Wednesday, July 27, 2005

From an editorial in The Washington Post on Jul 24, 2005. pg. B.06

One of the chief arguments of those seeking permanent repeal of the estate tax is that it cruelly penalizes farmers and owners of small businesses whose heirs are forced to sell off their holdings to pay the tax. "In order to make sure our farms stay within our farming families, we need to get rid of the death tax once and for all," President Bush proclaimed in a speech last month to the Future Farmers of America.
This assertion, though, is more convenient myth than fact....A new study by the Congressional Budget Office examined estate tax returns filed by farmers and owners of small businesses in 1999 and 2000. The numbers that owed estate tax, the CBO found, were paltry. In 2000, for example, just 1,659 farm estates had taxes due.
But at that time the amount of money that could be passed on to heirs free of taxes was just half what it is now. With the current exemption level of $1.5 million, the CBO analysis found, only 300 farm estates in 2000 would have owed any tax at all.
At the even more generous exemption scheduled to take effect in 2009, $3.5 million, the ranks of those potentially hit hard by the tax would have dwindled even further; 65 farm estates would owe taxes.
In other words, the image of the grieving heir packing up his hoe as he trudges away from the family farm is just that -- a powerful image but not an accurate one.

See another story on this subject here.


Jim said...

You are against a double tax but for the Death Tax. Then I read on your blog how upset you are about your property tax increase.

“I just got a letter from the Spokane County Assessor's Office. It said my property taxes are going up over $800 per year. Can you believe that? How can they do that? Fine, raise my taxes, but by over fifty percent in one year? There should be a law against that.”

Why are you so upset at this increase? Could it be that the increase in your home’s value doesn’t mean squat until you sell? Yet $70 more a month goes to the governement when your income hasn’t increased. A pure “fake” money tax just like the Death Tax. Only the death tax is on every asset you own. A tax not on wealth realization but on the death of the esate owner.

Eric said...

Your criticism doesn't make any sense.

An income tax, an estate tax and an excise tax are completely different.

I don't pay income tax on the rise in my home's value. You know that. I would pay tax on the profits if I sold. But, if I passed it on to my kids, you say nobody should have to pay tax on the transfer of wealth? Taxes should be paid on every transaction, and an estate tax is just that. Real estate taxes and income tax (and capital gains tax, for that matter) are all different in theory and execution.

Jim said...

Yes, nobody should pay taxes on the transfer of wealth. It is not a buy/sell transaction. It has a subjective value just like your property tax. That is the correlation I was making. Who puts the value on your estate? The same people who said your house is worth more and dinged you 50% in one year. Don’t you worry taxes will be paid upon any buy/sell transaction in addition to a tax upon your death. Granted there are minimum net worth values but you get the point. Two different types of taxes on the same item. This is called double taxation. Help me understand how you are against double taxation but are for a death tax? I still don’t get it. Like I said before if I buy something today undervalued and die tomorrow, my estate should not be taxed simply because I died.

Eric said...

Let's not debate the ethics of the estate tax here.

Rather, let's try to come to an understanding of a simple economic truth that can be proven.

AN ESTATE TAX ON A HOME IS NOT DOUBLE TAXATION. Allow these words from a NY Times editor explain it more clearly than I can.

"The most commonly heard argument against the estate tax - that it represents unfair double taxation -is specious....Much of the wealth transferred at death has never been taxed. That's because capital gains on assets like houses, stocks and bonds are not taxed until the asset is sold. Obviously, if you inherit, say, a house, its owner didn't sell it, so never paid any capital gains tax on it."

There is no possible way you can say that, if I died tomorrow, an estate tax on my house is double taxation. I HAVE NEVER SOLD THE HOUSE, SO I HAVE NEVER BEEN TAXED. Sure, I've paid property taxes, but that's a different kind of double taxation.

In fact, we're double taxed all the time. For instance, I pay federal taxes on all my income. Then, I pay Medicare on my entire income. Then, I pay state sales tax on many things I buy. That money is taxed again. There are all kinds of examples of double taxation.

I am against paying the same tax twice, that's all. That kind of double taxation does not occur with the estate tax.

Jim said...

The New York Times assumptions are based on the fact that the capital in the estate is never going to be sold. The capital is being taxed on the income it generates. That is economic truth.

"In fact, we're double taxed all the time. For instance, I pay federal taxes on all my income. Then, I pay Medicare on my entire income. Then, I pay state sales tax on many things I buy. That money is taxed again. There are all kinds of examples of double taxation."

Yes. This my point. So your for the above examples of double taxtation but not for others?

"Rather, let's try to come to an understanding of a simple economic truth that can be proven."

I have in my most recent email to you. Feel free to post it.

Look at this quote from a fellow liberal. This is the real issue here not economic truth.

"First, Republicans are calling it a "death tax" because they think that makes it more sellable. It's not a tax on death. It's a tax on multi-million-plus dollar estates. Rep Chris Cox from ritzy Newport Beach, California dramatically declared that those pushing to retain an estate tax "want to pry lots of cash out of the cold, dead fingers of America's deceased entrepreneurs." Cox sounded downright silly.

Second, it IS double taxation, and that is not "fair." The Internal Revenue Code is not intended to be fair to anyone. The Code is riddled with dozens of double taxation situations. For the estate tax, double taxation occurs because the person is taxed annually on their incomes. He is taxed then again on some assets he purchases with income leftover after taxes. Most assets passed on with estates (houses, stocks, bonds) are not taxed until sold.

Is that fair? No. So what? Most of the Code is not fair, least of all to middle class taxpayers. Deal with it."

She knows this is double taxation. She knows the tax isn't far but it is a tax on the evil rich class and the rebulicans. We just need to "deal with it."

Ken said...

Well, I don't pretend to know the details of estate taxes, but I can say I support the elimination of just about any tax that can be named and this sounds like a good candidate. I am most troubled by one of Eric's comments where he said "Taxes should be paid on every transaction..." Where does this idea come from? It sounds like the type of taxation that our founding fathers fought the revolution against. An example I would use, that has probably hit each of us personally, is the sales tax on used cars. Why should the government get a dip every time a used car changes hands? It should be taxed once when it leaves the lot brand new. Personally, I think this would apply to homes as well. Why should it be taxed every time it changes hands? How about eliminating all of these taxes and starting over with one fair tax for everybody based on income?

Eric said...

If transactions are taxed, then EVERY transaction should be taxed. I would be all for your idea of a tax based simply on income. In fact, I would welcome that on the state level as well. Banish the regressive sales tax and replace it with a simple income tax.

Jim said...

See we all agree. Banish all taxes except for Income. No dedcutions either.