Restore the Estate Tax!

[NNN0LHI]

http://www.newsweek.com/2010/07/22/restore-the-estate-tax.html

The billionaire, the union leader, and the heiress trying to bring back the tax on inherited wealth.

So, a Treasury secretary, a labor union leader, a hedge-fund billionaire, and an heiress walk into a conference call.

It’s not a Catskills joke. It was the teleconference staged Wednesday morning by United for a Fair Economy’s Responsible Wealth Project to discuss the need to reinstate the estate tax. The situation surrounding the estate tax is truly bizarre. The excellent book Death by a Thousand Cuts, by Michael Graetz and Ian Shapiro, describes how a tax that falls on the slimmest minority of Americans was set on the path to extinction in 2001. Legislation called for the tax to decline to the point where it disappear entirely in 2010. Then it would bounce back to its pre-2001 level in 2011. The Republican advocates of the legislation assumed that Congress would act in the interim to permanently abolish the tax. But they didn’t, in large measure because—shocker!—Republicans in 2009 refused to cooperate on a compromise. And so 2010 is turning into excellent time for rich people to die. Senators Jon Kyl (R-Arizona) and Blanche Lincoln (D-Arkansas) are working on a proposal to reduce estate taxes going forward. (They are an odd pair: The number of Arkansans subject to the estate tax each year could fit into the master bathroom of a Greenwich, Ct., mansion, and Kyl is one of those foolish deficit faux-hawks who can’t abide increases in debt but is happy to push legislaton that would increase the deficit by a few hundred billion dollars.)

The purpose of the press conference was to show that abolishing the estate tax massively increases the deficit in order to help a few very wealthy people. Former Treasury Secretary and former Citi Chairman Robert Rubin opened the call, playing the role of the wise establishmentarian. He argued that the current deficits are unsustainable, and public investments in infrastructure and education are necessary to keep America strong. “Our country faces tremendous unemployment and shortfalls in investment, and we have a fiscal path that is unsustainable and dangerous in many different respects,” he said. And since the estate tax “supplies revenues with no adverse supply side effects,” the proceeds could be used for deficit reduction, for public investments, or to help people afflicted by the economic crisis.

[MineralMan]

1. I'll see your Restore and raise it another 10%...

Keep a floor under which no estate taxes apply, then raise the rate progressively above that floor.

[FooshIt]

2. I say treat it as ordinary income

and tax income over 250K at 95%. problem solved

[w4rma]

4. That and Capital Gains, both. (nt)

[Gold Metal Flake]

6. Yup. All income should be treated as equal.

Why is income from labor considered to be worth taxing more?

[w4rma]

12. Kinda devalues labor doesn't it? Seems to me that labor is more valuable than capital. (nt)

[Gold Metal Flake]

13. The larger quote is even more compelling...

...but I am having trouble finding the entire speech at the moment. Worth seeking out.

" Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not existed. Labor is superior to capital, and deserves much the greater consideration."
President Abe Lincohn, first Congressional address, Dec.3 1861

[uncommon]

30. Leaving $12,500??? How is that sensible?

Maybe I don't understand your suggestion...

[FooshIt]

34. that would be anything over 250K

would still leave a decent chunk of everything under 250K

[oneshooter]

3. And give family farms to the big agrimonster companys.

[NNN0LHI]

5. Why would family farms need to be given to big agrimonster companies?

How much money would the estate of a family farm need to be worth to be affected by the Estate Tax?

Don

[Statistical]

18. In 2011 the estate tax reverts to 55% of value greater than 1 million.

While I don't think estate tax should be repealed the exemption should be larger IMHO (say $5 million and then indexed to inflation).

Since wealth is ultra concentrated (it isn't just the merely rich but the uber uber uber rich who own most of the wealth) raising the exemption wouldn't material give the ultra rich much of a break.

Take the yankees owner.

He died in 2010 so he paid 0% in estate taxes on $5 billion.

If he had died in 2011 he would have paid 55% on $4.999 billion.

Had the exemption been raised to $5 million he still would have paid 55% on $4.995 billion.

Hell if you want to make it revenue neutral raise the exemption and the rate.

Instead of 55% over $1 million make it 70% over $5 million.

[mhatrw]

9. Here's just one thing I don't get about that argument.

Say you own 20,000 acres of farmland and you have to pay an estate tax of 20% on it. Why do you have to sell the whole thing to agribusiness? Why can't you sell 20% of it?

[Statistical]

17. Estate tax is more like up to 60%.

20% estate tax? :rofl:

So a farmer's son inherits the farm and owes millions in taxes he can't pay. So he is forced to sell 1/3 or 1/2 the farm. Then next generation 1/3 of what is remaining is sold, next generation 1/3 of that, next generation 1/3 of that. Eventually you reach a point where the farm is too small to compete with major agro corps and that generation simply sells out completely.

It didn't happen overnight. But the resources of major corporations are essentially limitless. When owners are forced to sell, the corps buy and then they never sell back..... ever. The farmland ownership is only going in one direction. It may take hundred years but corporations have both time and money on their side.

Unlike an individual a corporation never dies thus it never pays 30%-60% tax every 60 years or so. It never has an estate so it pays no estate tax, ever. While it might take another 3-4 generations eventually a dozen corporations will own ever single square foot of farmland in the United States. Every single thing you put in your mouth will be owned by a dozen companies.

Yeah that is a reasonable outcome.

[NNN0LHI]

19. But last year no taxes were owed for the first $3,500,000 in assets

I would think someone from the next generation could get along real fine on 3 and a half million tax free dollars.

Know I could.

Don

[Statistical]

22. Except in 2011 that drops to $1 million.

Why look into the past and post an article to "restore the estate tax".

They exemption will drop back to Clinton levels automatically the second the clock strikes midnight on new years eve.

That level is $1 million exemption and progressive tax rate up to 60% beyond the exemption.

[NNN0LHI]

23. If someone leaves me 5 million I would be very happy to pay 60% taxes on 4 million of it

I would still be in high cotton.

Don

[Statistical]

25. for cash/gold/stocks no problem....

however for small businesses and farms 99% of the estate is illiquid in the form of land, machinery, inventory, supplies, etc.

Thus paying the $2.4 million requires selling the majority of the business.

People complain how the massive agro-businesses have swallowed up 90% of farmland in this country while at the same time cheering for the exact mechanism that has caused the demise of the family farm.

On this very thread someone suggested farmers should just sell some of their land to pay the taxes. Guess what.... THEY DO.

Each generation the family farm gets smaller and smaller (and thus less and less competitive) and the argo-corps gets larger and larger.

There is no estate tax for massive corporations.

[NNN0LHI]

26. Except you are promoting a myth

http://www.washingtonpost.com/wp-dyn/content/article/2005/07/23/AR2005072300741.html

Estate Tax Myths

Sunday, July 24, 2005

ONE OF THE chief arguments of those seeking permanent repeal of the estate tax is that it cruelly penalizes farmers and owners of small businesses whose heirs are forced to sell off their holdings to pay the tax. "In order to make sure our farms stay within our farming families, we need to get rid of the death tax once and for all," President Bush proclaimed in a speech last month to the Future Farmers of America.

This assertion, though, is more convenient myth than fact -- something that senators might consider when they're called on, perhaps as soon as this week, to vote on abolishing the tax. A new study by the Congressional Budget Office examined estate tax returns filed by farmers and owners of small businesses in 1999 and 2000. The numbers that owed estate tax, the CBO found, were paltry, and the number without enough cash on hand to pay the bill even punier: In 2000, for example, just 1,659 farm estates had taxes due, of which 138 didn't report enough liquid assets to cover their tax liability.

But at that time the amount of money that could be passed on to heirs free of taxes was just half what it is now. With the current exemption level of $1.5 million, the CBO analysis found, only 300 farm estates in 2000 would have owed any tax at all -- and of those, just 27 would have a tax bill in excess of their liquid assets. At the even more generous exemption scheduled to take effect in 2009, $3.5 million, the ranks of those potentially hit hard by the tax would have dwindled even further; 65 farm estates would owe taxes and 13 would not have enough cash to cover the bill.

In other words, the image of the grieving heir packing up his hoe as he trudges away from the family farm is just that -- a powerful image but not an accurate one. Over the years, the discussion of the estate tax hasn't exactly been noted for its intellectual rigor. But members of Congress debating the issue now ought to look at the facts assembled by the CBO -- not the misinformation peddled by those maneuvering to make repeal permanent.

[Statistical]

27. Except the exemption isn't $3.5 million or $1.5 million it is $1 million.

I am not advocating getting rid of the death tax.

What would be wrong with replacing:
$1 million exemption then tax of 55%

$5 million exemption then tax of 65%*

*65% is just an example, the CBO could score any legislation and find out the exact % needed to ensure both bills produce the same amount of revenue. A higher exemption combined with higher rate would place more of the burden on the ultra rich.


Still none of this addresses your hyperbole of the OP title "restore the estate tax".

Um it is restored effective 01 JAN 2011. $1 million exemption and progressive tax up to 60% beyond exempt amount.

[KittyWampus]

20. Farmers have been selling off back acres to pay estate taxes for generations.

And this is a liberal website?

Why do you think farmland has vanished in so many places?

[uncommon]

33. It seems like true family farms should be exempt from this kind of thing...

since they serve a social good...

[David Zephyr]

7. Yes.

I heard some jack-ass from the GOP saying that even a $13 Million taxless inheritance would be too low of a limit.

In my book, one should be able to leave up to $1 Million to each heir and not a dime more, regardless of the size of the fortune. Getting one million tax free dollars is more than enough of an inheritance. Every penny after that should be taxed.

[AnArmyVeteran]

10. Sam Walton's kids had to work hard to squirm out of their momma's womb!

Don't be so hard on the poor Walton kids. They are all in very dire straits because they are only worth about 20 billion apiece. And like I said, they worked hard to be shoved out of their momma's womb.

[David Zephyr]

11. It's funny and, yet it's pathetic at the same time.

And most everyone I've known (not all) who inherited fortunes early on in life turned out to be absolute monsters.

I've worked my entire life and every penny I have was earned.

When one considers how so many present day corporations and uber-rich families are still benefitting from the free slave labor and child labor and abuse of workers, it is outrageous.

$1 Million per heir and that's it. The rest gets taxed at 75%.

[AnArmyVeteran]

29. I agree, but let's go back to the 'good ole days' with a 90% tax?

Most of the super rich are deadbeats.

[era veteran]

8. K & R

[NNN0LHI]

14. For some reason I didn't expect this thread to be real popular here

Thought we might have some grown up trust fund babies posting at DU?

That explains a lot of the Obama and Dem bashing going on around here.

This thread was a real eyeopener.

Don

[AlabamaLibrul]

15. It's my understanding that...

The estate tax is levied on all amounts left behind for heirs. While the rates are ostensibly progressive, the idea of taxing incredibly small amounts, given to lower/middle class folks, doesn't sound very progressive.

Am I correct on this fact / analysis?

[NNN0LHI]

16. Your understanding is incorrect

http://beginnersinvest.about.com/od/estatetax/f/estatetaxrate.htm

According to the IRS literature, an estate tax filing need only be made if the value of an estate exceeds the following amounts:

2005: First $1,500,000 in assets
2006-2008: First $2,000,000 in assets
2009: First $3,500,000 in assets

In addition, the maximum estate tax rate applied to the amounts in excess of these figures are as follows:

2005: 47 percent
2006: 46 percent
2007- 2009: 45 percent

In 2010, the estate tax rate drops to zero percent; if you die in that year, your heirs would not pay taxes, even if you passed on $20 billion!

[AlabamaLibrul]

21. Darn.

I had only looked at the nominal rate schedule (which suggested every dollar was taxed), not the "applicable exclusion amount".

Foot --> mouth, all that jazz.

[NNN0LHI]

24. Don't feel bad

I know people who make less than 20 grand a year who work themselves up into a lather over the "death tax."

Its unbelievable.

Don

[bemildred]

32. Certain kinds of accounts pass outside the estate too.

IRAs become "beneficiary IRAs", joint accounts pass to the surviving account holders, etc.

I sometimes wonder if anyone has tried to keep assets away from the estate tax by passing accounts from one joint survivor to another in perpetuity, I don't know of any law that prevents it.

[Solomon]

28. Here's what people don't understand about estate and gift tax:

without it, the whole income tax structure falls like a house of cards.

I don't have enough time to explain it in detail, but if not for estate and gift tax, the rich would merely gift everything to relatives in low tax brackets, including investment income. The only thing you'd be able to tax is what's wrong with the system now -- wages.

Here's another thing people are not seeing: There has been a move the last several years to do away with the rule against perpetuities. In a nutshell, the rule meant that a trust could not be in existence longer than 90 years. The banking lobby has convinced several states to do away with the rule. This means that people can now set up what's called "Dynasty" trusts. Trusts that last forever. When you combine the efforts to get rid of estate tax, doing away with the rule against perpetuities, and doing away with anti-trust laws so that a person or corporation can own anything and everything - what do you get?

THE CREATION OF ARISTOCRACY. This is what we are headed for. A permanent uber-class right here in America.

[bemildred]

31. Yep, we are working on Neo-feudalism based on "perpetuity" of economic fiefdoms. nt