Propaganda

Raise your hand if you think your net worth is over a million dollars!

If your hand is up, you are in a very, very small minority.

It’s been some years since I have had the occasion to say anything about the estate tax. However, now the temporary rollback of that tax is about to expire and all of a sudden we are seeing little pieces in the news designed to make us panic. It’s part of a scheme to blame Democrats for “tax hikes” that are really nothing more than letting the disastrous, deficit fattening Bush tax cuts expire. Today’s salvo from USA Today is titled “Estate tax to return in 2011, and it could hurt ordinary folks.” Of course, it’s mostly wrong.

A $1 million exemption would affect a lot of families that are well out of Steinbrenner’s league. “You take a home, an IRA or 401(k) retirement account, some other savings and you get to $1 million pretty easily,” says Richard Behrendt, senior estate planner for Robert W. Baird and a former IRS attorney.

Let’s take this apart a little bit. According to the National Association of REALTORS, the median price of a single family home in May of 2010 was $166,100. Currently, HousingTracker.net does not report any metropolitan areas with a median price above $500,000.

As for retirement savings, a report that came out earlier this month suggests that most people, even many wealthy people, will run out of retirement savings. It’s hard to find an estimate of just how much money people have saved up. This 2006 item suggests that even the best off of us had less than $100,000 savings in their retirement accounts, and that way before the Great Recession. Considering what stocks have done, it’s not likely that these accounts doubled in value. Even if they did, many were raided by their unemployed owners in the interest of keeping the bills paid.

As for other savings, this Washington Post article, also from 2006, says that we only had $3800 in the bank on average.

In fact, the Wall Street Journal says that at the end of 2009, the average net worth of an American was only $175,600, down from a peak in 2007 of $218,650. And that’s without accounting for mortgages or credit card debt! Even somebody with 4 times the peak average net worth wouldn’t be touched by a tax on estates over $1,000,000. Certainly, somebody with a median priced home, median IRA/401K accounts, and median savings is nowhere near being at risk of owing estate taxes.

It’s pretty easy to see that the expert cited by USA Today is in no way connected to reality as you and I know it. The truth is that fewer in one in ten Americans will receive any inheritance whatsoever.

Of course after pointing out the truth of this statement, opponents of the Estate Tax will do two things. First, they will revert to calling it a “death tax,” just because it sounds scarier and like it will effect more people. Second, they will start talking about how it could [in some alternate reality] effect small businesses and farms. This point applies to so little of the population that George W. Bush couldn’t find a single “victim” of this tax consequence to put in the gallery at the State of the Union Address in the 8 years of his Presidency.

Seriously, if you’ve got a million dollars of net worth and can’t afford some estate planning, you’ve got bigger problems than what happens after you are dead.

And how fascinating that this issue comes up just as some on Capitol Hill are saying Social Security is too expensive and needs to be cut. Talking out of both sides of their mouths as usual.

In closing: Tony Horton Goes to Italy; “Improving neighborhoods is a desirable goal, but it’s not education reform”; 13 reasons the economy really sucks; Darn, I agree with Glenn Reynolds again (this is becoming an annoying habit).