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February 03, 2004
Taxes and the American Dream

I'm contemplating what Ray over at Bellona Times is saying and not agreeing with the objections to my objections.

My point was, and for once I think I stated it pretty clearly, that there are "estates" and "estates" and that all of the hand-wringing over those horrible rich people who leave multi-million dollar "estates" to their children invariably fails to distinguish between, say, a family farm where the land is ostensibly worth twenty-five million dollars and that's the only "value" beyond the purely theoretical amount they may and/or may not make on next year's harvest assuming the rains come and then the hail holds off and where a 30% "estate" tax serves no purpose but to force the family to sell up, causing the land to wind up in the control of some mega-sized agricultural corporation that "farms" on a chemical-heavy wholesale basis and, not being a corporeal entity, never has to pay "estate" taxes, and someone whose family made a million dollars in railroads a hundred years ago and has parlayed that into fifty-five million dollars by stock market investments based (one suspects) on the occasional piece of inside information and whose current members sit around clipping coupons and realizing that Bush is going to go to war against Iraq no matter what anyone says, so now is the perfect time to dump a few million into Halliburton stock.

(That was just so biased and obnoxious and unfair. I'm tempted to re-write it, but since I did, in fact, realize last summer that defense stocks were going to be a sure money-maker under this Administration but virtuously declined to buy any on moral grounds, I think my self-restraint entitles me to a moment of rudeness.) (Okay. Let's forge onward.)

If someone starts a business and they run it with the help of their kid and a couple of other relatives and that business is worth twenty-five million dollars by the time the founder, Little Rich Man, dies and LRM decides to leave it all to their one kid, is it right that this "estate" should be taxed at 30%? That "value" is merely the amount of "worth" set on it by IRS regulations to allow the government to decide how much they're entitled to, you know. There's no one connected with LRM or his company that has anything like that amount of money. What if that twenty-five million is just the "book value" and that the head of the family took a modest $50,000 annual salary and the rest of the profits were plowed back into the business each year? Is it right that a 30% "estate tax" should force the family to either go bankrupt, sell out, or acquire a crippling load of debt in order to pay that tax? Is it right that that estate tax throws the company's fifteen employees out of work?

Not all "estates" are created equal. For every John Paul Getty, there are two thousand or more Little Rich Men.

Moving on.

I didn't invent the "American Dream" okay? So don't blame me if that vague concept doesn't match your personal vision of the world. (Nor am I responsible for the fact that money can't buy happiness. The Declaration guarantees "the pursuit of happiness" but it says nothing about how accumulating $50,000,000,000 will guarantee it and neither I nor the Founding Fathers are responsible for the trend of advertising in the USofA that convinced most people that money was all they needed.)

Besides, for most of us, the "American Dream" does. Match our personal visions, I mean.

The "American Dream" is to achieve financial security, to leave your children better off than you were when you started, to give your descendents a "leg up" on success, and to be able to cushion your family against disaster, even after you're dead.

Whether the amount required, in your mind, is leaving $5,000 each or $50,000,000 to each person in your will is just a matter of degree. It's the same dream.

Nor am I against progressive taxation. I'm for progressive taxation, okay? I pay more than a lot of people and I've never complained about it. I'm single and childless, so none of Bush's much-ballyhooed 'tax breaks' gave me a dime. And I'm not complaining. I'm better off than a lot of people and I know it. I have no problem at all with dumping some of my money into a central fund that's supposed to be spent helping those who didn't have my advantages get a fair shot at a better life. I think it's right.

"More fortune than fills a champagne glass is a waste."

No, no, no, no. That's just not true. Capital is important. Capital is vital to our economy*. It may shock some of you to hear this, but rich people are vital to our economy. A pool of significant capital with a controlling mind that directs it toward new projects or industries is important.

A committee never invented anything and committees aren't, in general, famous for the breadth of their vision or their willingness to take great leaps. It takes individual vision to make progress and rich people/families have frequently been instrumental in funding individuals with vision. For that reason, private donations to scientific laboratories, think tanks, and, yes, guys working out of their garages, are important. Libraries, hospitals, charities, colleges, all of these benefit significantly from endowments by the wealthy and no amount of government revenue can substitute for those endowments or for the freedom from government regulations independent funding grants those organizations.

(*And the current Administration's creation of deficits that are likely to last for a decade or more are going to create serious capital-flow problems in another year or so. Because there's only so much capital available and when the government borrows too much of it, there's not a lot left for business investment and interest rates go up. This is especially damaging to small and start-up businesses.)

More specifically:

"... taxing someone just because they didn't spend everything they made while they were alive..."
Who is this "someone" who is no longer alive?

When you're talking about an "estate tax" someone is usually dead. At least, that's how I understand it. ( /sarcasm I'm sort of obnoxious today, aren't I? I don't even know Ray, and I'm making a ghastly impression.)

"... not all people who inherit wealth are unworthy..."
Here we see the assumption that a tax is some kind of moral judgment. Bad rich people don't get charged extra for badness (although bad poor people certainly do, courtesy of sin taxes), and I don't say they should be. The government needs money and rich people have money and that's all there is to it. If they don't like their country enough to support it, let 'em move to Russia. When I make more money, I pay more taxes and I don't kick; if I can't maintain the land I've inherited, well, there are plenty of other people who can't maintain the land they've got right now. Small family farms aren't going to be saved by increased concentration of wealth and fewer federal services any more than the cattle industry is going to be saved by fewer inspections.

I promise you, no one exempts a rich person from the tax on scotch or the tax on cigarettes, just because they're rich. A "sin tax" may be proportionately harder on a poor person, but it's the same dollar amount as paid by the rich person. In fact, since the rich person theoretically has no need to worry about whether or not he can "afford" more scotch, he's likely to buy more and consequently winds up paying more of the "sin tax."

Also? Taxing someone extra because they're rich is, in fact, a sort of moral judgment. "You have more than society thinks you're entitled to" is what it says.

I'm not saying we shouldn't do it, I'm just saying let's not be hypocrites about it.

That last sentence (in the quote above) confuses me, though. My point was that small family farms (and similar business) might need to be considered differently than other "estates" or there won't be any small family farms in a few years, not that wealth should be allowed to pool in a few hands for fear of hurting a farmer.

And then Ray links to this which, in my view, is just wrong. Rich citizens do not, in fact, receive government services in proportion to the taxes they pay. Mind you, I'm not saying they should, I'm just saying they don't. A rich person who pays 10% of his city's entire taxes doesn't receive 10% of the water, light, gas, police protection, free legal services, road repair, snow removal, or anything else.

I find it hard to believe that anyone would actually argue that "rich citizens" benefit through government pork.

Government pork is used to fund locally popular but federally unnecessary programs, to cut tax breaks for various corporations, and to funnel government contracts to specific districts, all of which help get representatives re-elected. It's rarely used to benefit individuals. Actually, I can't think of one time that it was.

Let's be clear that "pork" (government spending programs) and "taxes/tax breaks" are not the same thing. And a "stable currency"? I promise you that the guy with $20 in his pocket benefits 1000% more from stable buying power for that currency than the guy with $2,000,000. When you consider "benefit" as directly reflected in personal financial and economic stability, I mean. (Actually, an unstable currency can be better for the $2,000,000 guy. Since he has excess capital above what he needs to fulfill his daily living requirements he can, in theory, expand it considerably by speculating on future currency fluctuations. Anyhow. I mostly disagree with that whole side-link.

"... what about the guy... who spends 20% or more of his annual income on charitable concerns?"
Nice guy -- unbelievably nice guy, especially if the "charities" aren't run by Pat Robertson -- but charitable donations were deductible even in the highest brackets of the progressive tax, so I'd say he's taken care of.

There are, in fact, quite a few people, who give more to charities every year than the maximum they're allowed to take a tax break for, but that wasn't my point in that remark. My point is that we tend to scream about evil rich people sucking up all the money, but someone isn't evil because they're rich and it's really not okay to decide that taking half of their stuff after they die is okay because they were probably a horrible person anyhow.

Progressive taxation? Yes.

Punitive taxation? No.

And, yes, I absolutely do think the motive behind what you do matters. The ends, you know, not justifying the means sort of thing.

Read more about the Bush Administration's plans for taxation, none of which has anything to do with this entry but I always think anyone who wades through one of my endless rambles is entitled to some kind link to actual content.

Posted by AnneZook at 08:33 AM


Anne... my you were feeling peevish, eh?

A rambling post? Yes. Worth wading through? Definitely. A little righteous indignation adds a little spice to things.

I think that in principle, your wrap-up is correct: progressive, not punitive taxation should be the law of the land. Some of the details around discriminating between "estates" and "estates" could get a little dicey. Not saying it shouldn't be considered, just saying that it could be difficult and convolute an already obnoxious tax law.

The more pertinent point, I think, was touched on only briefly: tax breaks for corporations. They should be completely outlawed; at both the state and federal level. The corporate tax should be progressive as well, but no breaks, no loopholes, no incorporating off-shore. And there should be incremental taxes - these might be punitive - for those corporations who accrue the benefits of our economy but off-shore work.

I can't remember the various sources for the numbers I've seen that show how quickly we'd close so much of our budget gap if only corporations didn't get away with murder on taxes.

Posted by: Charles2 at February 4, 2004 07:52 AM

I agree that distinguishing between different estates could quickly get you into murky territory, but I'd like to think some Big Brains were working on the idea.

Other than that - corporate taxation is yet another tricky issue. I'm not against all tax breaks for corporations - some of them were not only well-intentioned but do, in fact, have good results. But there are many, many provisions that need some serious revision.

The whole "incorporated offshore to avoid taxes' concept drives me bonkers. That needs to be eliminated. I'm not sure how it could be fixed - with the perception of a corporation as a person, you risk infringing the corporation's 'rights' if you start curtailing what they can use for a 'home address' for instance.

I have a lot of thoughts but not much actual knowledge about corporate taxation and since I'm actually sitting here on a conference call at the moment, I'm pretty sure I should start paying attention to my job for a few minutes. :) I'll have to put 'corporate taxation' on my list of things to research.

Posted by: Anne at February 4, 2004 08:42 AM