Taxing Estates Has Always Been Unfair
July 28, 2016 at 4:25 p.m.
My heirs probably aren't going to be affected by the estate tax.
When I am dead and gone, there probably won't be enough wealth for the government to glom on to.
You know, of all the taxes that we have to pay, this one seems to me the most egregious.
Most of us won't fall prey to this overt plunder because we don't make enough money in our lifetimes.
But you know, it just rubs me wrong that the government thinks it needs to get so deeply into a few taxpayers' pockets.
Following is a hypothetical I gleaned from a Web site devoted to the estate tax debate.
The basic exemption from the estate tax is $675,000, this year. Under current law, this amount will gradually increase, until it reaches $1 million in 2005. Anything left to a spouse, even one's entire fortune, is exempt from the tax. Anything left to a charity is also deductible.
The "taxable estate" between $675,000 and $5 million is taxed at the rate of 37 percent, and any taxable amount above $5 million is taxed at the rate of 55 percent.
So here is the case of Pearl, a widow with three kids and an estate of $11.5 million.
Pearl's "final expenses" - lawyers' fees, executor's fee, court administration expenses, funeral expenses, etc. - consume $1.5 million, leaving her estate $10 million to distribute to charity, heirs and, of course, the U.S. Treasury.
If she decides to leave everything to her children, in equal shares, each child will get the following amounts: $225,000 from the "exempt estate" (first $675,000), $908,166.67 from the "lower tier taxable portion of estate" (next $4,325,000, of which $1,600,250 goes to the government in estate tax, and $2,724,500 remains for heirs), $750,000 from the "higher tier taxable portion of estate" (final $5 million, of which $2.75 million goes to the government in estate tax, and $2.25 million remains for heirs).
If Pearl gives nothing to charity, her children each receive $1,883,166.67, and the U.S. Treasury gets $4,350,250.
That means the kids get $5,649,500 and the government gets $4,350,250.
There are those who argue that the estate tax is fair because it eliminates the unfair advantage bestowed upon those with rich parents.
That, to me, smacks of nonsense.
There are those who argue that redistribution of wealth helps put all children on an even playing field because the government uses those tax dollars to help disadvantaged children.
But what does that tell parents who work hard purposely to give their children an advantage?
Some argue that the estate tax helps head off an "aristocracy" where power and wealth is awarded by heredity instead of merit.
This seems to suggest that inheriting money somehow predisposes you to a lack of merit.
Some argue that an estate tax cut is ladling out cash to the heirs of a few millionaires.
No, it allows the heirs to inherit the assets of their benefactors.
Some argue that the estate tax affects only 2 percent of taxpayers.
That argument works both ways. I think that's a good argument for eliminating it.
Some argue that the estate tax doesn't amount to double taxation. Most large estates have never been taxed as income because their value lies in the form of unrealized capital gains.
But what is an unrealized capital gain? The proceeds from the sale of real property is one. How did the person acquire the property? They paid for it with taxable income. The money used to buy it was taxed.
All the ideology aside, the current debate is a little wacky.
The current legislation calls for the estate tax to be gradually reduced, as stated earlier in this column. It was part of the $1.3 trillion tax reduction bill the White House won last year.
The estate tax would decline gradually until 2010, when it will expire for one year, only to be reinstated at the same level as today the following year.
What kind of legislation is it that gradually reduces something over a 10-year period and then fully reinstates that same thing?
So now W is trying to make the cut permanent and, of course, it's all about politics.
Both sides are clamoring to gain political advantage.
The GOP wants to paint a picture of tax-hungry Democrats, and Democrats want to paint a picture of greedy Republicans ladling out tax cuts to the rich.
But to me, it's more basic and fundamental.
White House economic adviser Larry Lindsey told syndicated columnist Matthew Miller that "when you have been taxed once when you earned the money, and again after you've saved it, having the feds then swarm in for one last bite when you're dead takes statist lust too far."
I would go a step farther.
I would ask where our government gained the authority to enact such a blatantly confiscatory tax policy in the first place. [[In-content Ad]]
My heirs probably aren't going to be affected by the estate tax.
When I am dead and gone, there probably won't be enough wealth for the government to glom on to.
You know, of all the taxes that we have to pay, this one seems to me the most egregious.
Most of us won't fall prey to this overt plunder because we don't make enough money in our lifetimes.
But you know, it just rubs me wrong that the government thinks it needs to get so deeply into a few taxpayers' pockets.
Following is a hypothetical I gleaned from a Web site devoted to the estate tax debate.
The basic exemption from the estate tax is $675,000, this year. Under current law, this amount will gradually increase, until it reaches $1 million in 2005. Anything left to a spouse, even one's entire fortune, is exempt from the tax. Anything left to a charity is also deductible.
The "taxable estate" between $675,000 and $5 million is taxed at the rate of 37 percent, and any taxable amount above $5 million is taxed at the rate of 55 percent.
So here is the case of Pearl, a widow with three kids and an estate of $11.5 million.
Pearl's "final expenses" - lawyers' fees, executor's fee, court administration expenses, funeral expenses, etc. - consume $1.5 million, leaving her estate $10 million to distribute to charity, heirs and, of course, the U.S. Treasury.
If she decides to leave everything to her children, in equal shares, each child will get the following amounts: $225,000 from the "exempt estate" (first $675,000), $908,166.67 from the "lower tier taxable portion of estate" (next $4,325,000, of which $1,600,250 goes to the government in estate tax, and $2,724,500 remains for heirs), $750,000 from the "higher tier taxable portion of estate" (final $5 million, of which $2.75 million goes to the government in estate tax, and $2.25 million remains for heirs).
If Pearl gives nothing to charity, her children each receive $1,883,166.67, and the U.S. Treasury gets $4,350,250.
That means the kids get $5,649,500 and the government gets $4,350,250.
There are those who argue that the estate tax is fair because it eliminates the unfair advantage bestowed upon those with rich parents.
That, to me, smacks of nonsense.
There are those who argue that redistribution of wealth helps put all children on an even playing field because the government uses those tax dollars to help disadvantaged children.
But what does that tell parents who work hard purposely to give their children an advantage?
Some argue that the estate tax helps head off an "aristocracy" where power and wealth is awarded by heredity instead of merit.
This seems to suggest that inheriting money somehow predisposes you to a lack of merit.
Some argue that an estate tax cut is ladling out cash to the heirs of a few millionaires.
No, it allows the heirs to inherit the assets of their benefactors.
Some argue that the estate tax affects only 2 percent of taxpayers.
That argument works both ways. I think that's a good argument for eliminating it.
Some argue that the estate tax doesn't amount to double taxation. Most large estates have never been taxed as income because their value lies in the form of unrealized capital gains.
But what is an unrealized capital gain? The proceeds from the sale of real property is one. How did the person acquire the property? They paid for it with taxable income. The money used to buy it was taxed.
All the ideology aside, the current debate is a little wacky.
The current legislation calls for the estate tax to be gradually reduced, as stated earlier in this column. It was part of the $1.3 trillion tax reduction bill the White House won last year.
The estate tax would decline gradually until 2010, when it will expire for one year, only to be reinstated at the same level as today the following year.
What kind of legislation is it that gradually reduces something over a 10-year period and then fully reinstates that same thing?
So now W is trying to make the cut permanent and, of course, it's all about politics.
Both sides are clamoring to gain political advantage.
The GOP wants to paint a picture of tax-hungry Democrats, and Democrats want to paint a picture of greedy Republicans ladling out tax cuts to the rich.
But to me, it's more basic and fundamental.
White House economic adviser Larry Lindsey told syndicated columnist Matthew Miller that "when you have been taxed once when you earned the money, and again after you've saved it, having the feds then swarm in for one last bite when you're dead takes statist lust too far."
I would go a step farther.
I would ask where our government gained the authority to enact such a blatantly confiscatory tax policy in the first place. [[In-content Ad]]