A careful search of the web reveals that the main argument advanced is that the tax endangers family farms. But they are not arguing for a greater exemption before the tax takes its bite. They are arguing for total repeal as though a “family farm” might be worth an infinite amount and they use hysterical, false claims to support their drive. Yet, amazingly enough they have found supporters even among main street groups. In 2005, long before the Bush repeal was to take effect in full, the American Family Business Institute and Free Enterprise Fund announced a $15 million campaign. Its radio ad, which ran in Montana, and was to be replicated in numerous other states, including New York, had the announcer intone the following:
“You work hard all your life. You pay your taxes and play by the rules, and, yeah, you're proud of what you've accomplished. You'd like to leave your family farm or business to your kids. It's a legacy, something they can hold onto. It's the American dream, right? But the IRS death tax can turn that dream into a nightmare. When you die, the IRS can bury YOUR FAMILY in crippling tax bills. IT CAN COST THEM EVERYTHING. What's worse, the death tax is a double tax on all you've worked to build. The death tax is wrong. It's unfair. And this year, Montana's family business owners and farmers have joined together to kill this unjust tax, before it destroys one more family legacy.” (Caps added for emphasis)
What is the truth? The likelihood that many who heard that ad would be affected is extremely small.
Less than 3% of deceased adults in 2002 (before any of the Bush tax cuts went into effect) had estates subject to the tax, according to the nonpartisan Urban-Brookings Tax Policy Center and figures from the IRS. As for “Cost them everything,” of the 440 taxable family farm and business estates in 2004, two out of five paid an average rate of only 1.6 percent. These were taxable estates valued at less than $2 million. Very large estates valued at over $20 million paid an average effective rate of just over 22 percent. No one no matter how rich could lose “everything.”
But it isn’t even a matter any more of going back to the quite reasonable tax rates that Bush inherited. Obama’s plan is to set the exemption at $3.5 million per person ($7 million for couples), which means that all but the very wealthy would be exempt from any inheritance tax at all, and the top marginal rate on a graduated basis would only be 45% reducing the average effective rate to well under 22%
But the opponents are not satisfied with such generous reduction in tax. They will settle for nothing short of repeal and they will run the most incendiary and misleading ads to further their goals. Here is a TV ad that ran in 2005.
“Announcer: They freed the world from tyranny, then came home to build family businesses and farms. Heroes in war and peace. They paid taxes all their lives, but now the IRS hits this "Greatest Generation" with an unjust double tax, the death tax.”
(Voice of a supposed WWII Vet) “In war and peace, my generation stood up for what's right. Join us now and help us end the unfair death tax.”
The TV ad featured World War II veterans from the popular HBO series “Band of Brothers,” Actually; of course, WWII vets are not likely to be subject to the estate tax when they die. The estates of veterans and non-veterans alike owed taxes only on amounts exceeding $1.5 million in 2005. How many veterans are likely to have an estate of that size, and under Obama’s plan the exemption would go to $7 million per couple, and then the tax rate would only gradually escalate.
As for the double tax argument, I have already dealt with this in previous discussions. First of all the rich are escaping without paying any capital gains tax at all, because unrealized capital gains escape capital gains taxation when passed onto heirs, and secondly as I have pointed out all taxes are in one way or another double taxation.
But none of this fazes the repeal lobby that represents the very rich such as the Walton family, who own Walmart. They continue to hide behind the phony argument about family farms. For instance deltafarms.com posted this on the web in November of 2008.
“To exemplify how this can affect a family farm, look at how the varying estate tax rates over the next three years impact a 2,500-acre farm valued at $2,500 per acre. With structural improvements and equipment accounting for an additional 15 percent of value, the total estate would be worth $7,187,500.”
I don’t know about a family farm of 2,500 acres. I wonder how many family farms are that large, if any. But Obama has even taken the wind out of their sails. An exemption of $7 million per couple would take care even of this very wealthy estate.
So the Estate tax as now proposed effects only the very richest at the top of our increasingly stratified society. It seems self evident that the Obama plan is far too generous to those who want to build and maintain a permanent aristocracy in America.
Finally we need to focus on the effect of a repeal. According to the Center on Budget Policy Priorities the estate tax encourages billions of dollars in charitable donations each year since donations substantially reduce the tax on large estates and its repeal would cost more than $1 trillion over the first ten years, 2012-2021, in which its cost would be fully felt.
Given these facts it is incredible that there are those who still would advocate this drastic radical idea.
Monday, December 22, 2008
Monday, December 15, 2008
The Estate Tax
The Estate Tax, like the Graduated Income Tax and the Capital Gains Tax, has been under attack for many years by “conservative groups.” I always have difficulty with the media’s use of this appellation for it is inherently misleading. A “Conservative,” as the term implies, wishes to conserve. He/she opposes innovation, or at least is cautious about it, but reveres that which is established. But as I have shown when they attack the Graduated Income Tax or the Capital Gains Tax, they attack systems that have been with us for a century and a half. That is not conservative! That is as radical as one can get.
This history applies equally to the Estate Tax if not more so. It was as early as 1797 not long after the constitution was ratified, that Congress imposed a “legacy tax.” It was repealed in 1802. In 1862 Congress enacted an inheritance tax and repealed it in 1870. In 1898 an inheritance tax was again passed and repealed in 1902. In each of these cases the sole purpose of the tax was to raise revenue, usually to finance wars, which is why they were repealed when the funds were no longer needed. But until 1916, the US, unlike European and South American countries, did not have a landed aristocracy or an inherited concentration of wealth. In 1916 money was needed to finance World War I but there was also a concern with the increasing concentration of wealth, or as the House Ways and Means Committee put it the tax was needed to deal, “in part (with) concentrations of inherited wealth.”
Nevertheless, Theodore Roosevelt, a Republican, who McCain lauded as the President he most admires, said as early as 1907, "A heavy progressive tax upon a very large fortune is in no way such a tax upon thrift or industry as a like tax would be on a small fortune. No advantage comes either to the country as a whole or to the individuals inheriting the money by permitting the transmission in their entirety of the enormous fortunes which would be affected by such a tax; and as an incident to its function of revenue raising, such a tax would help to preserve a measurable equality of opportunity for the people of the generations growing to manhood."
In 1935 Franklin Roosevelt proposed to Congress that they pass both an estate and an inheritance tax but only the estate tax passed the Congress and it went unchallenged until the year 2000. Even during the Reagan years the tax went unchallenged. But in 2000 a major drive to repeal both the Estate tax and the Gift tax was undertaken. It was backed by the wealthiest in our society, who using that wealth mounted a campaign full of misleading and outright false claims. One of the things I personally remember were radio ads that purported to be from financial advisors warning people that unless they sought estate planning they risked having their estate confiscated. Secondly, other groups mounted a campaign that family farms and small businesses were being endangered and that many would have to sell their farms/businesses in order to pay the taxes. The campaign was so effective that when HR 8 the Death Tax Elimination Act Came up for a vote in the House it passed by a vote of 279 to 136 without a dissenting Republican vote and 65 Democrats voting for it. The bill did not pass because President Clinton vetoed it and there were not enough votes to override his veto. The Office of Management and Budget in warning Congress that President Clinton would veto the bill, said in part, “The Administration strongly opposes H.R. 8, which would repeal the estate and gift taxes. Repeal of these taxes would be fiscally unwise, would reduce the overall fairness and progressivity of the tax system, and would harm charitable giving. The President would veto this legislation repealing the estate and gift taxes if it were presented to him.
“The Administration believes that such a tax reduction would harm the important priorities of maintaining fiscal discipline, paying down the national debt, extending the solvency of Medicare and Social Security, and maintaining core government functions such as education and fighting crime. The Administration estimates that this legislation, when fully phased in, would cost close to $50 billion annually, far more than the stated costs of the bill, because most of the cost is delayed to beyond the first five years.
“While the Administration supports appropriately targeted estate tax relief for small business and family farms, a tiny fraction of the tax relief provided under this measure accrues to these important sectors of the Nation's economy. Only the wealthiest two percent of all estates pay any estate tax at all. The estate tax promotes the integrity and fairness of the overall tax system by acting as a backstop to the income tax, ensuring that even income on which income tax is deferred or avoided is ultimately subject to at least some tax. In addition, recent studies suggest that repeal of the estate tax could reduce charitable gifts and bequests by close to $6 billion annually.
“The Administration worked with the Congress in 1997 to lift the burden of the estate tax on the vast majority of small businesses and family farms. The Taxpayer Relief Act of 1997 raised the effective deduction for qualified family-owned business interests to $1.3 million ($2.6 million for a couple), which exempts almost all family farms and small businesses from the estate tax. Current law also allows small businesses and farms to exclude part of the value of real property used in their operations. Those few businesses and farms that are subject to this tax can pay it in installments over 14 years at below-market interest rates.”
I quote this at length because it sums up the case against repeal so well that I feel I cannot possibly improve upon it.
I want to specifically discuss some of the arguments made for repeal and rebut them, but that will have to wait for my next exposition. Let me close here by quoting Louis Brandeis, a highly distinguished Justice of the Supreme Court who served from 1916 to 1939 and who said "We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both."
In my opinion this should be self-evident, particularly at a time when we see both the power and abuse of great wealth.
This history applies equally to the Estate Tax if not more so. It was as early as 1797 not long after the constitution was ratified, that Congress imposed a “legacy tax.” It was repealed in 1802. In 1862 Congress enacted an inheritance tax and repealed it in 1870. In 1898 an inheritance tax was again passed and repealed in 1902. In each of these cases the sole purpose of the tax was to raise revenue, usually to finance wars, which is why they were repealed when the funds were no longer needed. But until 1916, the US, unlike European and South American countries, did not have a landed aristocracy or an inherited concentration of wealth. In 1916 money was needed to finance World War I but there was also a concern with the increasing concentration of wealth, or as the House Ways and Means Committee put it the tax was needed to deal, “in part (with) concentrations of inherited wealth.”
Nevertheless, Theodore Roosevelt, a Republican, who McCain lauded as the President he most admires, said as early as 1907, "A heavy progressive tax upon a very large fortune is in no way such a tax upon thrift or industry as a like tax would be on a small fortune. No advantage comes either to the country as a whole or to the individuals inheriting the money by permitting the transmission in their entirety of the enormous fortunes which would be affected by such a tax; and as an incident to its function of revenue raising, such a tax would help to preserve a measurable equality of opportunity for the people of the generations growing to manhood."
In 1935 Franklin Roosevelt proposed to Congress that they pass both an estate and an inheritance tax but only the estate tax passed the Congress and it went unchallenged until the year 2000. Even during the Reagan years the tax went unchallenged. But in 2000 a major drive to repeal both the Estate tax and the Gift tax was undertaken. It was backed by the wealthiest in our society, who using that wealth mounted a campaign full of misleading and outright false claims. One of the things I personally remember were radio ads that purported to be from financial advisors warning people that unless they sought estate planning they risked having their estate confiscated. Secondly, other groups mounted a campaign that family farms and small businesses were being endangered and that many would have to sell their farms/businesses in order to pay the taxes. The campaign was so effective that when HR 8 the Death Tax Elimination Act Came up for a vote in the House it passed by a vote of 279 to 136 without a dissenting Republican vote and 65 Democrats voting for it. The bill did not pass because President Clinton vetoed it and there were not enough votes to override his veto. The Office of Management and Budget in warning Congress that President Clinton would veto the bill, said in part, “The Administration strongly opposes H.R. 8, which would repeal the estate and gift taxes. Repeal of these taxes would be fiscally unwise, would reduce the overall fairness and progressivity of the tax system, and would harm charitable giving. The President would veto this legislation repealing the estate and gift taxes if it were presented to him.
“The Administration believes that such a tax reduction would harm the important priorities of maintaining fiscal discipline, paying down the national debt, extending the solvency of Medicare and Social Security, and maintaining core government functions such as education and fighting crime. The Administration estimates that this legislation, when fully phased in, would cost close to $50 billion annually, far more than the stated costs of the bill, because most of the cost is delayed to beyond the first five years.
“While the Administration supports appropriately targeted estate tax relief for small business and family farms, a tiny fraction of the tax relief provided under this measure accrues to these important sectors of the Nation's economy. Only the wealthiest two percent of all estates pay any estate tax at all. The estate tax promotes the integrity and fairness of the overall tax system by acting as a backstop to the income tax, ensuring that even income on which income tax is deferred or avoided is ultimately subject to at least some tax. In addition, recent studies suggest that repeal of the estate tax could reduce charitable gifts and bequests by close to $6 billion annually.
“The Administration worked with the Congress in 1997 to lift the burden of the estate tax on the vast majority of small businesses and family farms. The Taxpayer Relief Act of 1997 raised the effective deduction for qualified family-owned business interests to $1.3 million ($2.6 million for a couple), which exempts almost all family farms and small businesses from the estate tax. Current law also allows small businesses and farms to exclude part of the value of real property used in their operations. Those few businesses and farms that are subject to this tax can pay it in installments over 14 years at below-market interest rates.”
I quote this at length because it sums up the case against repeal so well that I feel I cannot possibly improve upon it.
I want to specifically discuss some of the arguments made for repeal and rebut them, but that will have to wait for my next exposition. Let me close here by quoting Louis Brandeis, a highly distinguished Justice of the Supreme Court who served from 1916 to 1939 and who said "We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both."
In my opinion this should be self-evident, particularly at a time when we see both the power and abuse of great wealth.
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