Estate Tax Idiocy
As Steve noted earlier, the Senate voted Thursday to eliminate the estate tax for estates worth less than $5 million, or $10 million for couples (estates worth less than $3.5 million, or $7 million for couples, are excluded now), and to lower the tax on estates over that amount from 45% to 35%. (Note: you only pay taxes on the value of the estate after you subtract the excluded amount. Thus, if you now leave an estate worth $3,500,001, the estate will have to pay all of 45 cents in taxes.) Luckily, it seems unlikely that this will make it into the final budget. But it’s worth stopping to note just what a stupid idea this is. From the Center for Budget and Policy Priorities:
“The proposal would benefit only a tiny number of estates but carry a large cost. Only the estates of 2.8 of every 1,000 people who die would benefit from the Lincoln-Kyl proposal; Tax Policy Center data show that those are the only estates that would owe any estate tax in 2011 if the 2009 estate rules are extended. Yet the proposal would cost $91 billion more in the first ten years that its effects would be fully felt (2012-2021) than would making the 2009 rules permanent, based on Joint Tax Committee estimates. Relative to current law, under which the tax will revert to pre-2001 parameters in 2011, the total cost of the Lincoln-Kyl proposal would be $442 billion over this 2012-2021 period.
These new cost estimates are lower than last year’s estimates for a similar proposal, probably because of the sharp drop in the stock market, real estate values, and other asset values. But over time, as asset prices recover, the long-term cost projections of the proposal would also increase — and by quite substantial amounts.”
Like a lot of conservatives, I am very worried about the deficits. Unlike some of them, I was also worried about it several years ago. Also unlike them, I am at present more worried about getting out of the recession, and I am willing to run deficits in the short run to accomplish that. But because I am worried about the deficit, I want these deficits to be well targeted and stimulative.
That means that I am much, much happier about spending money on investments that will pay dividends into the future, or on like deferred maintenance that we will need to do eventually, than on things we don’t need, like the war in Iraq. It also means that I think that any tax cuts we pass now ought to go to people who will actually spend all the money they get, rather than to people who will not: i.e., the rich.
Spending money on things we need tends to be a better stimulus than tax cuts. Tax cuts for the poor and middle class tend to be better stimuli than tax cuts for the rich. But if, for some unfathomable reason, we want to give tax cuts to the rich right now, why on earth do it by cutting the estate tax?
There’s a reasonable argument for cutting taxes on capital gains and income: namely, that they increase incentives to work and invest. I think this argument is outweighed by other considerations, but it does exist. But what, exactly, is the argument for cutting the estate tax? People who inherit money have not earned it. They are not doing something that we want to reward, like working; they just happened to be the heirs of rich people.
Moreover, they have already gotten a lot of advantages as a result of their good fortune. A lot of them have gotten very good educations, and have emerged from college without the masses of debt that other people have to deal with. Many of them know other wealthy people who can help them out with jobs and other business opportunities. The deck is already stacked overwhelmingly in their favor, not because of their efforts but because of sheer blind luck. (And lest anyone think that this is resentment or envy talking, I should say that while I don’t know enough of the relevant details to say, it is not inconceivable that I might end up paying estate tax. When I talk about privilege, I know whereof I speak.)
Obviously, I hate taxes as much as the next person. I wish that tiny little elves brought us the money we need to pay for bridges and courts and national defense and so on, or that money really did grow on trees, so that no one ever had to pay taxes at all. Regrettably, however, we do have to pay for our government, and that means taxes. Cutting the estate tax means either raising taxes on other people or adding to the national debt, thereby raising taxes on our children. (Don’t bring up cutting spending: as long as we run deficits, cutting spending only reduces the amount we owe. It does not eliminate the fact that cutting the estate tax will increase the debt our children have to pay.) Why on earth either of these options would be preferable is a mystery that passeth all understanding.
I really do have to give a special shout-out, in this context, to those Senators who go on and on about fiscal responsibility and yet found it in their heart to vote for this amendment. Evan Bayh, for instance, claims to be “one of the leading voices on Capitol Hill demanding fiscal responsibility and reigning in wasteful government spending.” Blanche Lincoln, who sponsored the bill, and who, with Bayh, just founded the Moderate Senate Democrats Working Group, which is allegedly “focused on fiscal responsibility”. Lincoln also made one of the world’s dumbest arguments for fiscal responsibility just a few days ago:
“In good and bad economic times, most Arkansas families know they must live within their means. They try to balance their checkbook every week, pay their bills on time, and, hopefully, are able to put a little away for retirement and their childrenâ€™s college fund. From time to time, though, even those who plan ahead and make prudent saving decisions may face a household emergency that requires them to seek a loan or use a credit line to help them through a rough period. When that happens, they know they must tighten their belt and make sacrifices to make those payments and eliminate their debt. If the working families of Arkansas must do this, why shouldn’t their government do the same?”
I’ve given up on expecting sanity from Senate Republicans, all of whom voted for this. But I had hoped for better from the ten Democrats who voted for this.