April 15, 2005
DEATH AND TAXES
The House of Representatives has just passed a bill permanently repealing the estate tax, and shortly the Senate will consider doing the same. Why do they want to repeal it permanently? Because Paris Hilton needs the money more than we do.
I'm not in favor of abolishing inheritance taxes. Calling it the "death tax" doesn't change the fact that the fortunate few -- the 2 percent of all Americans with fortunes big enough to be subject to it -- are asking the other 98 percent of us, who have far less ability to pay, to take up the slack and pay more taxes in their place.
And no, despite what many people seem to think, that 2 percent almost certainly does NOT include them. As David Wessel reported in the Wall Street Journal on April 14, 2005, "The estate tax this year will fall on those who leave assets of more than $1.5 million. That is about 18,800 of the 2.5 million people expected to die this year, according to the Brookings Institution-Urban Institute Tax Policy Center. "
It's easy, of course, for one of the 98 percent to ask for taxation of the 2 percent. But I approve of the estate tax even though it's entirely possible I may someday have to pay it.
A while back I got a nice chunk of unexpected cash, the happy result of selling a house for three times what I paid for it. When I asked a stockbroker to help me invest the money, he immediately started explaining how to defer taxes, or avoid them altogether. I told him thanks but no thanks, because I'd always believed those who had benefited most from our society should pay the most taxes, and I wasn't about to change my beliefs just because I now had some money.
He looked at me as if I'd turned into a two-headed cat.
The thing is, if I ever earned $1.5 million a year from my writing, I'd have to pay taxes on it. If I won $1.5 million in the lottery, I'd pay taxes before I ever saw a cent of it.
But if I won $1.5 million in the biggest crap shoot of all -- what family I was lucky enough to be born to or marry into -- I wouldn't have to pay any taxes at all this year. By 2009, I could inherit $3,500,000 tax-free. Only if I inherited more than that would I have to worry about taxes.
And I wouldn't have to have done a single useful thing to earn that tax-free money.
I ask you, is this how we reward hard work, invention and risk-taking, the things we theoretically value?
But surely the reason people work hard and save is to give their family economic security, isn't it? I wouldn't want to take away that incentive, would I?
Who's taking it away? I would consider several million dollars you did absolutely nothing to earn to be economic security, even after you pay taxes on it. This is not confiscatory taxation we're talking about; the rate of taxation ranges from 39 percent at the bottom of the scale to 48 percent for the largest estates. Anybody with enough money to owe estate taxes will still be rich once they've paid it -- half of Bill Gates' $29 billion is still a nice chunk of change.
Republicans argue that inheritance taxes force heirs to sell farms and businesses. How can I, an Iowan who runs her own small business, argue for destructive taxation on them? Because it's a phony argument. Hardly any such farms and businesses are at risk. Wessel says only 440 [of estates that will owe taxes this year] will be "estates in which half or more of the assets are farms or family-owned businesses, the cases so highly publicized by those who want to kill the tax." In fact, with all the tax breaks built into the tax code to protect small farms and businesses, about the only ones that aren't exempt are the factory farms and chains that are putting small Iowa farmers and business owners at risk.
"But, but, but...," the argument goes, "it's THEIR money. They earned it all by themselves. They've ALREADY paid taxes on it. If they want to pass it on to their family, why should the government get to tax it again?"
Well, actually, they mostly HAVEN'T paid taxes on it. At this level of wealth, most of the money is unrealized capital gains that have not been taxed.
Nor do I agree that they earned that money totally by their own efforts.
At every stage of their lives, wealthy people have benefited from public investment, in schools, colleges, libraries, public health, college and business loans, low-interest mortgages, emergency medical care, disaster assistance, roads, dams, sewers, airports, guarantees on savings, the social security and Medicare that allowed their parents to remain independent.
They used government-created research and statistics to make business decisions, and relied on our courts to protect their patents, copyrights and contracts. (Has anybody ever measured the amount of time and money courts have spent on lawsuits filed by Bill Gates alone, let alone other wealthy executives?)
Government helped to create their wealth, and inheritance taxes allow taxpayers to recover some of our investment in these citizens.
It's not too much to ask that people who benefit richly from government should put some of those benefits back into the system. Like capital gains taxes, which are also applied to money people did nothing to earn, there's plenty of money left over -- I didn't mind paying my first capital gains taxes, because it meant I had rather a lot of capital gains to enjoy.
Take it from a two-headed cat: we don't need to abolish the inheritance tax, because the inheritance I'd rather bequeathe to my son and his offspring is a stable, well-functioning government that invests in the success of everybody's children.
It's THAT inheritance that is threatened by the extraordinary decline of tax revenue resulting from the self-inflicted wound of repeated tax cuts. Name any government service with wide public support -- social security, securing seaports against terrorism, benefits for our injured soldiers, etc. -- and Congress tells us we can't afford it.
I don't mind paying my fair share to restore a well-functioning government, and then keep it going.
I just object to paying Paris Hilton's fair share.
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