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Monday, June 05, 2006

[POLITICS] The Senate is going to be voting soon to repeal the estate tax. This is a tax on bequests over $2 million -- only one in 200 estates pay any tax at all.

The Republicans will talk about family farms, though no one has ever really lost a family farm because they had to pay tax on the over-$2 million part of a family farm. As Paul Krugman points out, this is a tax on Paris Hilton.

From a tactical point of view, let's start calling this the "Paris Hilton Relief Act." I think that might help explain it to people who have a gut objection to an estate tax, but don't realize that they are never, ever going to benefit from the elimination of the tiny estate tax the US still has.


Let's be clear here - the "tiny" estate tax is 50% of your entire estate, over a certain amount. So, if you have, in your lifetime, amassed more money than the government permits, you have to pay HALF of that to the government.

If you have a business worth, say, 10 million dollars - which is not huge for a corporation - then in all probability, that business will have to be sold. Or, your heirs will have to borrow a lot of money to pay the tax and keep the business afloat.

I guess, if you're a socialist, you can make a case that no one should be allowed to make over a certain amount. But this isn't a case I'd expect people in the movie business to make.

By Blogger Michael L., at 4:03 PM  

Yeah, my heart really goes out to those people who are only going to inherit $7 million worth of company shares instead of the full $10 million. (Remember it's $2 mil per person, so mom gets the $2 mil limit too.)

I don't think it's socialist to expect people who inherit big, big, big chunks of money to contribute a little extra to society. It's not like they earned it. And the people who did earn it are, by definition, already dead.

In real life, of course, the estate tax only applies to that part of the estate that the parents haven't been able to hide in trusts. So the real rate is far less than 50%.

By Blogger Alex Epstein, at 5:46 PM  

But Alex, what shares people will inherit isn't the point. Let's say they want to keep the company going - incidentally continuing to provide jobs for everyone who works there. That means they have to come up with $3 million dollars - a third of the total worth of the business! Either they have to borrow that somewhere - and of course pay it back plus interest, this in addition to whatever personal (mortgages, college tuition, etc.) or company (expansion, improvements, hiring) expenses they may have already. Or else - in the most likely scenario - the company will simply have to be sold. And lots of people will lose their jobs.

Lest you think this theoretical, I happen to be very close to some people who have faced just such an issue.

It's easy to look on this with bitterness when you think in the abstract of some fabulously rich tycoon, and his spoiled brat heirs "making do" with 7 mil instead of 10. How unfair it seems that some little brats have such funds they haven't earned, while you or I may have had to put ourselves through school working at 7-Eleven. But why don't you think of it a little closer to home?

Let's say I want to be a movie director. I may or may not succeed. But I won't have NEARLY the head start that Rob Reiner had, because his father was a very successful director and writer. Not that Rob isn't very talented himself (though a little overdedicated to crackpot leftist causes for my taste) - but how many millions were his connections worth, not to mention the lessons he learned from direct observation, not to mention the actual millions he's probably gotten as well. Would you begrudge all that to him? Should the state make Carl Reiner get some of us job interviews, or review our scripts for free, to more fairly distribute the wealth? Of course not. Carl Reiner has the perfect right to share his assets with his children; it doesn't actually take away from my opportunities, unless I let myself be distracted by envy.

The one aspect of the estate tax that everyone can agree on is the money that was never taxed in the first place and, if the estate tax vanishes, will now not be taxed ever. That's the appreciation of capital gains on money that is part of the estate. (In the current estate tax, those monies are only taxed on their original value.) The estate tax rankles when tax has to be paid on money that has already been subject to income tax, but exempting money from being taxed at all is clearly unjust.

Yet, as the Wall Street Journal recently explained, there is a compromise proposed that would allow those capital gains to be taxed, while killing the rest of the estate tax. That would INCREASE the amount of tax collected over what is currently gained from the existing estate tax. Yes - we can end the estate tax while collecting MORE money taking advantage of this compromise. But Democrats have refused to take advantage of this proposal - they're just too focused on trying to bitch-slap Paris Hilton.

By Blogger Michael L., at 10:12 AM  

Why does anyone lose their jobs when a company is sold?

I like the idea of taxing capital gains... let's see if the Republicans go for it.

As far as bitch-slapping Paris, that really *needs* to happen.

By Blogger Alex Epstein, at 11:12 AM  

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