Oct 25th, 2009 at 1:01 pm
Estate Tax Cuts and Deficit Hawk Hypocrites
One good way to tell the difference between a member of congress who’s genuinely concerned about the long-term budget deficit and a hypocritical jackass is to ask them where they stand on the Kyl-Lincoln $250 billion budget-busting giveaway to the children of extremely rich people. The bill now has a House counterpart. Key sponsors include Rep Artur Davis (D-AL) and Rep Shelley Berkley (D-NV).
111 Responses to “Estate Tax Cuts and Deficit Hawk Hypocrites”
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October 25th, 2009 at 1:05 pm
The bill now has a House counterpart. Key sponsors include Rep Artur Davis (D-AL) and Rep Shelley Berkley (D-NV).
Thank you DLC and Harry Reid!!
October 25th, 2009 at 1:28 pm
After a post like this, one wonders what is the point of even talking about regulating Wall Street a little bit. Congress doesn’t feel the need to hide giant handouts to the super-super-rich anymore. People like Lincoln really have no shame and journalists will keep calling them “fiscal conservatives worried about deficits” when they oppose a public option.
Better Democrats are needed.
October 25th, 2009 at 1:36 pm
To repeat what I posted on Pat’s entry, what bothers you, lowering the rate to 35%, or raising the total to $5M? The latter seems sensible to me, given that a surviving spouse loses the benefit of the “double” for married couples language. In the real world, where one spouse usually pre-deceases the other, $3.5M is just too low and will bring in many middle class estates, especially where there is a single family home or small business involved. I think that the Democrats would be foolish to cede this issue to the Republicans, who have hurt them badly on the estate tax issue among middle class voters.
October 25th, 2009 at 1:44 pm
I don’t think 3.5M is too low- the thing that is always poorly explained is that, like all taxes, this is a marginal tax. If you have a 4M estate, you do not face a 45% tax on 4M (1.8M), you face a 45% tax on 0.5 M ($200k) so the effective tax rate is 5% (200k/4M). Is that really a huge burden, especially considering that estate capital gains get a free step-up in basis and without the estate tax would face no tax at all?
October 25th, 2009 at 1:45 pm
In the real world, where one spouse usually pre-deceases the other, $3.5M is just too low and will bring in many middle class estates, especially where there is a single family home or small business involved.
In what “real world” do middle-class families inherit over $3M dollars? That reminds me of that journalist during the campaign who thought someone earning $200k a year was also “middle-class”.
I guess that’s another reason Democrats can’t regulate Wall Street, that would hurt the “middle-class” traders and mom-and-pop hedge funds.
October 25th, 2009 at 1:57 pm
Spare me. In the real world of Long Island, for one. Two LI public school teachers (married) can easily earn close to $200K, and believe me, they earned every penny. I don’t consider school teachers to be among the idle rich.
October 25th, 2009 at 2:04 pm
Shorter maynardGkeynes: Why do you hate billionaire firemen and school teachers?
October 25th, 2009 at 2:06 pm
One way to tell the difference between Matt and someone who loves liberty, is that Matt believes all the money nominally in private hands presumptively belongs to the government. Failing to confiscate it constitutes a “deficit.”
October 25th, 2009 at 2:12 pm
Not clear to me why well-paid Long Island public school teachers who inherit millions of dollars at age 50 should pay lower taxes on that inheritance than a janitor does on his wages, but OK.
October 25th, 2009 at 2:15 pm
Why oh why says:
“… mom-and-pop hedge funds.”
Thanks for the funny.
October 25th, 2009 at 2:22 pm
The tax is not paid when the teachers inherit $3.5M, but when they die with an estate worth that much after a lifetime of savings. That’s why the Republicans call it a “death tax.” I hope that you and “oh why” understand that, but after reading “oh why’s” post, it appears you both may be confused on this point, and it’s rather elemental to the debate. More to the point, I don’t think Matt should use this as the acid test for Republican jackasses. There are too many other tests that are far more diagnostic. This one is a close call, and even Charlie Rangle appears to be OK with $5M. BTW, he is not a Republican (or a jackass IMO).
October 25th, 2009 at 2:27 pm
I’ve never seen so much wrong packed into 3 comments, Maynard.
“Many” middle class families have estates of $3.5 million.
“Many” Long Island school teachers earn close to $100/year.
Inheritance taxes are not paid by people who inherit money.
You don’t have the foggiest idea what you’re talking about.
October 25th, 2009 at 2:29 pm
#3:
I know very little about estate taxes (and I’m happy to be corrected), but my impression is that surviving spouses are largely or completely excluded from inheritance taxes. Especially for joint property. Wikipedia seems to confirm this.
October 25th, 2009 at 2:34 pm
You must not read your own posts very often.
October 25th, 2009 at 2:35 pm
I was going to start listing facts and providing links about who pays estate taxes and how many people would benefit from this amendment, and at what levels of wealth, for Maynard’s benefit, but as it turns out, the underlined section in the post is a link, which goes to a page providing that information, with links to the references.
It doesn’t, however, include figures for the income of Long Island school teachers, who earn about $68,000 per year.
October 25th, 2009 at 2:36 pm
Claim – $3.5M is just too low and will bring in many middle class estates
Fact – $50,233 was the median or “middle” household income in the US in 2007
$3.5 million dollars represents more than 69 years of income for the true middle class household. Middle actually means something and I wish somebody would put an end to the extreme bullshit of having the middle in “middle class” mean something entirely different. Then candidate Obama defined “middle class” as making $150,000 or less during the campaign. If middle means what it says in the dictionary then Obama would be as accurate saying the median height of an NBA player is 19 feet 6 inches tall. And Obama’s definition of middle class is lower than the figures being discussed in Congress!
As Fedstats.gov for Kids says, “Median is in the middle.”
October 25th, 2009 at 2:37 pm
You know what you could do now, Maynard, to salve your hurt feelings? You could prove me wrong.
You could find sources to support your assertion that “many” middle class families are paying inheritance taxes; that “many” Long Island school teachers earn $100,000 per year, and that inheritance taxes are not paid by people who inherit vast sums of money.
Man, when you provide links to reliable studies demonstrating those points, am I ever going look foolish. So, have at it.
October 25th, 2009 at 2:37 pm
Obviously ronaldGreagan is deluded about what constitutes the “middle class”, but choosing a school teacher as his hypothetical millionaire is especially stupid. Where does he think their salary comes from?
Here are a few school teachers who probably won’t leave millions of dollars to their children.
October 25th, 2009 at 2:39 pm
Spare me. In the real world of Long Island, for one. Two LI public school teachers (married) can easily earn close to $200K,
I’m trying to work out how a pair of teachers with a late-career $200k income wind up with $3.5+ million in savings to be handed down to their children, absent unbelievable market luck or some other inheritance. I suppose it’s possible if they make $200k from the first day of their career, save most of their salary, time the market right, use their tax-deferred accounts to the maximum (note that these are “tax-deferred” not tax-free), and most importantly die before spending much of it. It must happen, but probably not that often. In that case their heirs would pay tax on the smallish portion over $3.5 million and would never have to work another day in their lives.
(Note here that we’re talking about someone paying this tax in 2009 — presumably the cap will drift upwards with inflation.)
October 25th, 2009 at 2:39 pm
States (NY included) have estate taxes that legitimately impact the (upper) middle class – the federal estate tax does not. It just doesn’t.
October 25th, 2009 at 2:41 pm
That is correct. But a surviving spouse no longer gets the married (double) exclusion. The problem is what happens when she (or he) dies.
October 25th, 2009 at 2:49 pm
Joe, there is a new technology you may not have heard of called “Google.” I suggest you take your own advice.
October 25th, 2009 at 2:50 pm
This needs to be called the Paris Hilton tax.
October 25th, 2009 at 2:55 pm
Uhhhh…did you imagine that I had the web address for that link I provided on Long Island school teachers’ salaries memorized?
And why would I bother to use Google to prove all of your made-up argument wrong, when the links doing so are already provided in the CAP post that Matt links to?
You didn’t even bother to click the link, did you? You just made your naked assertions, without bothering to discover that they had been pre-refuted.
October 25th, 2009 at 3:04 pm
The book “The Millionaire Next Door” covers this in great depth. The secret is called living below your means, a concept foreign to many Americans today. Think about it. Suppose they decide to live on one salary and save the other $100K a year. Over a 30 year career, such savings add up, and when you add in house appreciation, you can see you are in the multi-million ballpark, even with taxes. I’m not saying it’s easy, but it’s hardly miraculous, as the aforementioned book shows. Part of the problem today is that Wall Street wants you to think you have to trust those scumbags with your money to have a chance. It’s just not true.
October 25th, 2009 at 3:23 pm
@Joe. Ok, you made me do it.
This NYT article is from 2005. salaries have increased I would think since then. LongIslandSchools.com puts the current AVERAGE salary at $75,284, which suggest lots of senior teachers at or above $100K
The Rise of the Six-Figure Teacher
By FORD FESSENDEN and JOSH BARBANEL
Teaching has become a better-paid profession, with thousands of public school teachers in the New York suburbs now earning more than $100,000 a year…..One in 12 teachers in Nassau, Suffolk, Westchester, Rockland and Putnam Counties now earns more than $100,000, and the ranks are growing fast, according to an analysis of state data by The New York Times.
http://www.nytimes.com/2005/05/15/nyregion/15liteach.html
ps: And seriously, inheritance taxes are not paid by the recipients. It’s in the IRS code and easy to check.
October 25th, 2009 at 3:23 pm
The book “The Millionaire Next Door” covers this in great depth. The secret is called living below your means, a concept foreign to many Americans today. Think about it. Suppose they decide to live on one salary and save the other $100K a year. Over a 30 year career, such savings add up, and when you add in house appreciation, you can see you are in the multi-million ballpark, even with taxes. I’m not saying it’s easy, but it’s hardly miraculous, as the aforementioned book shows. Part of the problem today is that Wall Street wants you to think you have to trust those scumbags with your money to have a chance. It’s just not true.
The average salary in Suffolk County schools is about $67,000 (the average in Nassau is about $75,000). That’s after 10-12 years of teaching. So the idea that two teachers are pulling in $200,000 for 30 years just doesn’t hold water. The starting salary for a LI teacher, even with a masters, probably isn’t much over $55,000, if that much, considering how long it takes to get to the average numbers.
Also, living on Long Island is rather expensive.
October 25th, 2009 at 3:39 pm
“Suppose they decide to live on one salary and save the other $100K a year.”
Gadzooks, what an idiot!
If a couple earns a joint salary of $200K a year on Long Island, they will take home nowhere near $200K. After taxes, they’ll take home $130,000/yr if they’re lucky. So if they’re going to save $100K a year, that means they’re living on $30,000/yr. On Long Island.
Smarter trolls, please.
October 25th, 2009 at 3:41 pm
I understand this is not the singular of “data”, but…
I am the child of two Long Island public school teachers. While their combined income did break $100K in the latter stages of their careers, it never came close to $200K. Between buying a house and paying off the mortgage, buying cars, raising three children and paying for five college degrees among them … I am quite confident my siblings and I do not have a $3.5M estate waiting for us.
October 25th, 2009 at 3:42 pm
maynardGkeynes is like all Republicans in that he ignores facts, makes things up and is clueless.
October 25th, 2009 at 3:44 pm
I don’t know how “maynard” managed to hijack this post to talk about millionaire school teachers, but one has to note how hypocritical he is from the start: the journalist was talking about one person making $200k, “maynard” immediately changes the topic to talk about a couple making $200k.
But more importantly, the amendment Matt is writing about would lower massively taxes for billionaires. It wouldn’t change much for “maynard”’s mythical plumbers or janitors leaving $4M to their children.
Note that it is a classical right-wing tactic: instead of the hundreds of billions that measure would give to billionaires and their heirs, “maynard” wants you to think about those who would really get hurt: school teachers! One has to wonder whether “maynard” spouts this non-sense to confuse us, or if he really believes it.
October 25th, 2009 at 3:44 pm
Right, the 100K/200K is at the end. I know that. But, let’s ballpark the numbers you present, just to get an idea: Using your numbers, I get an average salary of roughly 75K/150K over 30 years. So let them save 75K a year in constant dollars. That’s over $2M saved over 30 years by the two teachers from salary alone. Plus home appreciation and some modest return on their savings, hopefully some of it in tax deferred accounts. Plus, they retire at age 55 with a 50% pension of 75K/year until they die. Alas, they must pay taxes and LI is an expensive place. Still, these folks can leave an estate in the $3.5M without a huge stretch of the imagination. And, in fact, many do.
October 25th, 2009 at 3:46 pm
So now, they don’t just earn the made-up figure of $100,000 each just for a couple years at the end of their careers, but they’re both earning $100,000 a year, as school teachers, for 30 years?
Hokay.
Original claim: Two LI public school teachers (married) can easily earn close to $200K
has now become: One in twelve teachers (that’s 8.33%) in a subset of the wealthiest counties in metro NYC earn six figures.
It’s so “easy,” that 90%+ can’t do it, in even the richest parts of the region. Hokay.
October 25th, 2009 at 3:50 pm
Maynard, as someone who has benefited from our ridiculous federal estate tax policy, let me just say you’re full of shit. Who exactly are these abstemious Lawn Guyland teachers? Are they saving their whole lives so their single child (two would be too expensive!) can buy a yacht when they die? Would a hundred thousand in taxes on the the $3.8 million estate (clearly Mr. Teacher has an awesome system that he uses to win at Belmont every year) ruin the whole plan? I mean, the wee-but-valuable family farm fantasy makes a vague amount of sense (for those 4 families a year it applies to) but this? Ridiculous.
October 25th, 2009 at 3:53 pm
Subtotal: $2 million.
…a home they can buy on $75,000/year, so it starts out at about $200,000. Let’s say it triples in value over that 30 years.
Subtotal: $2.4 million
I’ll optimistically give you another million on that.
Total: $3.4 million.
Your theoretical couple’s heirs pay no inheritance tax under current law.
October 25th, 2009 at 3:55 pm
I should mention, in my calculations, the couple spends exactly zero of the money they saved, earned, and earned in interest/dividends/appreciation.
October 25th, 2009 at 4:04 pm
Although I will add, the teachers in Nassau, Westchester, Suffolk, Rockland and Putnam counties could very well be overpaid, and I wouldn’t have the slightest objection to cutting payrolls in those school districts by an amount sufficient to bring all teachers’ salaries down to $99,999 per year, and sending that money to school districts in the Bronx and Harlem.
October 25th, 2009 at 4:06 pm
The “massive” lowering of taxes on billionaires comes from going from a 45% to a 35% rate, not from going from $3.5M to $5M. Taxing estates under $5M does indeed hit groups that most people would consider middle class, like teachers and small family businesses. That is my point. I could care less about higher estate taxes on the truly rich, and you can bet that the party that wants to have the fight over an estate tax that hits the middle class is the Republicans. Because the can win that one.
October 25th, 2009 at 4:11 pm
Holy cow, it is like some liberal is trolling as a “conservative” just to mess with everyone. The choicest quote is here:
Joe, there is a new technology you may not have heard of called “Google.” I suggest you take your own advice.
Just like a conservative! But stereotypically so. Whenever you say “bullshit, show me some evidence” they say “no, go find it yourself” because they are lying and we all know it; but whenever you make a claim they say “I need proof”. This asymmetric demand for evidence makes me think that this is a spoof or some really stupid conservative like Megan McArdle is trolling. Doesn’t this sound like McArdle stupidity?
October 25th, 2009 at 4:11 pm
“Taxing estates under $5M does indeed hit groups that most people would consider middle class, like teachers and small family businesses. That is my point.”
Ah. Then you have no point.
There are no middle class teachers that have estates valued at between $3.5 and $5 million. None.
Smarter trolls, please.
October 25th, 2009 at 4:12 pm
Taxing estates under $5M does indeed hit groups that most people would consider middle class, like teachers and small family businesses. That is my point.
No it doesn’t, that is our point.
October 25th, 2009 at 4:15 pm
I think people have already well established the implausibility of maynard’s absurd hypothetical.
But the more important point is this: even assuming this hypothetical to be true – so what?
In what way is it unfair to ask the heirs of this diligent (and incredibly fortunate) pair of misers to pay tax (not forfeit all, or even most) of this estate?
October 25th, 2009 at 4:16 pm
Nassau County was (and arguably is) almost bankrupt from their habit of paying exorbitant salaries to civil servants. They had almost a half a billion dollar deficit AS A COUNTY. Using the salaries of government employees in a bankrupt county with some of the highest taxation in the country to justify a LOWER federal taxation rate is either dishonest or moronic. Or both.
October 25th, 2009 at 4:21 pm
Curly, I will say again, the party that wants to have the fight over an estate tax that hits the middle class is the Republicans, because they can win that one. If you feel that middle class people should pay an estate tax, fine. Join the Republican party. They are the ones that will NEVER report out a bill that doesn’t lump the middle class with the rich. A limit of $3.5M plays right in to their hands. Fortunately, Charlie Rangel knows this, which is why the number is likely to be $5M.
October 25th, 2009 at 4:22 pm
The “massive” lowering of taxes on billionaires comes from going from a 45% to a 35% rate, not from going from $3.5M to $5M.
Yeah, but you can bet that if this amendment is ever discussed in the news, it will be all about that one farm or small-business in the whole country badly affected by one tragic death. Nothing will be said about the hundreds of billions it would hand out to people like the Walmart heirs — who more or less own Senator Lincoln.
you can bet that the party that wants to have the fight over an estate tax that hits the middle class is the Republicans. Because the can win that one.
Unfortunately for Republicans, not everybody in the country has been brainwashed by talk radio yet. Go talk about poor “middle-class” families who can’t even inherit $4M without paying a little bit of taxes and see if you can make anybody cry with that tragic story.
October 25th, 2009 at 4:24 pm
“If you feel that middle class people should pay an estate tax, fine.”
There are no middle class people who have an estate valued at between $3.5 and $5 million. None.
Smarter trolls, please.
October 25th, 2009 at 4:30 pm
Please see post #26. Also, see Joe’s post #35, which gets the teachers to an estate of $3.4M, albeit with assumptions favorable to my side of this argument. All I’m saying is that $5M puts you into a fight with lots of hardworking two-income professionals and even semi-professionals, when the fight you want to have is with the truly rich. If that makes me a troll …. excuuuuuuse me…..
October 25th, 2009 at 4:33 pm
“If that makes me a troll …. excuuuuuuse me…..”
You’re excused. Please leave now.
October 25th, 2009 at 4:43 pm
“maynard”’s delusions aside, it is interesting to note that the top marginal rate was 55% under Clinton. So now the Democratic position seems to be a 10 percentage points permanent tax cut for the super-rich (as decided by Bush), while corpocrat “moderates” want to go even lower.
Who needs Republicans when you already have Democrats?
October 25th, 2009 at 5:07 pm
Rates were generally much lower than that by the end of the Clinton years, with the top rate at 39.6 in 1999. Under Reagan, the top rate was around 50%.
October 25th, 2009 at 5:33 pm
Funny how “a little bit of taxes” is so unimportant as long as you are not the one one paying them, but actually, that’s not the point. The present system has engendered a great deal of inefficient and wasteful estate tax avoidance strategies that benefit no one except the wills, trusts and estates lawyers who devise them. If revenues are needed, and they probably are, income taxes and or possibly a VAT are far more efficient method of raising them, even from the “overpaid” school teachers and civil servants so despised by the participants on this board.
October 25th, 2009 at 5:38 pm
And why, pray tell, is it so important that “middle class people”, with estates of more then $3.5 million, be able to leave every cent of their money, untaxed, to their kids? Who earned what?
October 25th, 2009 at 5:45 pm
The problem is what happens when she (or he) dies.
There’s a problem? If they’ve saved money, then they have every right to spend it however they like. If they want to spend it on their kids, then that’s cool too. If they want to leave it to their kids for them to spend after they’re dead, then their kids pay taxes on it.
October 25th, 2009 at 5:46 pm
Also, I smell the distinctly fecal trollspoor of the Mixmaster.
October 25th, 2009 at 6:51 pm
Oh stop. Just frapping STOP!!!
Look, I work in financial services for a very well-known company.
And I can tell you, NO-ONE, NO-F-ING BODY has that kind of money lying around ready to go to probate as part of an estate.
Retirement accounts, for one thing, are not subject to probate and not part of the estate, unless there are no living beneficiaries. Period. The spouse, if s/he is the only primary beneficiary, gets the account tax free. After s/he dies, his/her beneficiaries gets the account under special tax rules. Not part of the estate nor subject to estate tax. Period, end of story.
Anybody with more than two nickels to rub together, unless they keep the $$ in a mattress, puts most of it in trusts. Lawyers and financial advisors make a small killing providing the pre-written boilerplate with blanks filled in. Again, the trusts are not subject to probate and are not part of the estate.
So unless our hypothetical teachers are too stupid to be teaching any of our kids, their $3.5mm hypothetical bux won’t be subject to taxation anyway.
Just shut up, the lot of you, but especially Maynard.
October 25th, 2009 at 7:10 pm
Is that you, Al From ?
The Estate tax is the most just tax of all.
Democrats should grow a pair and lower the ceiling to 500K.
October 25th, 2009 at 7:19 pm
Wow, I am so impressed that you work for an important finacial services company. As what? An elevator operator? You are totally ignorant. Read IRS Code Sec. 2031 (a) : A decedent’s gross estate includes the cash value at the time of decedent’s death, “ALL property, real or personal, tangible or intangible, wherever situated.” A decedent’s estate may include stocks and securities, real estate, business interests, personal effects, annuities, trusts, 401Ks, IRAs, and other qualified plans. Each of these items is subject to a valuation determination as set forth in IRS Reg.20.2031-1.
So how about you shut up, efgoldman-sachs. You know nothing. In fact, 401Ks are taxed twice, first by the estate tax, and later the withdrawls are taxed as ordinary income by the beneficiary over an actuarial lifespan.
October 25th, 2009 at 7:57 pm
“In fact, 401Ks are taxed twice, first by the estate tax, and later the withdrawls [sic] are taxed as ordinary income by the beneficiary over an actuarial lifespan.”
Considering that it is all entirely unearned by the recipient, this seems quite reasonable.
October 25th, 2009 at 8:07 pm
Look.. this debate is stupid. The government has expenses. if these expenses are not paid for via taxation, they will be paid for by the printing press. Which is worse. So we must have *some* taxes. Now, I would like to ask if anyone can think of any taxes what-so-ever that have less adverse effects on the economy than the estate tax. Its collected after the person who earned the money is *dead*. I find it extremely difficult to belive that anyone is going to be discouraged from working hard and making money by the fact that the goverment is going to take some of it when you die. What you tax, you discourage, and this tax discourages dying. Dont want to pay it? DONT DIE!
The only reason to set this tax any lower than 100% is that not letting heirs keep family knicknacks would be needlessly greedy and cruel, so an exemption for values below a certain treshhold makes sense, but 3.5 million is already ridiculusly high.
October 25th, 2009 at 8:18 pm
no, maynard, the elevators in my building are run by republican know-it-all trolls who sleep in the basement.
yes, all the valuations are reportable, no the retirement accounts and trusts are not probated as part of the estate and are therefore not subject directly to estate tax.
anyone can go on line and read the code. that’s what irs.gov is for. but selective reading gives selective idiocy.
just give it up.
on the other hand, maybe we should be grateful that you finally gave a cite, even if its the wrong one.
October 25th, 2009 at 8:19 pm
and jergensen is exactly right
October 25th, 2009 at 9:20 pm
It is deceptive to call it a ‘giveaway’. The government will not be giving money to the children of rich people — They will be taking less of it. I expected better of you, Yglesias.
October 25th, 2009 at 9:32 pm
…which is exactly why you Republican have to make up out of thin air the existence of a middle class family with $3.5 million estates.
Even granting you absurdly favorable assumptions, I still couldn’t get a couple who earns $150,000 for thirty years to accumulate that much money.
October 25th, 2009 at 10:31 pm
The tax is not paid when the teachers inherit $3.5M, but when they die with an estate worth that much after a lifetime of savings
allrighty then,
lets abolish the “death tax” and double the inheritance tax to make up for the lost revenue
happy now?
October 25th, 2009 at 10:54 pm
Yes, if the exclusion goes up high enough. So, are you in favor of the government confiscating 80% (double the present 40%) of everything over $5M? I’d say that’s theft, but perhaps you disagree.
October 25th, 2009 at 10:58 pm
I wouldn’t say absurdly favorable. I based my projection on a 1% or 2% return ex inflation over 30 years; the stock market has historically returned 5-6% ex-inflation, which would get you way above 3.5M
October 25th, 2009 at 11:16 pm
I’m not sure what you mean by “directly,” nor do I care particularly. Probate has absolutely nothing to do with the application of the Federal Estate tax. In fact, many if not most estates, small and large, avoid probate these days. They are still subject to the Federal estate tax if the amount is above the threshold.
October 25th, 2009 at 11:28 pm
So, are you in favor of the government confiscating 80% (double the present 40%) of everything over $5M? I’d say that’s theft, but perhaps you disagree.
Um, you do realize that the “death tax”, the inheritance tax, and the estate tax are all the same tax right?
no, i guess you dont – so I say again, those poor dead people who worked hard for their money should be left alone and we shold tax dead people 0% so as not to steal from them. Then to be revinue neutral, double the tax that inharitors pay (you said earlier that it was 0% – the dead pay the tax “The tax is not paid when the teachers inherit $3.5M, but when they die with an estate worth that much after a lifetime of savings. That’s why the Republicans call it a ‘death tax’.”) so you should be happy
October 25th, 2009 at 11:37 pm
A confiscatory estate tax (above some level) is in my opinion a good idea. Keep the other taxes as flat as possible instead.
October 25th, 2009 at 11:45 pm
I realize that the proper name is the Federal Estate Tax. It is paid by the estate of the deceased (or by the executor of the estate). The beneficiaries owe no tax on monies they receive, with the exception of income tax on annual distributions from IRA, 401Ks, and other tax-deferred retirement accounts they inherit. That is my understanding. In the unlikely event you have a point, please restate it.
October 25th, 2009 at 11:52 pm
Spoken like a true Scandinavian. Care to give reasons?
October 25th, 2009 at 11:58 pm
I realize that the proper name is the Federal Estate Tax
yep, no such thing as a “death tax” no such thing as an inheritance tax, eliminating the death tax and doubling the inheritance leave us right where we are now
but somehow, instead of reading that as snark, like anyone else would, you rant about taxation = theft
October 26th, 2009 at 12:03 am
Ever heard of children? Grandchildren? Some people actually do like to leave something for them, and yes, they do work harder and longer to be able to do that. Quite amazing, isn’t it? The idea of not spending it all on your yourself.
October 26th, 2009 at 12:06 am
Spoken like a true Scandinavian. Care to give reasons?
No. The reasons are obvious.
October 26th, 2009 at 12:06 am
Point taken….sorry.
October 26th, 2009 at 12:07 am
Ever heard of children? Grandchildren? Some people actually do like to leave something for them.
In maynard’s world, $3.5M doesn’t count as “something”. In a parallel way, in the Republicans’ world, people who fail to accumulate more than $3.5M over the course of their lives don’t count as something, either.
October 26th, 2009 at 12:12 am
We’re assuming a couple saves 50% of their income to begin with – plus retirement accounts. Silly, absurdly favorable assumptions.
Once again, we’re talking about people fortunate enough to be inheriting at least three and a half million dollars. If the estate is $3.6 million, they will be netting $3.555 million. If the estate is $4,000,000, they would be netting $3.8 million. If the estate is $100,000,000, they net a little over $53 million dollars.
So I think we can dispense with the fear that the estate tax as currently constructed discourages people from earning money to leave to their kids.
October 26th, 2009 at 12:12 am
Yes, I believe they are….
October 26th, 2009 at 12:13 am
Whoops, a little over $56-1/2 million dollars.
October 26th, 2009 at 12:16 am
Of course, lowering the estate tax doesn’t change spending levels, or the overall tax burden. It just shifts it down the income scale.
I still haven’t heard any reasons why that’s a good idea.
October 26th, 2009 at 12:26 am
I acknowledge your point about the marginal rate, and it is a fair one. My comment about leaving something to children and grandchildren was responding to a comment that suggested confiscating everything except grandmas knick-knacks, which is absurd. Back to your comment, I don’t think $5M is so much money that $675,000 won’t be missed. People will do A LOT to avoid paying that much, and most will in fact be able to avoid paying most of the tax through various trusts, gifts and other estate planning devices. Good for lawyers, not so good for anyone else, including the Treasury.
October 26th, 2009 at 1:15 am
Spoken like a true Scandinavian. Care to give reasons?
I’m a mutt American but maybe it has something to do with Norway being #1 on the Human Development Index and Sweden being #7 while the US is #13.
October 26th, 2009 at 1:49 am
Obviously, when you are 57 zillion dollars in debt, you should not be discussing tax cuts of any kind. The words tax cut should not pass any Congressman or Senator’s lips -ever again. To do so is to advocate the destruction of the very thing you theoretically represent -the People of the United States.
October 26th, 2009 at 8:42 am
Why on earth would anyone do that? What would be the point? And why should tax policy favor crazy people?
October 26th, 2009 at 9:46 am
Isn’t Artur Davis one of the House holdouts on health insurance reform, too? Has he always been such a tool, or is that a transformation brought about by his decision to run for governor? And is maynard here as a proxy for the Davis campaign in order to push comments on this key question down where no one will read them?
October 26th, 2009 at 9:56 am
again, (upper) middle class people do pay estate taxes(or have to otherwise deal with them, e.g. by giving their money away during their life a little at a time, or moving to a state without an estate tax) Just not federal estate tax.
October 26th, 2009 at 10:15 am
I never cease to be surprised how many people who talk about taxes a lot, and often using largely teleological frameworks, turn out to be apparently entirely unfamiliar with the literature on optimal capital and optimal labor income taxes, to the point that they think that only hypocrites believe the two tax rates should be different. It’s almost as if they came to their conclusions before figuring out what arguments could defend them.
October 26th, 2009 at 11:02 am
Why the Democrats don’t call it the Paris Hilton tax to counter the “death tax” talk is puzzling. My conservative mother believes that her piddly $80,000 retirement fund is going to be taxed away under the “death” tax. Of course, she watches Fox News.
October 26th, 2009 at 11:18 am
In this respect, the Lincoln-Kyl strikes me as more progressive than the current law, since 90% of the tax is paid by large estates instead of the current 50%. The major objection to L-K should be that it would lower the rate from the current 45% to 35%, not that it raises the exemption to $5M/$10M. IMO, the latter is sensible because of it’s impact on family businesses and some middle class wage earners as opposed to coupon clippers. I truly do not understand how TPC can conclude that the Obama tax would hit less than 100 family businesses. Having looked at the study, TPC appears to define family businesses in a very narrow fashion: “… we define those estates as ones in which farm and business assets total less than $5 million and make up at least half of gross estate,…” This appears to get to the 100 number by excluding from the definition the many family businesses worth more than $5M, which is circular, if you are trying to see what the real impact will be on family businesses that will have to be sold to pay off the estate tax. Many are worth more than $5M and under $10M and they are still “small” and “family” in every meaningful way.
PS: Not that it should matter, but since some posters are suspicious, I have no connection whatsoever to any party or interest group.
October 26th, 2009 at 11:57 am
Huh. I’m also confused as to how someone could say something to the effect that “the marginal tax is high, but the average rate is low!” as if this is feature and not a bug. I mean, c’mon, think about that for a second. Why not go further, and make the marginal tax 100% and the average tax 0% — would that be even better? How about a negative average tax and a marginal tax above 100%? No burden at all — what’s not to like?
October 26th, 2009 at 2:06 pm
I know it seems like heresy for us liberals, but why not just eliminate the estate tax and offset it with a new marginal tax bracket?
What is the progressive goal of the estate tax? To bring a meritocracy, where familial wealth brings no extra benefit? The majority of the benefit of having rich parents is realized at the beginning of life when the parent is still alive … and if that’s not true it doesn’t seem to be working anyway (q.v. Bush I & II).
I say lets get rid of the estate tax and replace the revenue with higher taxes on the wealthy and deprive the GOP of a talking point.
October 26th, 2009 at 2:22 pm
Jason,
I agree entirely. It makes absolutely no sense to be taxing savings/capital — that’s an extremely robust result in optimal taxation theory. (Hey, if the dynastic model doesn’t apply to the Hiltons, whom does it apply to?) And it certainly doesn’t make any sense to have progressive capital taxation — people who argue that it applies to very few people on a very small margin are making an argument against the estate tax, not for it.
October 26th, 2009 at 2:27 pm
I don’t care if we’re talking about a urinal scrubber, if’s it’s a urinal scrubber at the Taj Mahal – if s/he is making six figures, or leaving $3.5 million to their kid(s) – it ain’t middle class. As the previous poster pointed out, the middle is the middle. My mother is a single-parent waitress at Dave and Busters (no, she didn’t kill Steve McNair), but I’d jump at the opportunity to give the government 45% of $3.5 million and lose my middle-class moniker.
How terrible it must be to work so hard at driving cars that were bought for you, getting first class educations that were paid for in advance, and walking around that big lonely million dollar house for all those years, only to be left with a paltry $2.75 million in the end, when it could have been the full $5 million estate. Especially if the government is just going to waste all that money educating, feeding, housing, and providing health care to poor people. My hard bleeds for those “middle class” teachers’ kids.
October 26th, 2009 at 2:36 pm
Correction: I forgot about the marginal rate. Assuming a 45% tax kicks in at $3.5M, then it would only be $675K of a $5M estate that goes to feeding, housing, etc., the poor – and the mulit-millionaire teachers’ kids are left with a paltry $4.325 million of their original $5M estate.
October 26th, 2009 at 2:37 pm
In this respect, the Lincoln-Kyl strikes me as more progressive than the current law, since 90% of the tax is paid by large estates instead of the current 50%.
The only way this makes sense is if tax money simply evaporates rather than being spent on public services or servicing the national debt. Of course estates > 10M pay a larger share under Lincoln-Kyl, because estates between 3.5 and 5M don’t pay any share at all. L-K makes the pie smaller, and thus transfers money from the society at large to the very thin slice of society that receives windfalls of $3.5M or more.
Since you’re not stupid, maynard, the only conclusion I can draw from your idea that L-K is more progressive than the alternatives that actual progressives favor is that you’re a disingenuous sack of shit.
October 26th, 2009 at 2:47 pm
@ Jason, Ryan,
The difference is that higher marginal tax rates unfairly tax people who work for a living, as opposed to people who pay capital gains (or who pay nothing due to step up on basis at death).
So raising marginal rates actually decreases actual social mobility and the incentive to “reach for the top,” while failing to redeploy capital out of the hands of people who don’t do much that’s productive with their lives or their money.
The inheritance tax is a necessary tax for a healthy and productive society.
October 26th, 2009 at 2:55 pm
Oh, and for everyone else that thinks that $5M net worth is the middle class, you really, really, really, really need to actually learn to read. In 2002, only 9% of American households had a net worth in excess of $500k, so what you are talking about is the top 1%, not the middle class.
http://www.freeby50.com/2009/06/net-worth-distribution-of-americans.html
October 26th, 2009 at 3:09 pm
I agree entirely. It makes absolutely no sense to be taxing savings/capital — that’s an extremely robust result in optimal taxation theory.
Does optimal taxation theory take into account that money can buy political power? Because if it doesn’t, it misses a point.
You can’t have a real protection of property without a state. And aristocracies of wealth are bad for the state.
October 26th, 2009 at 3:50 pm
Dollared: Raising marginal rates actually decreases actual social mobility and the incentive to “reach for the top,”
(I’m not the Jason your replied to, and I agree that we need to keep the estate tax, but. . )
Is there any actual evidence for this? In theory, this is true only if people making millions of dollars a year are working to simply amass money, rather than beat their peers or be able to afford particular goods. And even then it may not be true, in that having progressively higher marginal rates makes the upper tail less fat, so the top is more within reach for those currently making, say, 300k but striving to get even closer to the top.
As for social mobility, a lot of the comments on this thread seem to ignore the (relatively small, I know) proportion of people who aren’t millionaires and make less than 200k a years. If it’s hard for people in the 98th percentile to break into the 99.5th percentile, I’m really not too worried. What matters is whether people in the 20th percentile can break into the 50th percentile.
Moreover, high marginal tax rates don’t seem to impede social mobility in places like Denmark and Norway. The U.S. is essentially tied with the U.K. for the least socially-mobile rich democracy, both in terms of intergenerational mobility and in terms of the rate of exit from poverty.
October 26th, 2009 at 5:24 pm
Is there any actual evidence for this? [marginal rates depressing an incentive to work]
No. Theoretical economic models disconnected from the psychology of human beings predict that it must be so, therefore it must be so. What is this “evidence” of which you speak?
There’s plenty of evidence against it though; for example, one of the most prolific writers in history, Isaac Asimov, wrote that “I am so ill-rounded that the ten things I love to do are write, write, write, write, write, write, write, write, write, and write.” (quoted from memory) When you’re talking about someone who used his own open-heart surgery as an occasion to write about the circulatory system, it’s hard to imagine any tax structure that would have stopped him (short of making it impossible for him to afford a typewriter) any time before they nailed his coffin shut. ISTM that a *lot* of extreme achievers have the same kind of obsession with their work, and hardly any of the genuinely productive people are in it for the money like day traders or clock-punching corporate lawyers.
There’s also no evidence that people “making” millions of dollars per year (with the possible exception of entertainment/sports stars that really do bring in that much audience) are actually adding that much value to their companies, as opposed to simply being in a position to siphon off a percentage of the work of everyone below them on the org chart.
Modern corporate management is MLM with better PR.
October 26th, 2009 at 5:58 pm
@Jason
As presently configured, L-K would indeed make the pie smaller, in minor part by excluding estates between $3.5M and $5M, and in MUCH larger part by reducing the rate on large estates to 35%. If the exemption is raised, I have no problem with raising the tax rate to 50% or to some other number that is necessary to achieve revenue neutrality, assuming that revenue neutrality is a desirable goal. Doing it that way avoids the very real impact of the current regime on family farms and businesses. I don’t see why you accuse me of disingenuous, unless you feel that the family business thing is totally bogus. It’s not, and I think that if anyone is being disingenuous here, it’s the authors of the TPC study with the tortured definition they devised to come up with the “only 100 families affected” talking point, a number that doesn’t even pass the laugh test.
October 26th, 2009 at 6:29 pm
@ Chris,
Yes, there is quite a bit of empirical evidence into the question “is the elasticity of labor zero?”. It turns out the answer is “No, of course not.” There is also a great deal of empirical research into the correlation between people who think this and people who don’t know what they’re talking about — it turns out that the correlation is quite positive, and robust to quite a few controls.
@Bengt Larsson,
If inheritance were the primary source of campaign contributions and/or political power, I might see your point. But absent that assumption (or the assumption that the wealthy tend to vote alike), it’s not clear why you’d think that the estate tax is the ideal way to solve political economy problems.
October 26th, 2009 at 7:06 pm
maynard, I accused you of being disingenuous because you argued that eliminating the estate tax for people inheriting five million dollars was progressive. You compared the proportion of estate tax collected on very large estates (> 10M) to the proportion collected on merely large estates (3.5 to 10M) between different plans, rather than the absolute amount, as if people who don’t inherit large estates do not exist and money collected by taxes is thrown into a black hole rather than being used for public purposes. By your logic, eliminating the capital gains tax on anyone who makes less than a million dollars in capital gains is progressive. What people understand to be measure of progressiveness is not how much the super rich are paying relative to the merely rich, and you are a smart person, so you know this.
Whether business that end up as estates worth between 3.5M and 5M dollars can be considered “family businesses” is a linguistic question that is irrelevant to the question of your disingenuousness. Similarly irrelevant is whether it’s a good idea to levy an estate tax on businesses that put an estate at between 3.5M and 5M. The only thing that is relevant is that you implicitly made two false assumptions that are so obviously false that someone as intelligent as you must have known they were false in order to come up with numbers that superficially back the claim that a transfer of wealth from the public treasury to heirs of large estates is progressive.
In the unlikely event that you really were just being careless — plenty of smart people are blinded by ideology — and have a different understanding of what “progressive” means from everyone else I know, then I apologize for calling you a sack of shit.
October 26th, 2009 at 9:07 pm
The next time you get a dollar bill, take a good look at it. The damned thing has government all over it. You’ve got civil servant and pensioner George Washington on side, the “United States of America” plastered all over it, and the names of all sorts of bureaucrats scrawled on it. Anyone who thinks it is their money is blind or easily confused. The government just wants some of its money back. When you’re dead, it’s time to just give it a rest.
October 27th, 2009 at 12:23 am
“I believe that it is very bad public policy for the living to allow the dead so large and unregulated an influence over us”.
- Irving Fisher, 1919 (’Economists in the Public Service’, AER 9:1)
That is all.
October 27th, 2009 at 2:48 am
As one of 10 people who inherited around $50,000 from a relative with an estate over 3 million, I can assure you, people like this exist. And no one knew she was anywhere near that wealthy. Turns out socking away half your income for 50 years between you mid level engineer husband and your 75,000 a year teaching salary does indeed net you 3.5 million with modest stock market returns.
And yes, I don’t deserve anything, yadda yadda, I plan on putting it into a down payment on a house. I guess I don’t deserve a house or some such also because minorities are enslaved by rich people.
She also gave 2 million to her church which runs a homeless shelter and another million to habitat for humanity. But we need to stop people from getting wealthy and donating to the charity of their choice because that’s evil and inefficient and the government deserves that money.
With the rate of inflation, there are going to be a lot more of these people in the next 20 years.
October 27th, 2009 at 5:30 am
You do have a point here
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October 27th, 2009 at 1:17 pm
Jason L, absolutely agree with you on the priority. What’s broken in our country is exactly what Bill Clinton said: the goal is to ensure that people who work hard all their lives are treated fairly and can retire securely. That’s the difference between the 20th and the 70th percentile today.
But there is no reason to raise marginal rates to protect accumulated wealth, which was my main point. Let’s reward work, not inheritance.
And one more reminder to Nathan and LSOS Maynard. Long ago, Warren Buffet and Bill Gates, Sr., who are strongly opposed to eliminating the inheritance tax, posted a reward to anyone in the US who could provide a single – ONE – family farm that was subjected to the estate tax. To this day, the reward has never been collected. Anyone who uses “family farm” in this context is proving themselves a liar. http://www.thenation.com/doc/20030127/gates
October 27th, 2009 at 1:51 pm
And Matt, don’t lose the edge. This was one of your best posts ever.
Some things are so obvious and so wrong that merely to describe them accurately feels like an angry act.
October 27th, 2009 at 9:39 pm
(1) Speaking of LSOS, dollared, your link does not support the contention about any such “challenge” by Buffet or Gates.
(2). But, it is true that a few years ago, the Farm Bureau asked its affiliates for examples of farms lost due to the estate tax to provide Congress, and none were found. However, that had little to do with the estate tax per se, because family farms already have a provision in current law that allows the estate tax exemption to extend to $4.1 million (as of 2003). Unfortunately, non-farm family businesses do not have this protection, which means that they may very well need relief through raising the exemption to a higher level.
October 31st, 2009 at 8:18 am
All right, I take that back. Inheritance taxes should not be confiscatory.