One of my frustrations with politics is that it often rewards people for being stupid or dishonest. For example, if you promise voters that you will cut taxes, increase spending, and balance the budget, then you are either incredibly stupid or incredibly dishonest. But you will also be one other thing: popular. Voters will love you.
This dishonesty and/or stupidity is usually present first and foremost on economic issues, and perhaps no issue more so than the issue of the estate tax. Currently, Congressional Republicans have tied an increase in the minimum wage to a permanent repeal of the estate tax, hoping to complete a demolition of the tax that they began in 2001.
The outright dishonest and/or stupidity of the argument against the estate tax was crystallized in an editorial written by Alabama Senator Jeff Sessions that appeared in the June 5 edition of the Washington Post. Id like to review that article now, not so much to debate the estate tax, but more to highlight the way in which extreme stupidity and/or blatant dishonesty can be used in politics to take advantage of voters naivety and polish up even the smelliest turd of an argument. Senator Sessions' article is in bold, and my comments are in italics.
This week the Senate is expected to vote on permanent repeal of the estate tax. With this vote, Congress will have an opportunity to finish the job it started five years ago.
The estate tax -- or, as many of us prefer to call it, the death tax -- is a tax imposed on the transfer of assets or property from a deceased person to his or her heirs. This is one of the IRS's most painful taxes, as it hits families at the worst possible time, when they are dealing with the death of a loved one.
First, if the estate tax's opponents insist on calling it the death tax (and he calls it the death tax for the rest of this article), then perhaps I should invent my own euphemism that appeals to sentiment more than reason. I think we should start calling it the Paris Hilton tax.
Second, notice the way he employs a technical description to avoid using the word inheritance. As someone who writes for a living, its obvious that this phrasing was chosen because the word inheritance invokes images of spoiled, idle brats, such as Paris Hilton.
Third, the tax occurs after a death because inheritance occurs after a death; that's just kind of how it works. He makes it sound as if the IRS shows up at the funeral and tries to repo the casket. In reality, nobody's losing money; the bereaved are actually receiving money (that's also how inheritance works), and that windfall is taxed.
Congress passed a gradual phaseout of this tax at the urging of President Bush in 2001, and it was scheduled to disappear in 2010.
That tax cut was never intended to disappear in 2010. 2010 was cynically chosen as the sunset date precisely because doing so would reduce the apparent cost of the tax cut in the 10 year budget projection. This was just one of the ways that the President and Congress cooked the books to disguise the actual cost of the 2001 tax cut. Everyone knew that Republicans werent going to let the estate tax repeal expire. And - surprise! - here we are in 2006, and the Republicans arent going to let the estate tax repeal expire.
But because of the peculiarities of the lawmaking process, the death tax will return in 2011 -- at the same high rates that existed before -- unless Congress enacts new legislation.
Here, he conveniently forgets to mention that the overwhelming majority of Americans don't ever pay a penny of those high rates. Historically, only the richest 2 percent of households have ever paid the estate tax. The key to the Republican strategy on this issue is to convince ordinary Americans that they're going to pay this tax, which is one thousand percent untrue.
In April 2005 the House passed a permanent repeal of the death tax by a vote of 272 to 162. Over a year has passed since; it is time for the Senate to act.
The list of reasons for eliminating the death tax is long. To begin with, this tax punishes thrift and saving. It tells people that it's better to spend freely during their lifetimes than to leave assets for their children and grandchildren, which will be taxed heavily by the federal government.
If you want to increase the savings rate (i.e., reward saving), there are roughly a bajillion ways to do that, most of which wont punch a huge hole in the budget. But encouraging saving is, in itself, not necessarily a good thing; a healthy economy needs a balance between saving and investment. You need people to spend because that's what makes the economy go; if you encourage too much saving, you get slow growth and deflation (ask the Japanese about this). So the effects of an increase in savings are ambiguous, and at any rate they are easily countered by a small shift in monetary policy.
Furthermore, if Senator Sessions wants to talk about tangential effects of the tax, then perhaps he should mention that the estate tax increases charitable giving. In addition, though this effect is unprovable, the estate tax is the only tax I can think of that actually INCREASES the production incentive, a fact that you'd think would be relevant to Republicans who constantly complain about the negative effect that income taxes have on production.
The death tax hits hardest at heirs of small-business owners and family farmers. In many cases, the heirs cannot afford to pay the tax and are forced to downsize, lay off employees or even sell their business or farm.
This small business/family farm lie is probably the biggest lie in the whole steaming pile of lies that is the argument against the estate tax. Point #1: There are - and have long been - exemptions in the estate tax that allow family farms (and many small businesses) to be passed down without being subject to the tax. Point #2: Hardly anybody even uses these exemptions anymore. The reality is, most children of farmers choose not to be farmers. Point #3: You don't even need the exemption if you are truly a SMALL business or farm. Under current provisions, the estate tax doesn't apply to assets worth less than four million dollars. If your assets are greater than $4 million, by what measure is your farm or business considered small? Point #4: As far as we can tell, nobody has EVER lost a farm to the estate tax EVER EVER EVER. Neil Harl, an economist at Iowa State University, has made a career of giving tax advice to Midwest farmers, and he claims to have never encountered a case in which a farm was lost to the estate tax. In 2002, he was quoted in the New York Times calling the idea that families lose farms to the estate tax a myth. In that same 2002 article, the American Farm Bureau Association could not cite a single example of a farm being lost to estate taxes. To argue that the estate tax is the scourge of family farms and small business is blatantly dishonest.
There can be no doubt that closely held family businesses that are growing and beginning to compete with the big guys are often devastated by the tax.
As you can see by my previous paragraph, there can be lots of doubt. He's trying to be adamant so as to put his point beyond debate.
I believe the death tax is a major factor in business consolidation and loss of competition.
You can believe whatever you want, but I'm not going to believe you until you actually provide some evidence. Also, is the Republican Party now suddenly against business consolidation? Where has THAT sentiment been hiding?
This tax hurts the growth of minority-owned businesses. As the first generation of African American millionaires begins to die, many of the companies they founded will have to be sold to pay the estate taxes.
Again, just complete bullshit. And this facet of this argument is a lame attempt for Republicans to score some points with black voters on one of the few issues where they think they have that opportunity.
For example, the tax almost forced the oldest African American-owned newspaper -- the Chicago Daily Defender -- out of business.
No, the Chicago Daily Defender nearly went out of business because the best black reporters in Chicago now work for the Tribune and the Sun Times. Furthermore, the issues on which the Defender made its name - Jim Crow, lynchings, Jack Johnson - aren't exactly hot topics in 2006. And can you name a third paper in any city that isn't in a tough financial spot?
According to Heritage Foundation economists
"Heritage Foundation economists" hits my ear like "Vatican scientists."
the death tax also costs the American economy 170,000 to 250,000 potential jobs each year. These jobs are never created because the investments that would have financed them are not made, as these resources are diverted to pay for complex trusts and insurance policies to avoid the tax.
First of all, I'm sure that they calculated that number by taking the amount of revenue generated by the estate tax and estimating how many jobs would be produced by an investment of that size. There are loads of problems with that - so many, in fact, that it would almost lead one to believe that the Heritage Foundation economists have an agenda. The first problem is that this calculation doesn't take into account the investing habits of individuals who actually pay the tax, the same individuals whose proclivity for saving was praised by Senator Sessions in this very article. Second, I seriously doubt that this number takes into account the negative economic effects caused by a repeal of the estate tax, which would come in the form of either a budget deficit or an increase in other taxes. Third - and I love this - he's actually arguing that we should abolish the tax so that we can save the money THAT PEOPLE SPEND TRYING TO CHEAT THEIR WAY OUT OF THE TAX! Using that logic, maybe we should legalize heroin so that drug barons don't have to spend so much on lawyers and drug mules. How many jobs would that create, Heritage Foundation? It takes a lot of chutzpah to make that argument.
The death tax is double taxation. Most of the assets taxed at death have already been taxed throughout an individual's lifetime.
Double taxation is a concept that doesn't exist in economics; it was invented by politicians. Depending on how you want to look at it, any tax could be considered double taxation. You pay federal and state taxes on the same income, right? Well, using Senator Sessions' logic, that's double taxation. When you buy something, you pay sales tax...that's triple taxation! Maybe you bought cigarettes...quadruple taxation! It could go on and on.
The death tax accounts for a small portion of federal government revenue, an expected $28 billion in 2006, or only 1.2 percent of federal receipts.
Blatant dishonesty here; that figure is so small BECAUSE OF THE CUT IN 2001! Furthermore, isn't the issue here what percentage of the tax burden SHOULD be shouldered by the estate tax, not what percentage currently IS? Finally, that money needs to come from somewhere; what tax increase or spending cut does Senator Sessions propose to cover the gap?
Many argue that repealing the death tax would decrease charitable giving, as this tax allows individuals to deduct gifts to charitable organizations. Yet, even though the phasing out of the death tax began in 2001, charitable contributions in the United States reached a record high in 2004.
Inflation, you fucking idiot, inflation! How can you trust anyone who compares 2004 dollars to 2001 dollars without factoring in inflation? Furthermore, can anyone think of a major event that caused a spike in charitable giving in 2004, maybe something involving Asia and tsunamis? The fact that he doesn't mention the tsunami, then sites 2004 instead of 2005, indicates that he is being intentionally dishonest.
The death tax even has a negative effect on the environment, as heirs are often forced to develop environmentally sensitive land to pay the tax. According to a study by researchers from Mississippi State University and the U.S. Forest Service, about 2.5 million acres of forest land were harvested and 1.3 million acres were sold each year from 1987 through 1997 to pay the estate tax.
We know that this isn't true because the idea that the estate tax devastates family farms is a fallacy. Furthermore, did researchers at Mississippi State really find a record of every family farm subject to the estate tax between 1987-1997, calculate those farms' liability under the tax, track those farms' land use patterns over the next several years, and then somehow determine what percentage of those land use patterns was attributable to the estate tax? I seriously doubt it.
Finally, the American people already understand the unfairness of the death tax and support its repeal. Sixty-eight percent of those surveyed in a recent poll commissioned by the Tax Foundation supported repeal of the estate tax. Moreover, the death tax was rated by Americans in the same survey as the least fair tax.
Americans oppose the estate tax because of all the lies they've been told. I find this poll number more telling: According to a 2002 Gallup poll, 17 percent of Americans think that they will owe estate taxes, when, in fact, only the richest 2 percent will.
As a vote approaches, it is essential that constituents let their representatives hear now how unfair they believe this tax is. The death tax is almost dead. Let's put the stake in its heart.
Maybe you read Senator Sessions editorial and saw through the bullshit. If so, good for you. But it's depressing to know that a lot of people read this editorial and didn't. Due to malice or ignorance, he produced a blatantly dishonest article that effectively throws sand in peoples eyes on this issue. And I'll bet it won't cost him a thing when he's up for re-election in 2008.