Posts Tagged ‘estate tax’

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class="post-515 post type-post status-publish format-standard hentry category-taxes tag-estate-tax tag-inequality tag-inheritance-tax tag-tax-cuts tag-wealthy">

“Death Taxes” are for the Living

August 6th, 2010

“We can have concentrated wealth in the hands of a few or democracy–but we cannot have both.”
–Supreme Court Justice Louis Brandels

Since the 2001 tax cuts, there has been a slow phasing-out of the estate tax until the tax was fully repealed at the beginning of this year. Absent any further legislation, the Bush tax cuts will expire at the end of 2010, including the estate tax. (We’re going to see a lot of dead grandparents this year!) There will inevitably be a political storm over extending the Bush tax cuts. Although Obama himself made tax cuts part of the economic stimulus in early 2009, he is widely expected to allow the Bush tax cuts to expire at the end of the year. This should be good news for deficit hawks. If we are going to get back to a balanced budget, the additional tax revenues will be necessary (although not sufficient).

The estate tax (AKA, the inheritance tax) is one of the oldest forms of taxation. It has been in place since 1916 in the U.S., until it was repealed earlier this year. According to the Brookings Institute, the estate tax only affects the wealthiest 2% of the U.S. population (i.e., the majority of those paying the tax had fortunes in excess of $5 million). Of the $550 billion that is transferred from one generation to another, the estate tax brings in $20 billion each year to the U.S. treasury (other sources say that the federal government lost $56 billion in 2010 because of the tax repeal). Estate taxes have rarely contributed more than 2% to federal budget. But this tax is not just about finding another revenue stream for the government. It is a wealth control program that lies at the very heart of American values.

In many ways, America was born out of the idea of rejecting aristocratic power and privileged (even if those forces have always been present). Since our founding, we have sought to put power in check (even–perhaps especially–our government), and to allow equal opportunity for all. We also value “the self-made man,” who earned his/her way to success through hard work, not through nepotism or privilege (in other words, not Paris Hilton!). In short, we wanted a society based more on meritocracy than aristocracy, and inheritances leads to an unequal material starting positions for members of society. Without a control mechanism, family dynasties of the ultra-rich are a threat to these values.

Political commentators, such as Robert Frank of the Wall Street Journal, want to believe that the rich earned their own way. But when $550 billion is passed on each year, with only $20 billion collected, there are plenty of people getting a free ride. When the ultra-rich hand off their fortunes to their descendants, we have a situation where a dynastic ruling class emerges, made up of people who did not earn most of what they have (or at least didn’t get there under the same rules that the rest of us do), and these people are now on the boards of our businesses, buying our elections, and funding lobbyists.

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