ME VS. THE ESTATE TAX PT. II: TAX SMACKS BACK!

Part Two of a series on the Estate Tax, continued from a previous post…

When last we met, the House had just approved a repeal of the Estate tax, along with a handy tax break for the Timber industry. The House plan exempted 99.5% of American estates from any sort of duty on inherited wealth, and cut rates on highest .5%. If you can swin in coins Scrooge McDuck style, you are subject to a nominal fee.

The cost, in the first decade, was estimated to be about $760 billion dollars ($600 billion that will need to be borrowed or stolen or whatever, and $160 billion in interest). The Timber cuts (knyuck knyuck) added up to about $900 million.

Republicans laughed heartily; liberals were gnashing their teeth and spitting. I was wondering if I really think the Estate Tax is such a great thing.

Obviously the tax is unpopular: the opposition is bolstered by the underlying resistance to A) taxes, B) taxes on dead people, and C) taxes on the families of dead people. The perception is that of a veiled, weeping widow giving over her nest egg to some hand-wringing, mustache-twisting, pencil-neck bureaucrat, who will speed off into the sunset in a Cadillac with a welfare queen. I’m not being hyperbolic here. This is what Americans think about their government.

The popularity issue forms one aspect of my questions about the Estate Tax. Any opportunity to remove the Death Tax chains from the Democratic neck is a welcome one. It prompts me to wonder how necessary is such an unpopular measure. On a side note, the term "Death Tax" originated in a memo written by Republican pollster and heartthrob Frank Luntz, who you may remember as the key architect (in another memo) of his party’s and the current administrations language on global warming (“The scientific debate remains open...”).

Luntz has since changed his tune on global warming, by the way.

But popularity is only scratching the surface. As I said before, my hesitation on the Estate tax arises from the legal side of the issue - not that I am familiar with these or any legalities, but the justification for the existence of the tax seems to be that it affects only people who can afford it, and thus it is reasonable. That designation is too hazy, I think. Kind of like banning flag burning and gay marriage because “the American People” don’t approve. In general, I tend to worry about granting any branch of any government any amount of discretionary power.

So what of the legalities? Article 1, Section 8, Clause 1 of the Constitution reads:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

It seems like a hazy justification is not really an obstacle at all, at least according to the foundational tenant of Tax Law. In fact, it appears that hazy justifications are the only ones we really have. To “pay the Debts and provide for the common Defence and general Welfare” is just a fancy way of saying “because we need it.” And if I've said it once, I've said it a million times: it’s good enough for Madison, it’s good enough for me.

Ultimately, taxation, and the Estate Tax is a cultural matter. Congress determines where they are going to levy taxes, and we vote them in or out based on their decision. It is the prudence of the public, or the culture at large that determines the fitness of a tax, of most any law.

In this case, the cultural arguments cut both ways:

the Estate Tax - a minor impound on a tiny percentage of Americans, people like Richie Rich, Monty Burns, and the Monopoly Guy - encourages growth, spending and investment.

the Death Tax - a pound of flesh cut from the legs and arms of grieving children, taken from hard-working Americans who earned every penny, the sort of people that you might be someday - discourages growth, spending and investment.

Zero sum there. Whatever you believed before is what you believe after.

However, it is worth mentioning that we will be losing hundreds of billions of dollars in essential state revenue to ensure that we don’t encroach upon the massive wealth of a small percentage of the population. Whatever my cultural reservations about taxing dead people’s money, they don’t match my cultural reservations about frivolous wealth in the face of crippling poverty. There is also that fact that many people are so steamed about the government taking their money, that they decide to pass it on to charities instead.

Thomas Jefferson wrote: “…the land belongs in usufruct to the living…” Admittedly Jefferson was a little loopy on inheritance in general, suggesting generational expiration dates on personal wealth, business contracts, and governments, but the spirit here is good. No one could argue that the land isn’t ours in usufruct.

Or more recently, on July 2nd, Warren Buffet, the most famous old guy approaching death and hoping to secure a spot in Heaven, was quoted in the New York Times, speaking in favor of the Estate Tax:

Almost alone among rich Americans, Mr. Buffett has argued that estate taxes should be increased, not eliminated. Mr. Buffett says the estate tax helps build a vibrant economy of innovators and strivers -- a true meritocracy -- and that repealing it would risk a stunted economy controlled by aristocratic inheritors. Repealing the estate tax, he has said, would be the economic equivalent of ''choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics.''

Or Kennedy in his 1961 Inaugural: "If a free society cannot help the many who are poor, it cannnot save the few who are rich."

Since most Americans don’t vote, it is the abstract "culture" that determines ultimately the fate of this tax and so many other of the boundaries of American life. Quotes from founding fathers, rich old men, and former presidents are all we have. The decisions on the Estate Tax are being made in dial-tests and focus groups in malls across the country. This is how we get our laws. We can only hope that Congress will exercise a certain prudence.

FINAL
Estate Tax 1 (W)
Me 0

No one call your Congressman.