The death tax
This may seem as coming from out of nowhere, but I was doing some thinking about estate/inheritance taxes today and what is good and bad about them. What's "good": basically, they're taxes so some necessary and many unnecessary government programs are funded at least in part by inheritance taxes. Also, I suppose they help assure that the wealthy have earned their wealth and are knowledgeable about how to manage wealth (I won't even begin to speak on whether or not it's government's place to determine for you how to spend your own wealth...which it's not). What's bad: it undermines long-term investment, since if you know you can't pass on your wealth you will find other means of passing it on or instead just spend it. It is causing the death of family farming in the United States, since heavy taxes on estates means if all you have is land and farming equipment, it's going to become much harder to keep that land over several generations if you have to keep paying large inheritance taxes in order to keep the land in your family. Most importantly, though, it's bad because it hinders one of the most basic American dreams, which is creation of prosperity for your family...oh, that, and it's simply a literal tax on death. You died? Well, that means you owe us.
Here's an article that I was reading while I made this post: http://www.myheritage.org/Issues/MythBusters/DeathTax.asp It's perhaps a touch incomplete/abridged, and I basically hit the main points it brought up, but there it is.
Here's an article that I was reading while I made this post: http://www.myheritage.org/Issues/MythBusters/DeathTax.asp It's perhaps a touch incomplete/abridged, and I basically hit the main points it brought up, but there it is.
posted by Roger W. at 4:52 PM
6 Comments:
Not a whole lot of enthusiasm for this topic, I see. Noted.
i was going to reply, i swear. i just wanted to chew over some economic concept, but didn't get very far. overall, i agree with you so i haven't got much to say.
I saw it the first day, but don't feel completely educated enough to reply.
I will say, however, that the "death tax" is a common scapegoat for the "death of the family farm." While it may be part of the story, the thought of it being the climactic character is bullshit. A lot more of it has to do with the structure of the US farm subsidy program as well as economies of scale.
I'm off the box, please let me know who wants it next.
As much as I hate the Big 10, it is going to suck if Florida pulls this off. Not looking pretty!
Roger,
I have a lot of enthusiasm for this topic, but I haven't checked the site lately. I would agree with Alex that it may be overcharacterized as the main character in the death of family farming; however it is a definite contributor. Inheritance taxes as a means of retribution against the truly wealthy are a myth. The truly wealthy are not impacted by inheritance taxes because they can afford to employ legions of accountants and specialists to find ways to protect their assets in various types of tax shelters. I don't know what the current inheritance tax rates and thresholds are, but if the rate is 50% and the threshold is $600,000, then the tax on an estate of $1,000,000 would be $200,000. That leaves $800,000, and is a pretty stiff tax that takes 20% of all of a persons assets just for dying. While $800,000 isn't chump change, it surely does not qualify a person as wealthy. If a wealthy person dies with a taxable estate of 20 million and gets the $600,000 exemption, that leaves them with a taxable basis of $19,400,000. Taxing the basis at 50% leaves a tax bill of $9,700,000. This wealthy person has then left the estate assets worth $10,300,000. My point is that the truly wealthy person will still leave significant assets after the estate tax, but the tax disproportionately hurts those who have assets that are near to the threshholds.
Philosophically speaking, inheritance taxes are unjust because they are a disincentive for the most productive members of our society to create wealth. Why should a person work hard, take risks, and do all the other things necessary to create the wealth (and all the other jobs created for less productive people )
if you and your family lose a major portion of it when you die? It is also unjust because it often requires the sale of those assets just to pay the tax bill. Most people subject to the inheritance tax are small business owners and farmers. While Alex does have some viable arguments, it is true that most of the value of a farm or business is in the accumulation of real estate, buildings, equipment, or inventory over many years. Most small businessmen aren't sitting on some huge pile of cash that they got by treating their customers unfairly over the years. And even if they do have a big pile of cash to pay the tax bill, why does the government get to help theirselves to it? They had to pay income tax on that money when they earned it originally, so why is it subject to confiscation? If they don't have a pile of cash to pay the tax bill it means they have to liquidate the very means they have of making a living, often at a huge loss because they have to sell the assets according to the taxman's schedule, instead of at a time or place that benefits the owner's of the estate. Some estate planners advise clients who are subject to the estate tax to buy insurance policies to fund their future tax liability. That is a practical idea, but what about the long-term cost to the community in general because that money wasn't put to use in creating jobs and opportunities in the community?
Taxation is basically a matter of property rights. If you believe that taxation is just, then you don't really believe that a person has the right to their own property. You probably would agree that if I came to your house and took your car and gave it to somebody else I would be a thief. But if the government came to your house, threw you out, and sold the house because they decided you hadn't paid enough property taxes, some people would just say that was just, not that the government was a thief. I don't see a whole lot of justice in that type of thinking.
Dad,
Much more aptly and completely said than I managed. Nicely done. And to you and Alex both, I also wasn't suggesting that it was the primary cause of the death of the family farm or anything, but it's certainly not helping anything.
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