Wednesday, August 31, 2005

Government "Spending"

What's mine is mine. Right?

Not so fast, say John S. Irons and Robert Gordon in this American Prospect article. In advancing the same old arguments against repeal of the estate tax, Irons and Gordon suggest that what you might think is yours really belongs to the Government. Irons and Gordon compare "full repeal" of the estate tax with proposals under which only estates of a particular size (e.g. larger than $3.5M) would be subject to an estate tax.

Most Senate Democrats and some Republicans have balked at full repeal. And so, aiming for a compromise, a working group of Democratic senators and their staffs have been looking at reform options from a practical perspective. Meanwhile, Senator Kyl has suggested a “compromise” setting the estate-tax rate equal to the capital-gains rate, which (thanks to President Bush’s 2003 tax cut) is currently just 15 percent. Some proposals would set the tax-free exemption to $8 million, or at best $3.5 million. Either way, the cost of this “reform” is enormous -- a $3.5 million, 15-percent reform would spend about 80 percent as much as full repeal. That’s nearly $60 billion a year in tax cuts for multimillionaires.

(Italics added.)

What does the word "spend" mean here?

Consider an example. Josh dies with a $10M estate. Under the current system, $1.5M of Josh's estate passes to his heirs tax-free, and the remaining $8.5M of his estate is subject to an estate tax. For purposes of this example, assume the rate is 50% (which it nearly is). This means that $4.25M of Josh's estate goes to the Government, and the remaining $5.75 goes to his heirs.

Under "full repeal", however, where there would be no estate tax, all $10M of Josh's estate would pass to his heirs. In the world according to Irons and Gordon, full repeals means that the Government, rather than spending the $4.25M on some federal program, would "spend" the $4.25M on Josh and his heirs.

Quick break for a visit to the dictionary.

Wesbter's says that "socialism" is (1) any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods; or (2) a system of society or group living in which there is no private property.

Under either definition, the world according to Irons and Gordon is socialist. It is is a world where Josh's estate is not really Josh's estate. Instead, it's the Government's. Depending on the whim of the legislature, the Government might spend some of the estate on a federal program, and it might spend some of the estate on Josh. But, no matter what the Government decides, the estate itself belongs to the Government, not Josh.


Blogger jomama said...

Had a friend that grew up in the USSR as a teenager.

She said the phrase on everyone's lips then was, "What's mine is mine and what's yours is mine."

A few of us know where that went.

Welcome to the USSA.

9:39 AM  
Blogger American by Choice said...

There is only one, good, non-socialist argument I have ever heard to justify estate taxes: that they reduce inequality of opportunity in the next generation. And, for that reason, I supported heavy estate taxes for many, many years.

Now we have learned that even that argument is trumped by the socialism created by estate taxes themselves, in two particularly pernicious forms: the nomenklatura of the trust fund, limousine liberals and the foundations that abandon the individualisic beliefs of their founders to fund one collectivist scheme after another.

What's more, it turns out that inherited wealth doesn't even cause any sustained inequality of opportunity. The vast majority of it is frittered away by the heirs conspicuous consumption. The old saw of 'from rags to riches and back again in two generations' turns out to be empirically verified.

So, now I say, let the rich kids of their buying binge. It will be a nice boost to the economy and won't get in the way of the next generation of wealth creators anyway.

10:27 AM  

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