suggest another. The power of leveraging that few people understand could quickly, within few generations, turn the nation into a banana republic, if it isn't already. Wealth passed from one generation to the next that is not spent would not only not benefit the economy, but it accrues interest and compounds itself. Without the estate tax and other methods that make the world a little bit unfair even, it would create a financial gap in which the "Old Money" becomes so powerful that it could not be obtained no matter how hard one works.
jay H, Matthew already said what the super-wealthy pay in taxes is not nearly enough. And the reason people are able to become so rich is that they had the privledge (sp?) of living in the U.S. with all its amenities. The super-wealthy don't work for an employer for 'wages'.
I would say maybe 50%. Once again I agree with you Matthew~ Your VERY Liberal Atheist friend, Melinda