April 05, 2002
From the desk of Mindles H. Dreck:Death and Taxes
As an aside to the post below on sin taxes, I would like to make another observation about government's strange relationship with personal tragedy.
Larry Silverstein has a 99-year lease on the World Trade Center. By any reasonable definition (not just accountint treatment) that constitutes something like ownership. It amazes me that everybody wants to get involved in what is built on the site, but nobody wants to breach the idea of buying the lease back. In a sense, there is a large community, at least in New York, that wants to exercise eminent domain, but doesn't want to pay for it. The tragic deaths of the tenants somehow allow them to sidestep the public acquisition of property.
Given that so many in government feel that a proper way to honor the newly dead is to take half of the property they have accumulated (and paid taxes on) over a lifetime, I suppose that isn't so surprising.
Through the miracle of caching (since this material is not on the Lileks site right now), I can quote Lileks on this subject. He speaks not only with the vivid colors we have come to know, but from his own family's experience.
. I was reading in my paper today about a Minnesota Congressthing who wants to halt the forthcoming changes in the estate tax to fund the usual raft of programs, and I had to stuff cotton in my ears to keep the blood from shooting across the room. They always make it sound as though they’re shaving a few mil off the corpse of some dead plutocrat whose belly swells like Boss Tweed in a Nast cartoon, and whose carcass will spew gold coins if they just make the right incision. They are either stupid - no surprise - or lying, which is also not a stunner.Coming from a family with a small business, I know exactly what I’m talking about. I always enjoy the arguments presented in favor of liquidating our business:
1. It prevents the formation of economic aristocracies. Yes, like the Kennedys and Rockefellers, pertinent examples of which sit in Washington and devise new ways to relieve me of my property. They’re correct, of course; all tremble at the mighty Lileks Empire, which someday might grow to TWO convenience stores and grind the meek timid midnight milk-seeker beneath our pitiless heel.
2. It’s a way of giving back to the society that made the formation of the estate possible. My father has paid income taxes, Social Security taxes, state taxes, county taxes, unemployment taxes, license taxes, exise taxes, and capital gains taxes; obviously, this parasite must be squeezed once more just to even the score. I would note that my father’s three and a half years in WW2, during which he was paid about a buck fifty, would seem to redress that whole debt-to-society thing, but I am clearly thinking with my heart, not my head.
3. It’s economic justice. Yes, it’s always fair to benefit Theoretical Citizen A by requiring a company to liquidate assets and fire Actual Citizens B, C and D.
4. Smart companies plan for this sort of thing! Please. First of all, you can “plan” by having special life-insurance policies set up to handle what you hope will be the final bill in 20 years, but A) that’s money that could go into the business, and B) things change. Tax laws change, businesses thrive, cities grow, neighborhoods change, land that once was cheap industrial property ten miles from town is now residential with 10X value. The people who love estate taxes usually abhor sprawl - well, many a family has looked at their estate tax bill, looked at the family farmland that now sits on the edge of town, and said screw it - sell it to the highest bidding developer and put up McMansions.
Bloody goniffs.
There’s no self-interest at work here - I don’t want a dime of my parents’ estate. Just want the family business to survive, that’s all. If you please, guv’nor. I got me cap in hand. If you could just flog us lightly, we’d be ever in your debt.
The truly wealthy don't pay most of the estate tax (protestations in favor notwithstanding). They put their assets in charitable foundations that keep the halfwit offspring gainfully employed at substantial pay in perpetuity, with enough foundation resources to give away that they are invited to every charity dinner on the $25,000 per night New York circuit. Or, if they prefer, they can take home a congressman's salary and still vacation on an immense family compound in Palm Beach or Cape Cod. Gregg Easterbrook says eliminating the estate tax will socially ossify the U.S. like Europe. I'd say the dynastic foundations come pretty close as it is.
Update: Eric points out this article by Bruce Bartlett which, in turn, references Ira Stoll's typically acerbic take on the subject:
So, on the one hand, Mr. Buffett proclaims that as a matter of national policy, there should be a society "in which success is based on merit rather than inheritance." And he says that choosing Olympic athletes by choosing eldest sons is "absolute folly." Yet he himself chooses his eldest son to succeed him as chairman of the venture that is probably most important to him personally, Berkshire Hathaway.Posted by Mindles H. Dreck at April 5, 2002 08:39 AM | Technorati inbound links
Damn straight.
Consider also the following:
- Federal death-tax reforms so far amount to even less than is typically understood. Not only does the tax come back at full strength in the year following repeal, but in exchange for a few years of rate reductions there is a permanent rate increase in the form of repeal of the stepped-up cap-gains basis.
- Some states are trying to raise their death-tax rates as the federal rate declines.
- The class of people who benefit from the status quo includes not only pols and the very rich, as you noted, but the entire non-profit industry. (Who says vampires don't exist?)
Posted by: Jonathan Gewirtz on April 5, 2002 12:07 PMGreat post 'Mindles'! Here is a good article by Bruce Bartlett that makes another point: the estate tax is used, perhaps unconsciously, by the very very rich, to limit the ability of the semi-rich to climb up the social class.
http://www.townhall.com/columnists/brucebartlett/bb20010221.shtml
Posted by: Eric on April 5, 2002 12:58 PMI had to change professions when we sold the family business to pay the inheritance tax. Exactly as Lileks described, the ranch was in the path of progress in Southern California, and the cash flow from the oranges was enough to keep the business going until it came time to pay the tax. 150 seasonal employees, 6 permanent employees all out of work.
Posted by: Tassled Loafered Leech on April 5, 2002 02:02 PMI recall last year when this issue was being discussed, two of the most enthusiastic supporters of the current estate tax were Warren Buffett and the father of Bill Gates (whose name eludes me right now).
You would think the fact that the current system is trumpeted by the scions of two of the wealthiest families in the world while being hated by the middle class might cause those who are in favor of the estate tax for its "social justice" component to question whether such "social justice" is actually being achieved.
Nope.
Posted by: John Ruark on April 5, 2002 06:08 PMEric wrote:
>>Great post 'Mindles'! Here is a good article by Bruce Bartlett that makes another point: the estate tax is used, perhaps unconsciously, by the very very rich, to limit the ability of the semi-rich to climb up the social class.
I think they're entirely conscious of these issues. It's similar to the phenomenon of media companies that want free speech for themselves but oppose it for the little guy ("campaign-finance reform"). Gates and Buffett use faux-principled language to justify their positions on this issue, but there's a clear pattern if you look at who benefits from the current system. Could these rich guys be acting cynically? Perish the thought.
Posted by: Jonathan Gewirtz on April 5, 2002 07:41 PMThe estate tax is one of my favorite subjects. In fact, its why I'm a tax accountant. The whole notion of the tax offends me and I relish making the world just a little more fair by helping people legally avoid the tax. (Given enough time, the tax can be reduced to zero.)
With regard to the billionaires who are in favor of the tax, I think this is an example of the declining utility of money. If you've got billions, perhaps it doesn't bother you to give half to the government upon your death. Your kids can't spend it all anyway. On the other hand, a millionaire (particularly one who's wealth is tied up in illiquid assets) seldom thinks its "fair" that half the family's net worth should go to Uncle Sam.
Posted by: David Walser on April 6, 2002 01:24 AMThe ten year limit of the death tax repeal is slightly complicated. There's this Senate rule called the Byrd Amendment (guess who it's named after) that says that all tax law changes must sunset after 10 years, after which they're voted on again, unless there is a 2/3rds majority originally. Bush and the Republicans couldn't get a 2/3rds for any tax cut, much less an estate tax repeal. Two options then:
1) Don't cut taxes.
2) Cut taxes, have it expire in ten years, and hope like heck to either have a majority to extend it in ten years, or to be able to pressure enough Democrats into keeping the tax cut in ten years. (Accusing them of raising taxes if they don't vote to extend it.)
The father of Bill Gates is ... Bill Gates.
http://www.gatesfoundation.org/aboutus/leadershipstaff/default.htm#cochairs
He goes by William H. Gates, Sr., and technically, the one we all know and love is Bill Gates III.
Posted by: lakefxdan on April 6, 2002 03:11 AMHmmm. This article stimulates an idea in me (always dangerou, but in this case not the author's fault).
Perhaps, instead of concentrating on estate tax "reform", we ought to be concentrating on stripping "charitable" foundations of their tax-exempt status?
Posted by: John "Akatsukami" Braue on April 6, 2002 04:31 PM- In the long run, the growth of the fraction of the population with taxable estates increases the odds of substantial death-tax reform.
- One unfortunate consequence of the tech-stock debacle is that that fraction is now smaller than it might otherwise have been.
Posted by: Jonathan Gewirtz on April 7, 2002 12:15 AMComments are Closed.