Friday, June 09, 2006

More on the Estate Tax

In the comments of my previous post about the estate tax, there was some skepticism about my claim that repealing the estate tax would benefit only the super-rich. One anonymous commenter in particular seemed to believe that a relatively typical college graduate would have enough to be taxed under current law.

This is not the case.

Here (.pdf) is a report by the Congressional Budget Office. Money quote:

In recent years, fewer than 2 percent of all estates have had to pay estate taxes.


Harold Meyerson refers to that study:

A decades-long campaign by right-wing activists (brilliantly documented by Yale professors Michael Graetz and Ian Shapiro in their book "Death by a Thousand Cuts") has convinced many Americans that the estate tax poses a threat to countless hardworking families. That was always nonsense, and under the estate tax revisions that almost all Democrats support -- raising the threshold for eligibility to $3.5 million for an individual and $7 million for a couple -- it becomes more nonsensical still. Under the $3.5 million exemption, the number of family-owned small businesses required to pay any taxes in the year 2000 would have been just 94, according to a study by the Congressional Budget Office. The number of family farms that would have had to sell any assets to pay that tax would have been 13.


According to an article about the defeat (yay!) of the bill yesterday, the Post reports:

According to the staff of the congressional Joint Committee on Taxation, repealing the estate tax would cost the government $71.6 billion a year by 2015. The Treasury Department estimated the revenue loss at $65.8 billion that year.


Our government is already deeply, deeply in the red. So why were the Republicans trying to repeal the estate tax to begin with? Who are the 2% of people who benefit?

On the other hand, an estate tax repeal would save the estate of Vice President Cheney between $13 million and $61 million, according to the publicly available data on his net worth. It would save the estate of Defense Secretary Donald Rumsfeld between $32 million and $101 million. The estate of retired Exxon Mobil chairman Lee Raymond would pocket a cozy $164 million.


Those are the kind of people your Republican representatives fight for.

24 Comments:

Blogger Charlie Hall said...

That is a lot of money for a tax that really does affect a very small number of people. That is why the Republicans aren't doing everything they can to repeal it. (Had they really wanted to repeal it, they could have attached it to the filibuster-proof budget resolution.)

6/09/2006 10:06 AM  
Blogger Classmate-Wearing-Yarmulka said...

The WSJ had an op-ed yesterday on the subject. It's a good read.

http://opinionjournal.com/editorial/feature.html?id=110008487

6/09/2006 2:24 PM  
Blogger Jewish Atheist said...

CWY:

From the article:

The real people who pay the levy are the thrifty middle class and entrepreneurs who've built up a modest nest egg or business and are hit by a 46% tax rate when they die.

How is that possible when it's less than the top 2% of estates that are currently taxed? It's also important to note that the first 2 million aren't taxed at all, and according to the new version the Dems wanted, 3.5 million wouldn't be taxed at all.

6/09/2006 2:33 PM  
Anonymous Anonymous said...

This is not the case.

Sure it is. Current law says that any inheritance over $1,000,000 will be taxed at 60% in 55 years (length of examle I used). What will $1,000,000 be worth in 55 years? Assuming average 3.5% inflation, it'd be around $150,000 in today's dollars. Verbal calisthenics will not change that. You want to have inheritance tax, fine. But lower the rate to something less indecent and index the exclusion amount.

6/09/2006 2:45 PM  
Anonymous Anonymous said...

How is that possible

Easy. Out of 63,000 Estate Tax returns (that's estates over $1,000,000), only 30,000 were taxable. 70% of taxable estates were between $1,000,000 and $5,000,000. This isn't the tax for super wealthy, but for merely frugal well to do. Someone who bought a $100,000 house 20 years ago and dutifully paid off his mortgage (instead of refinancing to buy a string of sports cars) is the typical prey of this tax.

6/09/2006 3:12 PM  
Anonymous Anonymous said...

What will $1,000,000 be worth in 55 years? Assuming average 3.5% inflation, it'd be around $150,000 in today's dollars.

Oops. That should have been 45 years and the present value would be $212,000.

6/09/2006 3:41 PM  
Blogger Charlie Hall said...

'Someone who bought a $100,000 house 20 years ago and dutifully paid off his mortgage (instead of refinancing to buy a string of sports cars) is the typical prey of this tax. '

Except that you forget that the capital gain on that house is NEVER taxed. Nor is the capital gain on the stock in the family business.

'You want to have inheritance tax, fine.'

End the complete tax exemption for capital gains at death and tax them like regular capital gains at the time they are sold, and I'm be happy to get rid of the estate tax.

6/10/2006 9:19 PM  
Anonymous Anonymous said...

Except that you forget that the capital gain on that house is NEVER taxed. Nor is the capital gain on the stock in the family business.

The full value of the house is included in the estate value.

6/10/2006 11:04 PM  
Blogger Charlie Hall said...

'The full value of the house is included in the estate value. '

Right. But the main argument against the estate tax is one of double taxation, and the house will never be taxed other than as part of the estate. Neither will the stocks or other capital assets.

6/10/2006 11:29 PM  
Blogger Classmate-Wearing-Yarmulka said...

Charlie- they'll get taxed when they are sold- just like everything else.

6/10/2006 11:42 PM  
Anonymous Anonymous said...

the main argument against the estate tax is one of double taxation

My argument against estate tax is confiscatory nature of it. 60% tax rate is wrong no matter what. People like you have been defending it for decades. That's why the conversation has now moved away from rates and is about eliminating the estate tax altogether. This refusal to compromise even one bit from the left is what will eventually kill it.

6/11/2006 12:05 AM  
Blogger Charlie Hall said...

'Charlie- they'll get taxed when they are sold- just like everything else.'

Not true.

http://financial-dictionary.thefreedictionary.com/Step-Up+In+Basis

6/12/2006 2:03 PM  
Blogger Charlie Hall said...

ok, so the link got clipped. Here is another try:

http://financial-dictionary.thefreedictionary.com
/Step-Up+In+Basis

6/12/2006 2:03 PM  
Blogger Charlie Hall said...

'This refusal to compromise even one bit from the left is what will eventually kill it.'

To the contrary, most Democrats support a large increase in the estate tax exclusion so that all but the largest estates continue to escape the tax.

And as I've pointed out repeatedly, capital gains escape tax at death.

6/12/2006 2:05 PM  
Anonymous Anonymous said...

most Democrats support a large increase in the estate tax exclusion so that all but the largest estates continue to escape the tax.

They still insist on confiscatory 60% rate. How many of them supported Kyl compromise? Of course any compromise that increases the exclusion amount weakens one of the primary arguments for the tax that it will be too expensive to get rid of it. 70% of estate taxes were paid by estates of less than $5,000,000.

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