Kyl continues working for the ultra wealthy
by Linda Beale
for the complete post go to Ataxingmatter
Estate Tax–Kyl continues working for the ultra wealthy
Jon Kyl doesn’t think much about the government helping the unemployed who have been laid off because of the financial crisis, triggered by greedy excesses at the nation’s biggest banks and mortgage lenders. He’s afraid that providing additional unemployment compensation will keep people from working–as though it is laziness and not trying circumstances that has forced people out of jobs and on the public dole. Kyl clearly doesn’t get it. He must not know the people I know, who were laid off from jobs here at auto supply companies in southeastern Michigan and have tried everything they could to find work, even trying to start their own businesses. That last is hard, when banks won’t lend and folks don’t have the basic cash to do it.
But Kyl does work hard for his friends. He would like to repeal the estate tax, so the country’s millionaires and billionaires wouldn’t ever have to pay their fair share of the tax burden. Most of them pay almost no taxes during their lifetimes–especially if their wealth is inherited and most of their income is financial. They get preferential rates for the taxes they do pay, they devise all kinds of scheme to defer payment (using loans to monetize assets that need not be sold til after death), and yet are the primary beneficiaries of the governmental stability and economy that ordinary folks’ taxes pay for. The Republicans set the estate tax to return in 2011 at the pre-Bush tax cut rates and exemption levels.
Why can’t Congresspeople act like grown-ups. They bawl about deficits and say we absolutely have to cut Social Security benefits, even though we know that a very small tax increase (or even a very small difference from the conservative trustee estimates) can solve that problem (if there is one). But we can’t do any further stimulus, they say, even though we have millions out of work and ordinary people are hurting while bankers and shadow bankers continue to make millions off the cheaper cost of fuinds handed them because of the governmental bailout–because it would cost too much. Yet at the same time that they whine about the deficit, cry crocodile tears over the cuts they so regretably find themselves forced to make in Social Security, they can contemplate another giveaway entitlement package for the ultra wealthy–one that will cost $15 billion a year.
The only thing wrong with this post is that no one will do anything about it. In spite of some evidence that Congressmen are really, really stupid, they can’t possibly not know what they are doing here. Either they, and their masters, are suffering from terminal greed, or they are on some kind of religious jihad. God, no doubt, will smile on them for their efforts at righteousness, restoring proppity to those as earned it.
But those of us who know better will just talk about it amongst ourselves, aided by a few of their (you know who “they” are) graduate students and wannabees who are given term projects to troll the web for sites like this one and keep us talking with stupid arguments. really stupid arguments.
Linda, “Why can’t Congresspeople act like grown-ups(?)”
That’s the same ind of misdirected question as is the assumption that so many of our elected officials are just too dumb to understand these issues. Otherwise why would they think that way? Kyl and the rest are acting in the best interests of the people they choose to represent.
Those are the same people who provide them with the funding with which they maintain their elected status. They are the same people and corporations that will provide them with significant sources of personal income when and if they leave electoral life. Think Phil Gramm as a good example. Let’s not be naive. It’s not how they think and vote that is the problem. It is the way they get elected that leads to the inadequacies of our legislature that is all too obvious. Only a very small percentage of voters are truly represented in our government.
Plus, they could avoid estate taxes by not dying !
I thought that estate taxes generated $50 billion, not $15 billion.
This analysis is flawed on two counts, mostly from ignoring differences between people that may at first glance fall into the same categories.
First, on unemployment. “He’s afraid that providing additional unemployment compensation will keep people from working–as though it is laziness and not trying circumstances that has forced people out of jobs and on the public dole.” The unemployed are not one monolithic mass, so I’m sure there are both. I have talked with several people who specifically said to me something along the lines of “Well, once unemployment runs out, I’ll have to take anything I can get, but until then, I am refusing to take jobs that are a substantial cut below what I used to make. It just isn’t worth it.” UEI increases the stickiness of wages and prevents readjustments and in that way keeps unemployment rates somewhat higher than it would be otherwise. It also works to limit the incentives for moving to an area where your labor may be more appreciated (i.e., from southeastern Michigan to an area with lower unemployment rates.) You can simultaneously be sympathetic to the plight of unemployed people, and still admit that there is some of this going on at the margins at least.
Similarly, on the estate tax: I’m sure some percentage of estates falling into the 2011+ taxable category are, in fact, wealthy idle folks living on inherited fortunes who never paid a dime of tax. I do not believe that is the majority of those cases, however (a link to data indicating otherwise would be appreciated.) Most of the money has already been taxed once or more, either in the form of employment taxes, business taxes, and/or capital gains taxes. And by lumping everyone together, you are also including other circumstances such as many family farms where the land is inherited. In my own area, we have seen the death of some family farms come not from unfair competition or from lack of a new generation of would-be farmers, but because of tax concerns.
There is a case to be made for an estate tax at a reasonable level, but asserting that opponents are just tools of the idle rich is neither true nor fair.
Is it merely “naive” to hope that Congress people wil put aside their personal comfort and act like the public servants they sometimes can be? Or is it a call to citizens to act like citizens?
Yes, elections are a problem, but in fact with the same elections system we have seen even flawed human beings enact legislation in the public interest. Rostenkowski and Packwood back in ’86 are two examples of deeply flawed but ultimately decent human beings who worked for the common good on the issue of economics and tax in putting together the Tax Reform Act of 1986.
So it is something more than just the incredibly successful expansion of the corporatist agenda aided by the right-wing media; I think it is a shamelessness about acting in one’s own interest rather than the public interest that is possible because of the combined ignorance and apathy of too many of our citizens.
That shamelessness can be reversed by enough individuaol activism from voters in a district. So it isn’t quite true that we can’t do anything about it. Most of us just won’t.
Estate taxes used to generate much more, before the exemption amount was increased and the rate was decreased. By 2009 (with 3.5 million exemption and a 45% rate), it was producing around $20 billion a year (give or take a few billion). A 5 million exemption and a 35% rate would significantly reduce the take. What we should do is institute a progressive rate up to about 70% (which the estate tax had when first enacted). That would permit a larger exemption amount. But increasing the exemption amount and lowering the rate at the same time is crazy.
this is just the jaded freshwater economics arguments, rehashed in terms of the estate tax.
As to assistance for the unemployed:
Yes, there are always some flawed human individuals who will take advantage of any freebie to the hilt. But if you think that the 8 million unemployed are sitting around waiting to the end of the federal assistance, you are really an ideologue who no longer thinks for himself. First, unemployment doesn’t pay enough to make that a viable strategy for most. Second, most people are worried that they may never get another job, so they are working as hard as possible to be sure that one doesn’t pass them by. While I haven’t conducted any official survey, I live in an area with significant unemployment from the crisis, and know numerous individuals who are doing everything possible to find permanent employment and are taking whatever odd jobs occur along the way to help make do. Third, those who had fairly highpaying jobs may take a little longer to get back in the swim of things–it is likely that there are significant psychological hits from being fired or laid off when you have been able to earn a decent living most of your life; that is just as real as physical illness. And then there are the proverbial welfare abusers–there will always be some, but certainly a very small percentage. And certainly not a number that would ever justify Kyl’s approach of assuming that all are bad apples and so the government shouldn’t provide a safety net, while assuming that all those who inherit an estate deserve to do so with the lowest tax possible.
As to the estate tax:
Yes, some who leave an estate did not inherit it whole hog and were in fact industrious individuals during their lifetimes. Either way, however, that estate’s breadth and scope owes much to the cultural/economic/legal system in which it was created. Either way, minimal taxes have been paid compared to the steady rates paid by wageearners, so it is simply not so that “most of the money as already been taxed twice”–in all probability, much of the money has never been taxed once and most will not have been subject to payroll taxation. That’s because 1) the wealthier a person is, the more there are significant financial assests taxed at low rates and capable of “tax planning” to achieve even lower rates; 2) many entrepreneurs paid minimal or no tax on the appreciation of their businesses over their lifetimes–they built and held onto their empire, and if there is no estate tax worth noting, then all of the appreciation of the empire will go untaxed when passed to the heirs and/or they “earned” their services income through a partnership or S corp in which they were essentially avoiding full taxes on their compensation income (see the revenue offsets for carried interest and S corps in the current extenders bills, which reflect Congress finally trying to come to terms with a piece of this problem).
Further, even at the $2 million exemption level, the number of estates each year that would be subject to the estate tax is tiny–less than 2% of the population.
Finally, the argument about family farms is weightless. The coalition of wealthy families that has pushed the estate tax repeal idea (funded in part by the Wal-Mart heirs) tried very hard to find family farms lost because of the federal estate tax. One reason that isn’t so is because of the special provisions to help family farms and small businesses.
Of course, many so-called family farms are not really what Americans mean when they think about family farms. They are not working farms run by a married couple with their kids. They are corporate estates, owned by a complex of families, in which maybe one family acts as manager but most just draw […]
I’m not sure why, when a politician holds a position that is his party’s position, rather than what is good for his constituents in general – which is the case for any Republican who opposes the estate tax, I’m not sure why we think they are not tools of the rich. There is a point past which insisting on a cool, level treatment of a subject is merely serving somebody’s interest. As much as any issue in US politics, the estate tax is an issue in which that is the case. There is no clear case for incentives. There is no clear case for justice. There is no clear case for equity. The only case is for hereditary wealth. In an economy in persistent fiscal deficit, that also amounts to a case for taxing somebody else. In nearly every case, that means taxing somebody (someday) who is not the beneficiary of inherited wealth. When it comes to something as lop-sided as the estate tax, I don’t see a very strong argument for anything but “tool of the rich”.
He’s afraid that providing additional unemployment compensation will keep people from working–as though it is laziness and not trying circumstances that has forced people out of jobs and on the public dole. Kyl clearly doesn’t get it.
As has been pinted out, Kyl isn’t gong to get it, becasue he’s paid to not get it.
Didn’t Hayek put forth the idea that German unemployment during the great depression was due to people refusing to work? If so, Kyl’s idea is pure Austrian economics.
Back in 1355, a tax was raised in France to pay for the war with England. “The new rates ammounted to a tax of 4 percent on the incomes of the rich, 5 percent no the middle class, and 10 percent on the lowest taxable class.” (Barbara Tuchman, A DISTANT MIRROR, P. 149) Placing the tax burden on those with the least, and favoring those with the most, is a time-honored (thus by definition, conservative) position. This is one way of maintaining the class distinctions of an “ordered” society.
Inheritance is income. All income should be taxed in an equal manner. An estate is what a dead person leaves. An inheritance is an heir’s income at the time of transfer. There is no logical rationale for any other treatment of the procedes of an estate. It wasn’t family money unless the onwer gave it over during his/her lifetime. Then gift tax would have had to be paid. If it had been a shared estate priopr to the owner’s death then why couldn’t members of the family spend it as each may haave seen fit to do? Because it wasn’t theirs at the time. It became income at the time of death. If it’s income it should be taxed as such.
I broke my heart trying to get the local Democrats to listen to what I had to say about Social Security. They are resolutely not interested. Don’t know what to do next. Please advise.
keep working to find more people who think like you do and get them to talk to them too. In Illinois, we put together a group of about 30-45 people who met regularly to plan activism steps. A little like the “tea partiers”, except focused on progressive activism. I really think it all comes down to people acting together.
regrettably, tool of the rich does seem to capture the Kyl approach. If we could only make him wear that as a “scarlet letter”!
You are absolutely correct that inheritance and gifts should be treated as income under any coherent theory of income. The exclusion in the code for both is a sop to the rich by the rich…..
My banker tells me the government is lending money to his bank at “practically zero” percent. That’s why he can’t give me more than a fraction of a percent on my savings.
Now I can remember a time when they told us Social Security was bad for the country because it reduced the savings rate. Wouldn’t paying a little more interest be good for the country because it would increase the savings rate?
I only mention this to show that every single thing “they” say is just whatever they need to say at the moment to sell you whatever it is they are selling that day. This is true for all politicians, and of course all economists, who work for politicians.
now all i have to do is find someone who agrees with me.
“…and most will not have been subject to payroll taxation.”
you see what we are up against.
we don’t want the rich to pay payroll taxes. that would turn Social Security into welfare. that would make all of their lies about it true.
every time the head of the President’s deficit commission opens his mouth, he says “I am a liar and a fool.” And no one notices.
I agree with you, but let us be fair, even if only so we understand them better so we can beat them.
“the rich” really do believe they earned their money and that it is theirs to do with as they wish, and they cannot manage the convolution (in their eyes) of calling it “income” to their heirs and taxing it.
i think the reason for the inheritance tax is to slow down the growth of an aristocracy of inherited wealth. i think that’s a good enough reason. But if i had money, or my dad did, I wouldn’t understand it at all.
Since good tax lawyers seem to be able to get around the inheritance tax, I’m not sure it even accomplishes that purpose.
OK, remind me. Was it Galbraith (the elder) who wrote that clever bit about people having a hard time understanding something if understanding it means giving up money? Rats. Not sure of the quote, not sure of Galbraith. I’m sure it fits, though.
I read a Distant Mirror, and take what Ms. Tuchman writes with a grain of salt. She might be right on her tax rates though.
Coberly: “and they cannot manage the convolution (in their eyes) of calling it “income” to their heirs and taxing it.”
They can manage the “convolution” well enough when they’ve decided that the errant son, daughter or whatever, is undeserving of their largesse. They don’t have to identify anyone as an heir to the estate because the estate is no one’s (with possible exception of the spouse) to lay claim on. Kharris makes the point well enough when he(?) points out that it is “difficult” to understand the rationale that works against one’s own financial interest. That’s why a democracy is supposed to be representative of the majority with consideration of the rights and concerns of the minority. Our legislators can’t seem to get beyond the financial preferences of the minority of wealth.
Think about this. What piece of legislation enacted over the past three decades clearly benefits the vast majority of the working classes? Count in people earning as much as $150,000 per year. Even with our “change you can believe in” President, what change has occured or is now being enacted that clearly benefits the working classes? Every effort is modified and/or diluted by some greater benefit to the business class.
Taxation has nothing to do with equity, nor does the government need taxes to pay its bills. The government has an infinite supply of dollars to spend. But if it spends on the one hand (creates money) without taxing on the other hand (destroying money), we’ll get inflation. Thus the primary purpose of taxation is to keep inflation under control. In doing this, we want to avoid discouraging productive work or encouraging unproductive tax avoidance work.
Taxing estates is unlikely to discourage people trying to get rich, regardless of the rate. Anyone who thinks otherwise doesn’t understand the nature of ambition–being the richest person in the US will motivate ambitious people even if they know they will have to give all the money up, just as people are motivated to win the Olympics in sports like archery, where there is no long-term financial advantage. The main problem with high estate and also high income taxes is that they encourage entrepreneurs to put their talents to work gaming the tax system rather than doing something useful. This is why a 39.6% marginal rate is optimal. Any higher and too much effort goes into tax avoidance. The rate on estates should probably be the same. Also, unrealized capitals gains should be taxed at 39.6% before the estate tax is applied. (Taxation of capital gains should not tax gains due to inflation–this is a chagne from current law and wasn’t possible prior to computerization.) The result would be a level playing field. Every time money gets transferred from one person to another, whether as wage income, profits, interest, dividends, capital gains, gifts or inheritances, it gets hit with a 39.6% tax. This rate is plenty steep enough to keep inflation under control but isn’t so steep as to encourage too much tax avoidance.
Why complain about Kyl? He’s been on the repeal bandwagon, unsuccessfully, for a long, long time. And for the last few years he’s been absolutely powerless! You should be complaining about Reid, Cantwell, Baucus, Lincoln, etc. They’ve had the power to complete reform but haven’t. They couldn’t even pass a patch for 2010. The current regime’s FY2011 budget proposes a $3.5 million dollar (per person, $7 million per couple) exepmption amount with a top rate of 45%. I’ve also heard they are considering giving the taxpayer a choice: the proposed $3.5, 45% rate or no tax and an elimination of the carryover in basis. You think today’s valuation games are unethical…wait until taxpayers start “determining” basis! Nonetheless Linda this is an amusing piece of agitprop.
Jack are you saying that estates (or heirs) should pay a lower rate (in 2011 39.5%) than the estate tax’s rate of 45%?
i agree with you. was just suggsting as an exercise we understand how it looks to them.
i am a little uneasy with your analysis, but it doesn’t seem so far off that i would object to hearing more.
fortunately i couldn’t understand your point.
generally the complain that one should not discuss an issue or person because some other issue or person is “more important” is silly. should we conduct a poll to decide which issue to comment on, and restrict all further comments to that issue. or should we save money on the poll and just ask you. agitprop. nice word. wonder what it means.
You didn’t understand? OK. I could care less what issue or person you or anyone else has an opinion about. But to focus on Kyl’s estate tax repeal schtick is irrelevent. He has no power at all. Even when he did have some influence he couldn’t get his pet project passed. The people with the real power who are active in this debate, Reid, Cantwell, Lincoln, Baucus, etc. are so far away from Linda’s position that maybe she should focus on their ideas instead of Kyl’s. It’s kind of like having a post titled “LeBron James Keeps Working Toward the 2010 NBA Title”. Keep discussing irrelevancies while the real power works to pass laws you don’t agree with.
No you’re thinking of Upton Sinclair the writer and sometime socialist politician: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”