But What About the Trust Fund Babies?

by Dollars and Sense

The Senate passed (51-48) a non-binding resolution to lower the estate tax. It's heartening to know that in times of great economic crisis, the US Senate has not forgotten America's future Trust Fund Babies.

From the wires:

By a 51-48 vote, the Senate embraced a nonbinding but symbolically important amendment by Arkansas Democrat Blanche Lincoln and Arizona Republican Jon Kyl to exempt estates up to $10 million from the estate tax. Estates larger than that would be taxed at a 35 percent rate.

Obama is proposing exempting estates up to $7 million and taxing larger ones at a 45 percent rate instead of the $2 million exemption and 55 percent rate slated to take effect in 2011.

The WSJ has, predictably, gone apoplectic:

This controversy dates back to George W. Bush's first tax cut in 2001 that phased down the estate tax from 55% to 45% this year and then to zero next year. Although that 10-year tax law was to expire in 2011, meaning that the death tax rate would go all the way back to 55%, the political expectation was that once the estate tax was gone for even one year, it would never return.

And that is no doubt why the Obama Administration wants to make sure it never hits zero. It doesn't seem to matter that the vast majority of the money in an estate was already taxed when the money was earned. Liberals counter that the estate tax is "fair" because it is only paid by the richest 2% of American families. This ignores that much of the long-term saving and small business investment in America is motivated by the ability to pass on wealth to the next generation.

A few problems with this analysis. The tax affects only 0.2% of all estates, according to the New York Times yesterday:

In addition to creating the false impression that the estate tax eventually hits everyone — by mislabeling it a "death tax" - opponents routinely denounce the 45 percent top tax rate as confiscatory. In fact, the rate applies only to the portion of the estate that exceeds the exemption. As a result, even estates worth more than $20 million end up paying only about 20 percent in taxes.

Another misleading argument is that the estate tax represents double taxation. In truth, much of the wealth that is taxed at death has never been taxed before. That’s because such wealth is often accrued in the form of capital gains on stocks, real estate and other investments. Capital gains are not taxed until an asset is sold. Obviously, if someone dies owning an asset, he or she never sold it and thus never paid tax on the gain.

Chuck Collins has previously demolished the myths surrounding the estate tax for Dollars & Sense:

Death Tax Deception includes a handy sidebar detailing the hidden interests behind the campaign to repeal the tax.

In The Estate Tax: A Recycling Program in Disguise, Chuck describes how voters in Washington State pushed back an attempt to repeal the estate tax there.

For more info, check out the Estate Tax FAQ page from United for a Fair Economy.

Labels: Chuck Collins, estate tax

 

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4/03/2009 10:46:00 AM 0 comments

 

Toles and The Onion on Inequality

by Dollars and Sense

Tom Toles' recent cartoon in The Washington Post lampoons (most, i.e. orthodox) economists' puzzlement over the growing income and wealth gap. The suggestion made by Toles' alter ego (the tiny cartoonist in the corner) that we "start outsourcing those economists' jobs" reminds us of Dean Baker's suggestion, in The Conservative Nanny State (excerpted in the July/August 2006 issue of Dollars & Sense): "If government policies ensure that specific types of workers (e.g. doctors, lawyers, economists) are in relatively short supply, then they ensure that these workers will do better than the types of [less-skilled] workers who are plentiful."

The current issue of Dollars & Sense examines the income and wealth gaps: in John Miller's rejoinder to the editors of The Wall Street Journal that the wealthy are taxed, if anything, too much; in James Cypher's article on the growth of the income and wealth gaps since 2000; and in Ramaa Vasudevan's "Ask Dr. Dollar" column on the alleged "double-taxation" of corporations. See also Chuck Collins's article on Washington State voters' collective decision not to repeal the estate tax.

And don't miss The Onion's incisive reportage on the structural issues underlying Sunday's Academy Awards cermony: Oscars Reveal Widening Gap Between Best, Worst Dressed. An excerpt:

Oscar night fashion, which many experts use as a bellwether for the state of celebrity gorgeousness nationwide, has shown in recent years a high concentration of couture in the hands of a few, with Halle Berry alone commanding over 57 percent of the nation's supply of sexy yet exquisitely tasteful gowns.

"We can't just assume that because Nicole Kidman, Jennifer Aniston, and Kate Winslet look amazing, everything is okay," said Rivers, as celebrity stylist Phillip Bloch and In Touch magazine fashion commentator Goumba Johnny nodded in solemn agreement. "For every Sarah Jessica Parker, there's an overdressed underclass of Mary-Kate Olsens and Paula Abduls."

Labels: Dean Baker, dividend tax, estate tax, Halle Berry, income inequality, Paula Abdul, Tom Toles, wealth inequality

 

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2/28/2007 04:16:00 PM 0 comments