Finally, I often hear that repeal of the estate tax is unnecessary because proper estate planning can reduce or even eliminate it no matter how rich one is. On June 12, one estate-tax supporter had a letter in the New York Times saying that the tax was basically optional. “So repeal is unnecessary except for the uninformed, the unfocused or those people who are unwilling to pay their financial planning team a little more to make the tax go away or be reduced,” he wrote.
Almost all forms of taxation have elements of tax avoidance. If we are going to continue to have an expensive government, doesn’t it make more sense to close to the loopholes than to make tax rates zero?
AB reader Cactus objects to this:
Let us remember that before the repeal effort got going, the top rate on estates was 55 percent and all estates larger than $600,000 were subject to a tax of at least 18 percent. The top rate applied to those larger than $3 million. It is simply absurd to believe, as estate-tax supporters implicitly argue, that people with such modest levels of wealth are rich in any meaningful sense of the term.
Cactus was not sure where Bruce got the 18% figure, but the table provided by Citizens for Tax Justice is helpful. When Bruce talks about this 18% tax rate, that’s the marginal rate not the average rate. So under the old tax regime – if the estate was valued at $610,000, the tax bill would be $1800 not $109,800.
Also consider these sentences:
Indeed, financial advisers today tell middle-class couples that they will need at least $1 million in financial assets to live comfortably in retirement. And with the big run-up in housing prices in recent years, it is not at all uncommon for middle-class families to live in $600,000 homes.
Where to begin? First, why is Bruce comparing today’s nominal values to nominal exemptions under an old tax regime? I’ll all for indexing the exemption as I’m for indexing the minimum wage. If a liberal wanted to play Bruce’s game here, he could relate the $1.60 minimum wage of 1968 to prices of goods today even though the price-level is above 5 times higher today than it was in 1968 (and yes, the inflation-adjusted 1968 minimum wage was $8 per hour in today’s dollars).
He is correct about middle-class families owning $600,000 if he is talking my neighborhood, which is in Los Angeles. Most of my neighbors also tend to have mortgages so the equity in their homes is nowhere close to $600,000. I’m sure Bruce is aware that if I died today, my kids would get the house only if they assumed the mortgage. And if I’m thrifty enough to have $1 million in a 401(K) when I retire, I hope to consume most of that wealth. So I seriously doubt my kids will have to worry about estate taxes.
No – claiming the middle class will be hit by estate taxation is beneath Bruce’s usual standards. But I can understand his problem here. If he wants to publish something for the National Review, he has to meet its editor’s standards of rightwing malarkey. Which is why he might consider not publishing for Rich Lowry’s rag.
‘Death Tax’ Repeal Unfair to Those Who Owe ‘Birth Tax’
That’s her title. Here is a summary of the rest:
The problem is that there is no such thing as a free tax cut, unless — ironically in this case — you die before the bill comes due … This “birth tax” is a true cost imposed on all American babies. It cannot be repealed, no matter how upset Americans eventually get about it. Through the harmful effects of deficits on national saving, these future adults will be less likely to have the means to pay off these debts and are in danger of facing a lower standard of living than adult Americans today. So repealing the estate tax would swap a “death tax,” which affects hardly anyone and has been found to have little effect on economic decisions, for a higher “birth tax,” which would be universal and seriously detrimental to future economic growth.