According to CNN:


The case against the estate, or "death" tax on paper seems fairly compelling. Taking a look at a congressional study completed in 1998, the benefits of the tax really only seem to be revenue based as opposed to being a source for income re-distribution. However, it is interesting to note the primary function for the Estate tax in the past:



Questions for debate:

1) Do you support Congress' effort to eliminate the Estate tax at this time? Why or why not?

2) If the tax were made more equitable, ie. would avoid burdening family run businesses and farms but still existed for large wealth transfers where means were evident, would you support keeping it?

edit: fixed formatting

1) Do you support Congress' effort to eliminate the Estate tax at this time? Why or why not?

This is a difficult call, but all in all I oppose it. I readily concede the value of providing a means for continuation of family-run businesses, but I'll point out that in most such cases, the parental owner is too old at the time to death to operate the business. In other words, the transfer of the business must take place long before the actual death of the parent. The other side of the coin is the highly desirable reduction of extreme differences in wealth in this society. My point here is more subtle than the simple-minded redistributionist approach. I am concerned that societies that have extreme differences in wealth are intrinsically unhealthy, so I want to reduce the extremity. Moreover, the development of an aristocracy erodes the meritocratic ideals that encourage individual achievement.

2) If the tax were made more equitable, ie. would avoid burdening family run businesses and farms but still existed for large wealth transfers where means were evident, would you support keeping it?

My answer to (1) makes this question moot, but I will add that there are already two excellent mechanisms in place for achieving this. The first is the floor for the estate tax; it is already pretty high, high enough to insure that most small family businesses are untouched by it. I realize that we might need some adjustments in the matter of agricultural estates, but that is easily addressed by exempting the value of land zoned agricultural from the estate state, or by exempting the value of farm equipment. Moreover, there's another mechanism in place: the ability to transfer up to $100K tax-free from parent to child per year prior to death. By the time Farmer Jones is 80 years old, he's not going to driving the harvester; he could transfer that to his son. Piece by piece, he transfers the farm to the son. The same could be done with most small family businesses. Note, however, that this still prevents the multi-millionaire from transferring millions of dollars to his children.

1) Do you support Congress' effort to eliminate the Estate tax at this time? Why or why not?
In my own opinion, there are very few taxes that should be eliminated altogether. Most of them need some kind of reform, often radical reform, but I don't think there are many that need outright repeal.

2) If the tax were made more equitable, ie. would avoid burdening family run businesses and farms but still existed for large wealth transfers where means were evident, would you support keeping it?
Yes, something along these lines would be better. Personally I would like to see some kind of anti-dynastic tax that mitigates against the inheritance of assets that were themselves inherited by the deceased person making the bequest.

Maybe parents and grandparents can make direct bequests tax-free, but a assets that a parent got from their own parent would be liable to some tax, increasing with the number of generations that had been inherited. There would need to be some exceptions; maybe for currently live family businesses (which the beneficiary intends to personally run - stockholdings would not be protected), the family home (of which there should only be one), and for heirlooms, but in essence I think this kind of tax would do soemthing to encourage social mobility (which only works well if those at the top are allowed to go down if they aren't up to snuff, as well as those at the bottom with talent and ability being able to prosper).

Sure, the end result would be a tax aimed squarely at the rich. But, they're the ones with most of the taxable assets, and ultimately they're the ones who can best afford to pay such taxes. Since were talking about an estate tax, there's no disincentive to hard work - in fact I would argue it encourages each generation to put their inherited wealth to work if they want their kids to get a piece of it.

The estate tax is one of the few taxes on productivity I don't mind. I'm with Julian on this one, I don't support it's outright repeal, but rather modifications to it.

One of the problems with the Estate Tax is the assessment of property, esp. art, and other collectibles.

One of the ill effects of the Estate Tax, to use the cliche example, is the family farmer. However, I come down on the other side of the argument, in that families that can purchase land and hand it down, generation to generation, make it a very difficult market to enter, and inhibit any families from entering the agricultural profession.

I think that the estate tax should only be assessed against 'natural' values, those things that exclude others from a limited resource, and therefore inhibit competition. I'd also have a floor set so as to only affect the top 1-2% of estates.

I could see an argument for repeal in that it tends to cause private companies to go public, and, though I have no facts to back me up on this, I tend to think that privately held companies tend to be better employers than publicly held ones.

1) Do you support Congress' effort to eliminate the Estate tax at this time? Why or why not?
As the Estate Tax stands, yes I do. Children of wealthy parents have their inheritance penalized to fit into the economic ideal of 'redistribution of wealth.' In the free market economy that we claim to be, this is a complete slap in the face to every economic value (I use the term loosely) we have. If someone is legally in ownership of a large sum of money, then it is their right to do with it as they see fit. It is not appropriate for the government to insist that Family X has too much money while Family Y is starving, so we will take money from X to give to Y.


2) If the tax were made more equitable, ie. would avoid burdening family run businesses and farms but still existed for large wealth transfers where means were evident, would you support keeping it?
As it stands, no. The government cannot have both a capitalist and a socialist economy. It is not a wealthy family's legal responsibility, but a societal one, to support a poor family.

Perhaps if the government taxed it in the same manner as they taxed income. Currently, though, there is a $625,000 exemption for the death tax. This is an ample amount for most family farms to pass from generation to generation without undue burden.

However, should a parent leave a large estate to a child (or even to any other relative) they could be in the sticky situation of whether or not to sell the estate or fork over the money. From the link above, after the $3 million marker, the tax is 55%. I'm not familiar with the location of everyone here, but in northern Illinois, a large house one a few acres can easily reach the $3 million dollar mark. If this was left to someone, they would need to choose between selling the house (that perhaps they would want to keep and legally are entitled to) or paying $1.5 million+ dollars (which they might not have) in order to maintain the estate. These are things that have already been earned, already been bought and already been paid for.

Altari, I share your discomfort with the whole redistributionist philosophy. However, there are two aspects of this issue that require us, I think, to make some adjustments.

The first of these is the notion of meritocracy. An interesting survey of personal attitudes showed that most Europeans do not believe that their own efforts will yield much betterment of their position. They don't have confidence that hard work and talent will lead to personal success. This is holding back European economic productivity. By contrast, most Americans are optimistic that hard work and talent will bring rewards. If more and more of the wealth of society becomes concentrated in the hands of those who didn't earn it, what does that say to the newly-arrived immigrant full of hope? If the only way to get ahead in society is to have a head start, will the energy and drive of our citizenry wither into cynicism and laziness?

The second is the notion of social engagement. Many Latin American countries have experienced decades of social unrest because of extreme concentrations of wealth. If you get too many people who are too poor, they start rocking the boat in ways that are destructive to society as a whole. You get more crime, less cooperation with the authorities, higher security costs -- it's a mess. Chile and Costa Rica addressed this problem early, developed a strong middle class, and have enjoyed a fairly stable democracy as a consequence. Cuba, El Salvador and Venezuala did not address this problem and look where it got them. We do not want to end up like those countries.

I am going to (temporarily) depart from my liberal leanings and say that (unless I understand the nature of the tax incorrectly) the tax needs to be repealed. While I agree with Julian that very few of the taxes need to be repealed outright, isn't an Estate Tax an example of a double taxation? If I managed to accumulate a certain sum of money, that money have been taxed already; same applies to my house, which was purchased with my after-tax earnings. Why should my children pay taxes on the inheritance which has already been taxed? I don't mind paying my fair share, but not the double of my fair share.

There is also a flipside to this, however. In a system in which people are given money as a byproduct of socialism (which, is where the Death Tax has its roots) there is a higher rate of unemployment. This leads to more people living off the 'government dime' and results in economic stagnancy. Those who work hard naturally will begin to doubt if their hard work is truly worth it. While they work for hours a day, they are given the same government luxuries as those who don't.

Personally, the idea of 'not earning' the money is irrelevant. Whoever did earn the money decided it should be given to them. Would we feel the same way if a philanthropic millionairre gave hundreds of thousands to the poverty stricken? Of course not. This is a simple case of poeple being disenfranchised by the fact that some walk easily into money due to the hardwork of their prents.

In the case of Europe itself, I understand how this mentality came about It seems that kids are told what field they will go into when they leave high school. Their own personal efforts will never yield much, as the government decides who to give money to. Many European countries, there is a distinct trend towards socialism; this teaches the new generation that no matter how hard they work, no matter how 'far' they go, they will never be better off economically than the next guy. Their earnings will be taxed at an ungodly rate, and half their income will be given to a person who does not make as much, so that person can have the same standard of living.


People are forced into poverty by the government itself. Cuba is a prime example. The government took the wealth from the people. No one in the US is forced into poverty by our government. They find themselves in poverty through a mix of social, personal and economic problems.

The basic flaw with redistributing wealth, is it requires that those who work hard to continue to work hard to support those who won't. However, after years of working to support the unemployed man, those who work hard will take up a similar cause. Even if we ever were to gain the ideal of being 'zeroed out', where everyone could start equal, there would still be those who would naturally rise to the top and those who would sink to the bottom. This problem exists not only in the Death Tax, but in Welfare, in Disability and in Unemployment. Many people (not, by far, the majority, but a considerable number) will expect to get something for nothing, and the government is more than happy to oblige. As a country we have come to believe it is ethical because the rich man shouldn't have so much, even if he worked for it.

The double taxation is quite correct. However, it is not intended to continue on paying 'your fair share', it is intended to ensure your children do not receive more than their fair share and to make it difficult for 'dynasties' of wealth to continue. This is simply intended to keep money from remaining in a family rather than being moved into the hands of the poverty striken masses where it [supposedly] belongs.

In many cases, it's not double taxation. If I buy a stately home for $1,000,000, and live in it for 40 years, and leave it to my children when it's worth $16,000,000, neither they nor I earned that $15,000,000, assuming I did not add onto the buildings. That $15,000,000 is the product of the community around my property becoming more desireable due to social improvements and population pressure.

1) Do you support Congress' effort to eliminate the Estate tax at this time? Why or why not?
For me, the biggest issue is the timing. I can see merits in wanting to reform the death tax but making a concious decision during a time of supposed war against terror to cut our projected tax revenues by 290 Billion over 10 years just seem irresponsible. Compounding this is the current effort by our President to "reform" Social Security and likely balloon our present debt even more. I see this move as more "protecting the base" than genuinely wishing to serve the public interest.


2) If the tax were made more equitable, ie. would avoid burdening family run businesses and farms but still existed for large wealth transfers where means were evident, would you support keeping it?
I'd be willing to entertain it, just not now. I'm more in favor of a proposal (supported by key Democrats) from AFET (Americans for a Fair Estate Tax). It would seek fairness where this tax creates a hardship (ie, transferring family run businesses) and equity where means indicates a clear ability to pay.

Doc

First, let's avoid the use of broad-brush terms such as "socialism". The fact is, there are plenty of "socialistic" elements in our government that few would disagree with, such as social security for the disabled or orphans. That word covers so much territory that it's useless for serious debate. Instead, why don't we focus on the particulars of this issue? One of which is the difference between income and expenditure. You're talking about giving money to poor people. That's expenditure. I'm talking about the estate tax. That's income. The way we spend the money is another debate entirely. The money from the estate tax goes into the general fund. The issue arising from the estate tax is not the disincentives to work created by social spending, it's the disincentives to work created by the absence of an estate tax.


The idea of not earning the money is relevant to the point I'm making, which is that unearned wealth creates an atmosphere inimical to the notion that anybody can get rich by hard work and talent. Sure, in isolation no single case of inheritance creates this atmosphere, but if the young kid contemplating his education realizes that most rich people got that way by inheritance rather than hard work and talent, he's not going to apply himself as hard. It's a matter of degree. If only a tiny fraction of the wealthy inherited their wealth, we're fine. But if that fraction becomes significant, our economy is in trouble.


This is a common American misconception with little basis in fact. Here are some actual numbers on what is termed "public consumption", which is (roughly) the percentage of GDP consumed by government in each of the following countries:

USA: 18.0%
Italy: 18.9%
UK: 19.2%
Germany: 19.1%
Finland: 19.9%
Netherlands: 23.2%
France: 23.3%
Sweden: 27.3%

You can see that the European countries do take a higher share of GDP for themselves, but for most it's not much greater than the USA.


You misunderstand my point. I am referring to Cuba before Castro. The Batista regime supported an extreme concentration of wealth; that was the major sociopolitical factor that led to the Cuban Revolution. Once Castro got into power, the overall wealth of the people went down. My point is that we don't want this kind of extreme concentration of wealth because it leads to catastrophes such as the Cuban Revolution.


I am in complete agreement with you on this basic point. I am not arguing against free enterprise; I am arguing in favor of optimizing its performance. If the playing field is absolutely level, and every kid knows that he can grow up to be President of the United States or President of Ford Motors or whatever, then the population works at its best. But if some kids start off with a big advantage, that reduces the motivations of the kids who don't get the head start.

1) Do you support Congress' effort to eliminate the Estate tax at this time? Why or why not?

Nope, not in a period of war-making and deficit spending. The Demos offered a compromise (read the CNN article) that was rejected. This is trying to get yet another tax windfall for the upper 2.11 percent of the population (read the article). This action simply isn't fiscally responsible.

2) If the tax were made more equitable, ie. would avoid burdening family run businesses and farms but still existed for large wealth transfers where means were evident, would you support keeping it?

How much is 2.11 percent of the population (read the article) and how many "family run businesses and farms" fall into this narrow wedge? Not many, I bet. Maybe even none. We are probably talking about a lot of CEOs running corporations that profit from war.

Remember that outstanding debt comes from most family-run business/farm estates. I doubt most family-run businesses and farms (especially) are solvent.

I am for raising the limits but keeping the tax until this country gets some fiscal sanity. This isn't wealth redistribution; it is paying the piper for the great profits made during wartime.

To avoid off topic arguments, I'll go with this point. Could you please cite a refence that supports this, in the United States? It is very difficult to compare our economic status (of working or not working, and suffering as such economically) to the European's (of working or not working, but being paid for either way).


I completely disagree with this position. I do not understand how this precendent can be set by 2% of the population, or how someone else being wealthy because Mom and Dad were will prevent someone else from working.


I do not see the correlation between this data and a counter to my statement. A large percentage of Swedish workers are oin 'extended leave' or are 'disabled' and 'unable' to work. The extreme redistribution of wealth does create less of an incentive for people to work hard, and these numbers do not refute that.


My apologies then. When I think of Cuba I immediately think of Casto. Batista was...a bit before my time.


I disagree. It decreases the motivation of some kids. Just as knowing that when daddy dies and the business is passed on, Timmy will be met with the choice to sell it to pay the tax or go under to pay the tax, will decrease his desire to work hard.

I have heard this idea of 'levelling the playing field' all my life. I have been subjected to it as a student, and again as a worker. Every kid will always have some advantage over another. Perhaps Timmy will grow up rich yet dumb as a rock. As he squanders his money Johnny will work hard to get to the top of management. Who knows? The fact is every child has the same chance to use their life to the fullest that everyone else does. This argument is a self fulfilling prophesy, comparable to the 1920s psychological development that teenagers are 'wild'. Teenagers only become such when their parents expect them to. Children only begin to feel there is an inequity to would lead them to not work when they are told there is one.

Have you ever played Monopoly? Everybody starts out even. Now try playing monopoly, but let your friends play for an hour before you sit down. Hard to win now, isn't it?



Yeah, and all those swedes, with their crime, and low quality of life, and illiteracy...
...oh, wait, their standard of living is higher than ours? Wha? Making every adult work 60 hours a week isn't the path to a better society?

Yet in the end, someone always loses. The guy who's good at the game will get ahead even if he starts with little. Having less still isn't an incentive against playing.


Except for Sweden, Britain has the highest rate of recorded crime (per head of population) in Europe...

Sweden has experienced a 3% increase in violent crime, and a 1.8% increase in murder

Sweden has a murder rate of ~10 per 100K, a serious assault rate of ~667 per 100K, and a sexual assault rate of ~102 per 100K. This is taken from data compiled by Interpol

America's crime rate declines, as Europe's rises


Many Swedish government agencies site quality of life as a cominbation of 'education, health care, cultural activities, good housing, efficient infrastructure, respect for the environment, opportunities for the fulfillment of personal goals, and countless other factors that combine to create general welfare.'

Socialism has not been proven to give any form of help to 'fulfilling personal goals'. An efficient infrastructure is anyone's guess.

Sweden's most affront claim, that it has the world's highest standard of living, is often based on the measure of equality in wealth redistribution, and not on the status of the national economy, the buying power of the Swedish crown (Krona), the amount of people working for productive aims or creating innovations, nor it's Gross National Product. Claims based on these other properties of the Swedish economy, in support of their "highest standard of living" claim, are mysteriously non-existent.


That's...interesting...there is no current data for Sweden (most recent estimate is from 1979).

However, in 1999 97% of US citizens were literate.

US students are expected to have ~15 years of schooling, which is 1 year more than Swedish students.

Has this been taken sufficiently off topic?

So, when everybody else already owns the real estate, a good player can still win? How many times out of a hundred?

I put very little faith in crime statistics. They are manipulated by everyone from the police to the reporters. I'm not up for debating who's got a better quality of life, since we'll wind up debating what is quality of life.

I'm no fan of socialism, I'm just not a wide-eyed advocate of completely laissez-faire captialism.

It's hard to fulfill personal goals when all your effort goes to pay the rent. Title to land is and always has allowed the owner to tax the tenant. Roll back that tax, and you'll see the free market explode.

Not having an estate tax allows the winners from round one stay on top and keeps the losers down. Having an estate tax fosters competition and improved economies.

Edited to add: I stand by my position that that portion of an estate that consists of natural & unimproved value should be taxed.

OK, two small points and then on to the main point:

1. I remind you, the matter of the estate tax is in no manner affected by discussions of redistribution or socialism. How the government spends tax money is independent of how it raises it.

2. Let's drop the discussion of Sweden. There's a lot of misinformation here and besides, the direct comparison of Sweden with the USA must take into account all manner of complicating factors such as cultural heterogeneity, urban/rural ratios, and so forth.

3. The real issue is whether the absence of an estate tax creates disincentives for hard work. First off, let me acknowledge two important points. First, there is no research on this matter, so we have no hard data to fall back on; this is basically a head-butting exercise between your speculations and mine. The arguement turns on how well we can apply indirect evidence to the question. Second, you are right to bring up the matter of wealth dissipation in descendents. In general, high concentrations of wealth do tend to dissipate after three generations. However, this does not appear to be enough to counteract the overall concentration of wealth.

At this point, I'd like to bring up the "Gini index". It's a way of measuring economic inequality in a population. It's a number you calculate according to a complicated formula. A Gini value of 0.0 reflects a Marxist paradise in which everybody has exactly the same amount of wealth. A Gini value of 1.0 reflects a society with one plutocrat owning everything and everybody else utterly bankrupt.

Here are Gini values for the USA, according to the US Census Bureau:

1970: 0.394
1980: 0.403
1990: 0.428

Here are some values for some countries, according to a UN report from 2004:

Hungary: 0.244
Denmark: 0.247
Japan: 0.249
Germany: 0.283
India: 0.325
France: 0.327
Canada: 0.331
Australia: 0.352
UK: 0.360
Italy: 0.360
USA: 0.408
China: 0.447
Russia: 0.456
Guatemala: 0.483
Hong Kong: 0.500
Mexico: 0.546
Chile: 0.571
Namibia: 0.707

The point I'm making is that the USA already has a problem with inequality. If you look at the countries with higher Gini indeces, I think you'll agree that there aren't any much to admire (except Hong Kong). If you look at the countries with lower Gini indeces, I think you'll agree that most are countries that have something to admire (except India). So do we want to move down on this list or up? Eliminating the estate tax definitely moves us downward.

Lastly, a small counterpoint: you argue that, since the elimination of the estate tax only affects 2% of the population, it can't have much effect on overall incentives. I'll counter by observing that it's affecting 100% of the wealthy. The disincentives that I'm worried about arise from the existence of a class of extremely wealthy people. Making that class even richer exacerbates the problem.

I believe the initial argument was about the estate tax in its current form.

Don't get me wrong. I don't think this money should be passed from generation to generation freely. I believe strongly in taxing inheritance just like income. What I mean is say your grandmother leaves your father $5 million. Your father should be taxed 37% of that as income. Your father dies a few years later, leaving you $3.15 million. You should be taxed the same 37% income tax. Assests should not be taxed. If you are left a house, it is unfair to tax you on that house as you are not seeing any real money from it - besides that, you are paying a myriad of other taxes to support that household now. If you sell it, it will be taxed as income. This is just another way for the government to fund more 'social' programs that are, in actuality, detrimental to society.

However, there has yet to be any hard and firm evidence that this 'concentration' of wealth is, in actuality, detrimental to society. Of course, it places an additional burden on those who are not overly wealthy. Yet, will be have a generational reset? Will we tell parents they should not work to ensure their children have a stable, even cush, life? When I die, will half the money I leave to my children be whisked away to give to a child who has none, just so the generation can start clean and 'even'? And, if the child who is given half of my child's inheritence does nothing with his life, will we then turn to upbringing and say he had a disadvantage by not being taught how to play the game? The next time around will we give the children who were not brought up 'rich' more than half, just to give them a financial head start?

Editted to address a final point.

2% of the United State's population are classified as 'geniuses.' These people generally glide through school with no difficulty at all. The ace every test, every paper, and never get less than an A. Does this provide a disincentive for the 'average' kids to work? It makes them jealous, it makes them angry. But kids who will work, will work just as hard because they have to. They might ever work harder, just to try to prove that they can do better if they put in enough effort.

I recently received a magazine from a group I am a member of. The editorial was talking about mind enhancing drugs, if they were fair to school children, and to those fighting for a place in the work place. Giving those to a child who is naturally gifted would be an unfair advantage - and we would never do it; we would say the child is already 'smart enough.' Giving those to a child who is naturally average but willing to work hard to get what he wants would be an unfair advantage two fold.

No one is making these people who inherit the money 'richer', just like no one is giving geniuses smart pills. Anti-taxers just want them to be able to keep what was given to them, because the playing field is levelled more by your drive to succeed than the money you're born with. If you don't know how to use it, you will lose it all. If you do know how, you'll make it all back anyway.

This is a distinction without a difference. To put it another way, you are creating a giant loophole. Your grandmother simply uses the $5 million to purchase a really great home, then passes that on to your father, who passes it on to you, without anybody paying any tax.


You seem to be obsessing on this issue of redistribution. Let me again point out that we can have an estate tax and still have zero redistribution. The estate tax does not force us to give the money to anybody. We can use it to buy tanks and guns if we want, or freeways, or research programs, or space programs, or anything else. Let's keep our eyes on the ball here.


Well, as a matter of fact, there's lots of evidence that high Gini indeces are correlated with social instability. Of course, correlation is not causation, but certainly causation is a plausible explanation of the correlation. And history clearly shows that societies with high Gini indeces always collapse. Rome was quite robust in its early Republican years, but lost strength as wealth became more concentrated. The French Revolution was undeniably the result of a high Gini index exacerbated by bad harvests.

Of course, this kind of extreme social instability is associated with much higher Gini indeces than we have here in the USA. But again, the correlation between social instability and Gini index is too solid to ignore.

The remainder of your discussion concerns differences in ability, and the various attempts to redress those. The estate tax does not in any way address differences in ability. Its function is to enhance the notion of meritocracy, the idea that in this society, hard work and talent are the ways to get ahead, and that the accidents of birth neither impede nor advance any citizen. Is that not a worthy desideratum for our society?

As it would be under repealment, if your grandfather leaves you a $5M house, you get it, no taxes. When you sell it, you only pay capital gains on the amount over $5M. So, in effect, he could give you $5M tax-free. It winds up being a preferential form of income - a social program for the scions of the wealthy.

Concentration of wealth isn't detrimental to those who have it. Those who don't must pay those who do for access to the means of production, or accept their terms for use. Concentration of wealth allows some to have more power and influence than others - detrimental to those who believe in democracy.


If the distribution of wealth in this country in any way resembled the distribution of ability, such as 'genius', i'd give you credit. It doesn't. Abilities typically follow a normal distribution, wealth follows an 'L-curve'.

The American Dream is Dead. The race no longer goes to the most productive, but to the best connected. There are plenty of hard-working, intelligent, thrifty people out there who are not getting ahead, who are in fact, falling behind. Repealing an estate tax, a 'death' tax, means that these taxes must be made up for elsewhere: probably in income taxes or future income taxes. I think that even you will agree that income taxes inhibit productivity than a tax on the wealth of a dead guy.



I disagree. If I inherent a 1000 acre farm, and mismanage it, I'll still make more money than my neighbor who's got drive and a 10 acre farm.

In the drive for success, we are all competing for scarce resources: education, market share, real estate, what have you. If you are born ahead, you will most likely remain ahead. For many forms of wealth, the very fact that you have some means that I have access to less. Some forms of wealth are finite and irreproduceable: it's a zero sum game with these.

The Estate tax does a decent job of 'Jubilee', (Lev. 25:11, 12) where All landed property during that year reverted to its original owner (13-34; 27:16-24), and all who were slaves were set free (25:39-54), and all debts were remitted.

I maintain that it should be reformed, not repealed, and that it should only affect non-labor produced wealth. So when you inherit that $5M stately home on 10 acres, you can sell a portion of it to pay the tax man.

If the purpose of the estate tax is to 'level the field' how is taxing a house going to do that? Because one person has a place to live and the other doesn't?

When the person sells the house, they still must pay income tax on it. How is this any different, except allowing someone the ability to reside in a family home?


I am obsessing over it because that it what it is currently used for. It exists to ensure that the rich do not stay as rich.


However, our country is nowhere near the level of depravity that existed during the French Revolution. Also, once again, countries in which the government is keeping the populus in poverty are not equatable with our own. There is a very distinct difference between monarchal France and our country.


The correlation between government initiated poverty and social instability is too hard to ignore. There is no evidence that a country that has those who naturally rise to the top will create social instability. To compare the two is apples to oranges. It is worth studying, yes, but it cannot be the basis for claiming merits to extreme taxation.


You are correct. The estate tax does not. However, how is it 'fair' for one child to be allowed to excel, yet another must struggle to be average?

This may sound absurd, but it is a constant battle in our public schools. The drive to make the playing field unequivocally level is what drove the continuation (not the creation) of the estate tax. It is also what drove Affirmative Action - which has proven itself to be an atrocity upon the higher education system. It is now what is driving the public school system to adopt effort based grading (rather than results based).

And, unfortunately, the estate tax does address differences in ability. If one family is better able to manage money than another, the children of the richer family is taxed more than the children of the poor family. This is not equality, which is [supposedly] what our country is all about. This is another case of penalizing the wealthy for being better with money than the rest of us.

You do realize that it takes money to make money in almost all cases, correct?


The wealthy are not necessarily better with money than the rest of us, but they also have all the advantages. They have the lawyers and the loopholes and the accountants.

They earn money because of the privileges our government grants them. They should pay for these privileges. In the absence of direct taxes on these privileges, we should have a progressive income tax and a progressive wealth-at-death tax.

This is a load of hogwash. I give you JC Penny, Steve Jobs and/or Wozniak (both middle class), Bill Clinton, John Edwards, and Colin Powell (both parents were immigrants). The list of current US leaders who were born poor or middle class is amazing.

No one needs a government handicap to get somewhere. It makes it easier, but it is not the only way to make it possible. All the advantages you listed only make life easier, not more attainable. Why is this country so bitter against the wealthy? They didn't do anything wrong, except make a better life for themselves, and their families.

Do you realize that without the obscenely wealthy, there would be fewer jobs? Without the prospect of making it big, there would be no incentive to be an entrepeneur, or to expand and create a large corporation that could higher more people. Without Bill Gates there would be no Microsoft. Without Microsoft, there might not be the current demand for tech jobs that there is. Money is the driving force behind our society, and when you take away that incentive from people, they will no longer work hard to create something great for themselves, which will inevitably create more jobs in the long run. Nearly 60% of business owners report that they would add more jobs over the coming year if death taxes were eliminated. And then, when these companies who are forced to sell due to the death tax do so, all of their employees are out of a job.

Altari, at this point we seem to be merely butting heads, with little progress towards a meeting of minds, so I think I'll give up on this discussion.

Altari, you posted this comment while I was still preparing my previous response, but I can't let you get away with this comment:


I am somewhat familiar with the history of the computer industry. Microsoft has done a great deal to impede the progress of the industry, in a great many ways. Its monopolistic practices have dampened innovation and driven out competitors with better products. Its pricing policies have discouraged the growth of the computer industry. The crucial fact here is that we do NOT have a free market in the computer software industry; the market is highly distorted by the presence of Microsoft. A healthy marketplace demands serious competition, and Microsoft has gone to great lengths to eliminate competition by non-competitive means.

I must excoriate these naive notions that we owe the health of our economy to the wealthy. These notions are confuted at every hand by economics. Concentration of wealth does NOT stimulate an economy, it weakens it. Circulation of money, not accumulation of it, is what makes an economy tick. The estate tax is one corrective action to the unhealthy accumulation of wealth.

Apparently, you know just enough of the computer industry to be dangerous.

Microsft is, in no way, a monopoly. While it has tried to become one (with trademarking 'spreadsheet' which was quickly shot down by the courts), it has failed at every turn. For most of the 90s, Microsoft held a vast market share. Without the continuation of Microsoft throughout the drought of software innovations, the software industry, most likely, would have fallen into a dark age.

However, the merger of AOL/Time Warner brought about a revitalized engery against Microsoft. Microsoft was hit for monopolizing the browser industry, and was required to become compatible with others : Netcape, Mozilla and Opera, to name a few. No longer was Internet Explorer a built in feature that could not be removed.

What followed that was a renewed vigor to Linux enthusiants and other software industries. Now that the market has expanded, Microsoft is losing a large chunk of its market share, as my generation becomes the computer consumers. More and more companies are switching to Linux and OpenOffice. Yet, without Microsoft there in the first place, there would be no drive for competition, and the innovations we have now, we might not have as soon or at all.

I can say all this, with a moral certainty, as I have worked with computers my entire life, my father has been a network adminstrator (watching the ups and downs of Microsft) and my husband is close to earning his computer engineering degree. While the company might have made no progress during the 90s, it successfully prevented the industry from falling into the decay of the tech bubble.


We do not owe the health of our economy to the rich. We owe the health of our economy to the workers. We also owe the health of our economy to the entrpeneurs. However, who would start a business (citing a pamphlet from The SBA - many business owners view them as their babies) that they knew would not survive them? Who would start a business that they knew would not bring them wealth?

Now, I did not state that the concentration of wealth keeps the economy going. The hoarding of wealth is, indeed, very bad for our economy. Yet, a multi-billion dollar corporation that started off as a family business (such as Wal*Mart, Meijer, etc) does stimulate the economy. These are not people who hoard the wealth for themselves, they have a steady income and outgo. And without them, millions of people would be without jobs.

Oh, dear. I will not respond for fear of embarrassing you.


The economic definitions of monopoly and monopolistic competition are readily available. I shall not quote them because they are not germane to this topic.


Does not an estate tax work primarily against the hoarding of wealth?



If they're not hoarding their wealth, then they wouldn't have any estate to be taxed, would they?


Depending upon circumstances, it is entirely possible that many MORE people would have jobs without them.

How can you say, necessarily, that inheritance is a hoarding of wealth?

What of a local business that has 15 employees? Are the jobs of those 15 people not worthy of remaining intact?

You are assuming that because the money is being passed down, it is being hoarded. I am saying you cannot make that assumption. If it is a company that is family owned, when it is passed down it is no longer just the money of the family. It is now the jobs of those who are employed by it. If that company is forced under by being charged these Death Taxes, the employees will be out of a job. If the Death Tax were not enforced, then the employees would keep their job. In either case, there is no hoarding of wealth simply by virtue of inheritance.

Also, please state how Wal*Mart going under would increase jobs. Had they never existed, perhaps more people would have jobs. But we cannot assume that and make statements on something that can't be undone.

An inheritance is by definition a set of financial assets -- a chunk, a glob, a hoard, whatever you want to call it. A business is an asset just like a collection of coins is an asset. It has value. You can sell it on the open market and convert it into cash.


Whoa! You're making a lot of assumptions here! Let's assume Dad has run Joe's Tire Shop for the last umpteen years and now he has died and left the business to Joe Jr. Let's say that the accountant values the Tire Shop at $1 million. The first $625K doesn't count, so the estate tax is applied to $375K. I don't know the bottom rate off the top of my head -- let's just say it's 35%. So Joe Jr. now owns Joe's Tire Shop and he also owes $131K in estate taxes on it. You're assuming that Joe Jr. just flicks it in, lays off his employees, and shuts down Joe's Tire Shop. He'd have to be an idiot to do that. In reality, he'll have two good options:

1. Sell the tire shop to somebody else for $1 million, pay his taxes, and walk away with a cool $869K. Not bad for a kid just out of school, eh? The employees keep their jobs working for the new owner. Everybody's happy.

2. Keep the tire shop and get a bank loan to cover the estate taxes. Since the tire shop has been around for a while, he can probably get a loan for, say, 5%. That will cost him about $6.5K per year to service. His tire shop is earning at least $50K per year in profits, so he has no problem paying off the loan. The employees keep their jobs working for Joe Jr. Everybody's happy.

In neither case do the employees lose their jobs.


We're not discussing Wal*Mart, we're discussing the effects of the estate tax. The only significance of Wal*Mart to this discussion is that the wealth previously distributed among the owners of the small-time shops that Wal-Mart replaces will now be concentrated in the hands of the owners of Wal-Mart. That concentration of wealth is the problem: it's not invested with as much tight inspection when it's bundled up in big piles.

First, let's call a spade a spade: the death tax is a misnomer. It's an estate tax. Frank Luntz (a Republican pollster) learned that "death tax" polled better than "estate tax" in 1995. The GOP took notice and began using the poor-friendly "death tax" in order to ensure a higher probability of removal of this tax.

I'll say right now that, while I'm rather hesitant to say whether or not this will be beneficial to our economy, the repeal of the estate tax is a detriment to our society. It falls perfectly in line with President Bush's economic plan--that is, in short, give bigger breaks to the wealthy in hopes that these breaks will create incentives for the wealthy to give jobs to the poor. I needn't point out the fallacy inherent within this concept, do I?


Not really true. In 2004, Bush's tax plan raised the minimum to $1.5 million. In 2005, it increases to $2 million. I believe it increases steadily until 2011 when it is brought back to its original rate of $625,000. The Center on Budget and Policy Priorities (Estate Tax Repeal) reported that the elimination of the estate tax would result in a loss of $294 billion over 10 years. Someone is going to have to make up that lost revenue. Gee, I wonder who it will be.

1) Do you support Congress' effort to eliminate the Estate tax at this time? Why or why not?

Absolutely not. It is the wrong tax cut at the wrong time. We are bleeding federal revenues and raising expenses as we speak. This is going to bite us in the tail. We should not end the "death tax" and create a larger "birth tax".

I do not support the end of an estate tax at any time. And I do not support it for socialist/democratic reasons. Capitalism does create an unequal distribution of wealth. A vastly unequal distribution. Our society gets stronger when the middle class grows and the relatively very poor and very wealthy are decreasing. An estate tax is a leveller for the large piles of wealth out there that can get passed on tax free. Small businesses and family farms that get hurt by this tax are largely anecdotal fairy tales that can be dealt with very effectively with an adjustment of the estate tax if they are really proven to exist.

We live in an era where unearned or capital/investment based income is getting taxed at a rate lower than labor based income. This protects the haves, who can locate their capital anywhere in the world to try to make a profit, and punished the workers (white and blue collar) that are stuck here and cannot outsource themselves for better income.

The poor and the middle class would be better off with a modified flat tax that treated all income as the same. When I go out and work all week and have to leave my leisure and family to earn a paycheck I get taxed on it. At the very least a silver spoon who receives news of an inheritance while out yachting in a flotilla can pay taxes on that unearned income.

2) If the tax were made more equitable, ie. would avoid burdening family run businesses and farms but still existed for large wealth transfers where means were evident, would you support keeping it?

I still this this is a mostly undocumented fairy tale, like Reagan's famous welfare queen. I bet if we started profiling the very wealthy that are the real recipients of this tax break then the sympathy for the horrors of the death tax will fall away.

I have always been a supporter of the elimination of the Estate tax on principle alone. It is the taxation of money earned that has already been taxed.

When you earn a paycheck it is taxed. You take what is left to the store and buy goods and services. When you do so, those goods and services are taxed at the register.

Then then profits the store that sold them to you are taxed, the employer is taxed for paying the person who sold it to you, who is in turn taxed on that pay.

That employ takes what they can after taxes and invests it in their future and what they earn on that money is taxed. If they invested it in a home, farm, business property, that property is taxed annually. If they merely put it in a savings account the interest earned is taxed.

Then whatever they managed to save is taxed again when they leave this world.

I just feel that it is a form of taxation we could do without. Especially when you consider that some people can inherit property and be forced to sell it just to pay the tax bill, regardless of there intentions to keep a business running that might be a benefit to the local economy and / or community.

However, as I understand it from what I heard on the news last night, the new ceiling on the Estate tax is 1 million dollars. If an estate exceeds 7 million dollars the estate tax is levied on the 1,000,001th dollar an those there after. This seems like a reasonable limit (far better the the 600,000.00 of just a few years ago) if it is accurate.

I feel there should be a larger exemption for all (say 2,500,000.00) and a much larger one for real property so those family farms and businesses (current exemption for these seems to be $820,000.00). Just because a family farm maybe worth 20 million in New Jersey doesn't mean that the family working it lives much better then the lower middle class on it. I'd rather see family farms stay family farms instead of another condo neighborhood or strip-mall.

(Note: my numbers come from this IRS Publication)



1) Do you support Congress' effort to eliminate the Estate tax at this time? Why or why not?

Some might be surprized by this but no, I do not. 1 million seems like a good limit for now. An additional limit for farm / business real property should be written into the law immediately, but when you consider all of the things we have to deal with right now, fighting to eliminate the estate tax seems like a terrible waste of time if not a negligent use of it.

2) If the tax were made more equitable, ie. would avoid burdening family run businesses and farms but still existed for large wealth transfers where means were evident, would you support keeping it?

Yes and no. I feel that is the answer today on the practical level. On the principle though, I feel that we should one day eliminate this tax all together. I just believe we have far more pressing issues to address at this time.


An interesting note is what is Included in the calculations:



So, Your father bought that land for the farm back in 1928 for 5000.00. And since the population explosion and rapid urban flight the land value has skyrocketed even though it is still barely providing enough support on average to keep the family afloat.

Something interesting here is the "Life-Time" gifts option. So, if your a grandparent, and you have 8 grand children that you give 5 dollars too each time you seen them, and then do as mine did, and buy then a few shares of stock for their birthday and christmas every year until you pass away (lets say 25 years), and say you give their parents a few hundred every holiday as well. Couldn't you pretty easily break that 1,000,000.00 mark on gifts, without intentionally trying to get around the estate tax, and without being wealthy?

(Note: My middle class Grandfather used his retirement savings to give stock in his former company (Standard Oil, later Exxon, Later ExxonMobile) to his children and grandchildren. It wasn't much. A couple of shares here, a couple of shares there. Until I needed to tap into it when I was in a bad way financially, and later taped it again to pay for the rehab of the house I bought for my family it had risen to the level of about 300 shares.)

and what is excluded:



The big thing to note is the Marital deduction. However, the most interesting is the Mortgage / Debt deduction. Seems we have yet another government created incentive to live in Debt rather then be independent.



Actually there are alot of assumptions on your end as well. What if the best offer is from Starbucks? The business is torn down and replaced with a coffee shop. Assuming the employees at the tire shop want the work, they take a major pay cut going to work for the new business at that location, assuming that they can financially hold out long enough to wait for the construction.

As I pointed out in the beginning of this post. The moneys and values involved here have been taxed to death (pun intended) from a multitude of angles since their existence. Now, we give the business the final death blow (pun intended again) with a tax that quite possibly makes it impossible to earn a profit and maintain it.

You assume a 50,000.00 a year profit on the business. I can only assume that you are considering the owners salary as the profit, because most small businesses I know of run very close to the red just to keep afloat due to the ever increasing costs of doing business including the higher and higher insurance rates, ever increasing costs of complying with government regulation, and the ever increasing costs of labor, materials, maintenance, etc. Do you think an income of $50,000.00 is too much? If the owner is a parent and supports his family on a single income then in many areas of the country (thankfully not mine) he/she would barely be able to support a typical family of 4, if at all.

So in this example, the local community losses a better then minimum wage employer, a source of tax revenue (because surly the local politicians waved taxes on the Starbucks for decades to get them to come there), and a convenient service. What exactly was gained by the community is such a deal other then an overpriced cup of coffee?

1) Do you support Congress' effort to eliminate the Estate tax at this time? Why or why not?

2) If the tax were made more equitable, ie. would avoid burdening family run businesses and farms but still existed for large wealth transfers where means were evident, would you support keeping it?

I believe the debate boils down to a philosophical issue. Does the state have the right to assess a tax on your estate after your demise? And let's be honest: the estate tax is an extra tax. It is not a tax designed to "fix" problems with income taxes like the AMT, for example. It is another tax.

Philosophically, an estate tax is the following idea. You've been a productive member of this society AND this society has given you the opportunity to be a productive member of it. The society at large deserves a piece of that pie. Afterall, without society, your means of production would have been greatly curtailed.

People who favor estate taxes view them from a patriotic lens. That is, they see an estate tax to be the justified apportionment of your estate to the larger family of society. It is essentially a tithe to be paid only after you no longer could possibly need it. People who favor these taxes see them as the price for having lived and breathed in a society based on freedom and democracy.

People who are against estate taxes view them from a capitalist/civil liberties lens. Specifically, they see the state deciding for them where some of their estate must go as smacking of authoritarianism. Afterall, it's their money and assets. They view these estate taxes as being anti-capitalist.

People who are against estate taxes also cite problems in the current system as justification for why the principle is wrong. This is fallacious reasoning. The principle is only wrong if all forms of estate tax are unworkable.

Okay, that said, where do I stand on the issue? I can agree with the philosophies from both camps. I think both have valid positions.

So here's my principle, I'd be okay with reducing/eliminating estate taxes if and only if the law contains a commensurate reduction in borrowing and/or spending or proposes another tax to deal with the shortfall. I am not in favor of the state spending beyond its means. I am not favor of deferring incurred debt to our children.

If the law does not contain these mechanisms, then it is a bad law, period. Politicians must take responsibility for their actions. You don't get something for nothing.

Yes I am, but the assumptions I am making are standard accounting assumptions. I'll explain them in a paragraph or two. But first..

In this case, the loss of the jobs has nothing to do with the estate tax. Joe Sr. could have received exactly the same offer from Starbucks a month before he died and taken that offer, throwing the employees out of work. The operation of the estate tax is not relevant to the loss of jobs in the scenario you posit.

This is not a question of whether taxes in general should be raised or lowered. Our problem today concerns the estate tax. The fact that the estate tax is levied on moneys that have previously been subjected to tax is not at all unique to estate taxes -- almost all taxes are in some way applied to moneys that have already been taxed. What you offer here is a good argument for eliminating all taxes, not an argument specifically against the estate tax.

Your assumption is incorrect. The valuation of a business is a complex process; the most common rule is that it is roughly equal to annual sales. Another rule is based on its annual profit multiplied by some factor, typically something between 5 and 20, depending on the specifics. I used the highest possible number (20) in order to calculate the lowest possible profit; this was the worst possible number for my argument, and it still supports my case. If the business made less than $50K profit, then its valuation would be lower and the tax on it would be less, making the problem even easier to solve. For example, if the profit is only $30K, then the valuation is at most $600K and Joe Jr. pays no tax whatever!

It my example it has everything to do with it. If the business was at a good location, Joe Sr.probably received several offers on the location over the years. If the business was successful, or if Joe Sr. just happened to have an emotional investment in it, he would not see it as there was no financial need.

Enter the estate tax, a sudden and immediate expense, that prior to Joe sr.s passing did not exist. If Joe Jr, cannot afford to pay a loan for the taxes as well as support his family from the profits then he is quite possibly forced to see the business to deal with that expense.



Not really. It is an argument to bring the tax system into line with what is best for the society as well as the individual. There is no reason not to seek a balance. For example, what about a 50% estate tax and the elimination of all other forms of income taxes? The estate tax is a tax on what you managed to build from what you earned AFTER the government already took it's share in taxes at least once, and usually more often. In effect it is double (or worse) taxation.




You miss a key issue here. Real property. If the tire shop owns the land it is on, then the value in terms of estate taxes can be waaaaaay out of line with what it is capable of earning.

A tire shop, on a formally blighted corner in a city might have once been purchased for 20,000.00 but now, after revitalization of the area, the corner it is on could be worth millions. This regardless of the fact that it just earns enough of a profit to support a family at the middle class level.

What I would like to know is, what benefit does the estate tax provide to the community? Would the community be better served with a .05% income tax increase and the elimination of the estate tax? Would the community be better served with a massive estate tax increase and a comparable major reduction in income taxes?

I think eliminating income taxes in favor of a massive estate tax is the wrong approach because it will discourage people from saving for the future. It might result in short term gains in retail sales and the like but the long term costs of having many more Americans enter retirement with nothing other than social security to support them would be a disaster.

OK, first point: much of your commentary consists of criticisms of taxes in general, and double taxation in particular. What we're discussing is one single tax: the estate tax. The elimination of the estate tax will cost us $290 billion over the next ten years. That means that we have to raise other taxes by $290 billion. They can be gasoline taxes, income taxes, a VAT, or anything else. Just remember, getting rid of the estate tax does not lower taxes in general; it merely shifts the burden somewhere else. In this case, it means that the top 2% of society will pay lower taxes, and the bottom 98% of society will pay higher taxes. There ain't no such thing as a free lunch.

I could kick myself for not realizing this earlier, but I have a point to make that you will likely find astounding: there is no situation under which an heir facing an estate tax can make more money by destroying a business rather than maintaining it, while the same heir in the same situation would NOT make more money by destroying the business rather than maintaining it. In other words, the estate tax is neutral with respect to the decision to destroy a business and all the talk we've heard that the estate tax destroys small businesses -- that's totally untrue! There is absolutely no basis for it. I went through the numbers with my MBA-tax specialist wife and she agrees: if the heir is better off maintaining the business without an estate tax, he's also better off maintaining the business with an estate tax.

I'm sure some of you will find this claim unbelievable, so I will simply present a challenge to you: offer me one situation that defies my claim. Describe it in enough detail that we can figure out the numbers in some rough fashion. I maintain that any situation you specify will meet the above description, including each and every example you have already cited. If you wish me to explain how your examples turn out to meet my claim, I'll be happy to walk through the numbers.

Much of the burden of the estate tax is ameliorated by reduction in capital gains tax provided by a "step-up" in basis for inherited property valued at the time of death. It is uncertain what effect the President's proposed repeal of the estate tax will have on this provision.

See Press Release: "Small Business Council of America Warns That Estate Tax Repeal Will Harm Many Small Business Owners" (April 14, 2005) at
http://biz.yahoo.com/bw/050414/145919.html?.v=1

Correct. There is no free lunch. However, there is such a thing as a a fairly priced one. Let me ask this. If the estate tax is simply ok, and just another tax then why not reduce it to day 5% of every dollar, of every estate regardless of how small?






Sorry but this is rather out there, however I will play along, maybe I am mistaken.

OK, lets take the tire shop example. Lets say that the land is worth 5,000,000.00 and is owned free and clear. Lets say that after all costs of operation the owner of the business is taking home 50,000.00 in profits (we will say this is a propietorship for the sake of taxation). Now, the business has had rough times, but is regularly generating that 50,000.00 in income after taxes to the owner.

The owner passes away. The new owner, lets say his son, has had a really rough time of life. One job after another has been outsourced, he had to file bankruptcy last year, and he is still upside down in his finances. Enter the inheritance. The family business. Finally, he has a chance to make it all work.

But, when the real property value of the business is taken into account the estate is subject to estate tax.

Now, this man's father, who owned the business owned little to nothing else, his life was his business. The only value to the estate is the business.

But the son's financial history is so poor he cannot get a loan to pay the taxes. Even if he could get one, the cost of the payments would reduce the income below what he needs to support his family (I think in most parts of the country it is reasonable to suggest that a family of 4 needs $50,000.00 / year to make ends meet).

So, he is forced to sell the business, to pay the tax. Could he make more money if he held out long term? probably. However, the choice is the business or keep a roof over the families head, and food on the table. In other words there really is no choice.

Now the business gets sold. The best offer on the property came from McDonalds. So the business that once employed 12 people at a decent wage and supported the owners family is now torn down and a business that generates alot of sales, but pays horrible wages replaces it.

Now, where is the gain here? Is this really helping the community?

Why is it you are so resistant to providing a higher exemption for business properties, family farms and the like? Why is it so easy to write off the fruits of the hard labor of individuals. Small businesses in America are mostly owned by self-made people, not generational wealth.

Do you actually prefer doing business with WalMart and StarBucks, or would you rather do business at the Mom and Pop down the round that is now on it's third generation? Things like the estate tax promote the shifting of ownership from individuals to corporations because when the individuals who lived off a business that ran very close to the belt, pass away, the following generations frequently cannot afford to do the same when they have to first pay the estate tax.

That's a flat tax. There's nothing fundamentally wrong with flat taxes. However, flat taxes bring up issues regarding the concept of progressivity in tax rates. That's a highly debatable issue, but I suggest that we defer that debate to a topic explicitly devoted to it. If you'd care to create that topic, I'd be happy to address it there.


The flaw in your reasoning lies in the contradiction between your statement that the land is worth $5 million and the statement that "The only value to the estate is the business." Indeed, the value of the land is at least 5 times greater than the value of the business.

Therefore, the son's best financial strategy is to sell the business and the land on which it sits. Let's take the assumption that is most favorable to your position, that the purchaser has no desire to maintain the business, so shuts it down, lays everybody off, and demolishes the building to put up condos or a McDonalds. Yes, the jobs are lost. I'll get to that in a moment. From the son's point of view, he get's $5 million, pays about $2 million in estate tax, and is left with $3 million. He invests that $3 million conservatively and earns a mere 5% ROI -- that's $150K a year, or 3 times as much as he would have earned by maintaining the tire shop. In other words, he'd be a fool to keep the tire shop.

Now let's assume that the estate tax has been repealed. Now he can sell the land for $5 million and keep all of it, invest it, get 5% ROI, and earn $250K per year from the investment. In other words, the people who say that the estate tax is inimical to small business have it exactly backwards. In this case, he would have greater incentive to shut things down without an estate tax than with one. The economic incentives to destroy the jobs are GREATER without an estate tax than with one.

Wow. This is pretty unassailable logic. I've been trying to think of cases where the outcome would not be as you've stated and so far nada. Clearly, estate taxes decrease the incentive to sell the business. From the perspective of maintaining a vibrant and diverse economy, this is a good thing™. However, I doubt it will convince most of those who are against estate taxes as they have an ideological issue with them mentioned in my earlier post.

So, the question still remains: is being a productive member of society a right or a privilege? If one believes it is a right, then taxing the producer even after death is wrong. If one believes it is a privilege, then estate taxes seem a fair way for society at large to benefit from what it has provided the producer.

And, regardless of one's position on this, you are absolutely correct, Erasmussimo, that something must address the $290 billion loss of revenue due to the reduction in estate taxes. It is financially irresponsible that this is not being addressed. The party of borrow and spend is once again making its mark: these party members are the antithesis of fiscal patriots.

But you are forgetting one of the key reasons people are in business for themselves. THEY LOVE IT. Perhaps the son WANTS to keep the business going, say to honor his father, follow in his footsteps, etc. Perhaps he actually cares about the employes there as well and feels he can maintain their jobs and earn a decent living for his family so he decides to run the business.

Enter the estate tax. The option is now gone.

As for the jobs lost. I will ask again, which is better for the community? The one time tax revenue from the estate tax, or the regular, but smaller revenue from the income taxes of those employed as well as the lack of governmental costs of supporting them since they are supporting themselves?




How do you come to the conclusion that estate taxes DECREASE the incentive to sell a business? In the above example, the son would have to pay estate taxes on all values, including the land value. If he couldn't raise the capital to pay the estate taxes he would be FORCED to sell the business. I simply do not see how this tax DECREASES the incentive to sell, it actually creates a situation that forces some to sell.



So, if it is a privilege, and I then decide to choose not to exercise this privilege, then the country will begin to support me and my family right? It is not a right or a privilege it is a responsibility. You are expected to be a productive member of society and support yourself so that society does not have to support you.



I agree that there is a short fall to be considered here, as there is a short fall in the current budget of the federal government in general. This is something that has to be addressed, but there are multiple solutions, not just taxation solutions. One is clearly taxation, and it is likely, IMHO that some form of tax increase will be needed in the future. However, there are a multitude of services on the federal level that are simply not doing what they were created to do. Cutting some of these and reorganizing others will reduce to costs of government, which will also bring the budget closer to the black.

What should be done here is to take everything, one at a time and do a cost / benefit analysis of it to determine if this or that program is actually working and worth funding, and if this or that tax is generating revenue without negatively impacting other revenue sources.

In the end, it maybe discovered that the estate tax is beneficial, in which case I would support it. However, I think it is more likely to discover that the estate tax on personal wealth over a certain amount is beneficial, but the estate tax on businesses, farms, and property are not. We will have to wait and see.

However, considering the majority of the congress members in both houses we have had from both parties in the last 30 years I doubt any cost / benefit analysis will be considered outside of how many votes it will gain or cost.

Here you raise a very complex and difficult issue: how does society deal with those who operate under abnormal systems of personal values? Remember, an economy is just a way of allocating resources based on personal values. A capitalist economy functions by rewarding behavior that conforms to group values. But how does a capitalist economy cope with somebody whose value system deviates greatly from the norm? Here we are offering a guy $5 million for his crummy tire shop, and he won't take the money. Do we just shrug our shoulders and say, "There's no accounting for taste"? Most of the time, yes. There are a few instances where we do override him. One is called eminent domain. There is currently a case before the Supreme Court in which a municipality is using eminent domain for the benefit of one group of private citizens, on the theory that their efforts will yield higher tax revenues for the municipality. Most people are rooting for the homeowners in this case, as am I. But that's because we're talking about people's homes. What if the case were over a tire shop? Does a municipality have the right to invoke eminent domain to force a guy to sell his tire shop so that a big new shopping mall can replace it, generating lots more tax revenue and economic benefit to the community? That's a very debatable call. But it's exactly the same problem that we face with the estate tax in this example.

Let me add that the estate tax is not the only tax that has this effect. Property taxes also take into account increases in land valuation (there are lots of exceptions for residences arising from the Prop 13 revolution in the late 70s). Because this is commercial land, the son will be facing ever-increasing property taxes on his tire shop. They don't bite as hard as the estate tax, but the principle is exactly the same. The same arguments you apply against the estate tax apply against the property tax here.


On this point, there's no question about what's best for the community: selling out. This is basic economics. If somebody can offer a lot more for the land than the business itself is worth, then that can only be because they can put the land to use in some business that will generate more revenue. In our case, the new owner should be able to generate about $5 million in annual revenue from the land, where the tire shop generated only $1 million. That's five times as much economic activity, five times as much taxable revenue, and (most likely) five times as much paid in wages. Yes, there are plenty of scenarios you can paint in which there isn't as big an increase in wages paid, but such scenarios have to be highly contrived. The general rule is simple: more economic activity tends to generate more jobs.


This conclusion is derived from my earlier statements regarding the economics of selling when there is an estate versus selling when there isn't an estate tax; here's the logic I presented:


Lastly, I'd like to observe that the scenario you paint, which hinges on the economically abnormal personal values that the son brings to the scenario, is thankfully a rare case. Yes, it is sad when people don't get to have their own ways. We'd like to let everybody pursue their own happiness in any way it suits them. I pee anywhere I want on my own land, which is a little abnormal, but then I have 40 acres in a remote location, so I don't bother anybody. Law is but an approximation of the good, an approximation that we want to improve with each passing year. For the majority of cases, the estate tax is good. Those rare cases such as you cite deserve to be addressed by emendments to the law -- but tossing out the entire law because of those cases is not the solution.

When you made your initial argument, you were saying that estate taxes increase the incentive to sell the business. In response, Erasmussimo asked the following question. Which is the stronger incentive: $5 million or $3 million? The answer is obvious: estate taxes decrease the incentive to sell. Now, however, you're adding a new argument that estate taxes are tantamount to being forced to sell -- implying that such imposition is wrong.

First, as Erasmussimo rightly points out, it is against the economic interest of the party to not sell. Keeping the property out of some nostalgic sense is just bad business practice. While you may contrive the example to be about a tire shop, in reality the business changed -- it became a real estate business when the value of the property exceeded the value of the tire shop.

Second, the force thing is inaccurate. The son could get a loan against the value of the property to pay the estate taxes. Of course, the example could be contrived in such a way that the bank won't loan to the son because: (1) he has no visible means of income except for tire shop; (2) he has no plans to grow the business in order to make a profit (recall your example has the business breaking even); and (3) he has an abysmal credit rating. If (1), (2) and (3) are all true, then I ask the question to you. How would the end result be any different if there were no estate taxes? In other words, if there were no estate taxes but (1), (2) & (3) are true, then clearly keeping the business will not help the son -- he will neither be profiting from nor growing the business. Hmm... maybe, (3) will improve though, that is, through the process of keeping the business afloat, his credit rating would improve. However, (3) would improve even faster if he sold the business and reinvested the money elsewhere.

Third, you're making a moral argument that forcing property to be sold is wrong. Now, I'm big on personal liberties and property rights too. However, I believe it is insufficient to make blanket statements like this. Unless you believe that under no circumstance is the government ever justified in forcing a property to be sold (implicitly or explicitly), then this argument won't work alone. You must explicate the salient differences between a "proper" form of force vs. an "improper" form of force.


If you weren't a productive member of society, then you won't be assessed an estate tax. If you were a productive member of society, then you will be assessed one. Keep in mind that an estate tax occurs after you're dead; there's no support involved. I suppose I don't understand what you're trying to say here.


Note that in an earlier post I wrote the following: ~~~ I'd be okay with reducing/eliminating estate taxes if and only if the law contains a commensurate reduction in borrowing and/or spending or proposes another tax to deal with the shortfall. I am not in favor of the state spending beyond its means. I am not favor of deferring incurred debt to our children. ~~~

I am not advocating a new tax to compensate; I am advocating balancing the books. Without balancing the books, it is a bad law. It is equivalent to an unfunded mandate. It is wrong. Such a scheme would never pass muster in the business world.


I absolutely agree with you here. I think a cost/benefit analysis must be done before each and every change to the revenue stream is done. Where we may differ is that I am saying something stronger. Specifically, I am saying that when a law wishes to reduce the revenue stream, it must also describe what it will do to make up the shortfall in the same law. Anything else is simply unacceptable in my book.