Once more, the rhetoric has turned to the Estate Tax. When we last checked in on the Estate Tax, opponents were calling it the “Death Tax,” a way of framing the issue which erroneously gives the impression that average Americans are taxed for the act of dying. Back at the beginning of the Bush Administration, a phase-out of the Estate Tax was put into the Tax Cuts For The Wealthy That We Hope Will Trickle Down Act of 2001. The Estate Tax itself will be gone in the year 2010, but because the tax break was “only temporary,” the Estate Tax will be with us again at year 2000 levels unless Congress can pass a bill (and get it signed) to make the tax cut permanent.
This brings us to the present day, when some Senators are being pressured to vote “the Right way” on permanent repeal of Federal Estate Taxes.
The most important thing to remember when we are talking about the Estate Tax is that, at year 2000 levels, the first million dollars is exempt. Your estate consists of a $250,000 house and a five-digit bank account balance? Your estate owes no taxes! None! Be honest, do you have a net worth of over a million dollars? The fact is that 98% of Americans are never effected by this tax.
And as for those of you that do in fact have a million dollar plus estate, there are plenty of ways to see to it that the taxes are paid without undue stress on your widow. If you are worth a million bucks and can’t afford a couple grand for estate planning, you have much bigger problems than what happens after you are dead.
Opponents of the Estate Tax — the sort of people who insist on calling it the Death Tax — say that the real problem with it is that there are “many” small businesses, farms, and ranches that have big assets on paper, but on the death of the owner will have to be sold to pay the taxes. I have three things to say about that. First, a few hundred bucks thrown at a company like The Company Corporation solves that problem by making the company a separate entity. Likewise, an estate planner can put together an insurance package designed to pay the taxes on your estate upon your death — there are two types of people, people who can’t afford an estate planner and people who can’t afford to not have an estate planner.
Second, some of the Senators in question support a bill that would exempt $100 million on the estate of “small” businesses and farms. Sheesh, that’s $100,000,000. I’d like to be that sort of small business owner!
And lastly, if there are so many family businesses, farms, and ranches being put out of business, how come President Bush can’t find one to put in the balcony of the House and talk about in the State of the Union when he talks about “why we need to repeal the Death Tax permanently”? Because they are very, very rare. They would have better luck trying to find a Unicorn breeder to put in the balcony.
The other “argument” against the “death tax” is that it is “double taxation.” The reasoning is that Granddad paid income tax on that money when he earned it, and that makes it wrong to tax it again when he dies and Junior gets the money. If we applied this standard broadly enough, no taxes would ever be paid on anything. The nice folks at Tom the Dancing Bug drew a nice picture to explain how many times the same dollar gets taxed. His point was regarding dividends, but the same logic applies here. You earn money and pay taxes. You buy something and pay more taxes with already taxed money. The store owner pays taxes on his profits from selling you stuff. The guy that wholesaled the stuff pays taxes on his profits. The employees of the store, the wholesaler, the manufacturer, the shipping company all get paid and all pay taxes on their income. Rinse, repeat. This whole double taxation thing makes a good soundbite, but is empty noise.
So why exactly should your Senator support repealing a tax that few people pay, and that there are many ways to get around paying it anyway?
In closing, I bring you some light reading for the weekend: “Who’s Watching the Watch List,” How exactly does one lose track of $8800 million dollars and — literal light reading — Congress is talking about making it legal for electricity to be controlled by a small group of companies. It’s as if they forgot Standard Oil and why trustbusting happened.