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Collected Articles on Culture & Politics
It's 2010, and Estate Tax Comes Back in January 
20th-Sep-2010 06:17 pm
Inspiration
What are the effects of the return of the estate tax? Well, in a well-put-together study (PDF), we have these notes:

This paper examines the impacts of a higher estate tax rate on asset accumulation, small and family businesses’ cost of capital, investment outlays, desire to hire, size of payrolls and jobs. In each instance, raising the estate tax has significant negative impacts. In particular, letting the tax rate rise to 60% will cost as much as 1.5 million jobs, and even a more modest rate of 15% could diminish hiring by over 350,000 jobs.

Other impacts on small and family businesses:
Raising the “hurdle rate” of return required for investment by 34 basis points
Reducing capital outlays by 7.8%
Decreasing the probability of new hiring by 8.3%
Cutting the size of payrolls by 2.5%


This is consistent with prior studies of the estate tax such as this (1996), this (2004), and this (2010). And, since it hits small businesses hard, this is not that surprising.

What might be surprising, though, is what I learned as a lawyer who was doing estate tax planning: paying estate tax is an OPTION if you're rich enough. You don't have to. There are a lot of ways to plan around it, and once it's in place, a lot of reasons to plan around it so that it never impacts the estate at all. So if you're really rich, you don't have to bother with it. It's only if you aren't that it has a chance of gutting your business. And this is the law being restored: the one that allows the rich to avoid the whole thing by paying lawyers to figure out how not to pay it. How fair can you get?
Comments 
21st-Sep-2010 04:47 am (UTC)
As I see it, it seems the brainless muppets over your side of the Pacific are afflicted by the same disease which affects the brainless muppets on Australian shores - the inability to realise that small business must be nurtured and favoured when times are tough, not over-regulated and driven into the ground.

(PS I've just noticed that you've linked to Tim Blair. You may also want to consider linking to his news column blog as well as to that of Andrew Bolt.)

Edited at 2010-09-21 04:52 am (UTC)
21st-Sep-2010 12:20 pm (UTC)
Links amended: I've cleaned up a few of the others, too. Thanks.
21st-Sep-2010 09:23 am (UTC)
If a legal duty can be dodged, then the law should be tightened. Oh, and dodgers should be given a taste of Her Majesty's hospitality (the slammer, for you colonials).
21st-Sep-2010 12:03 pm (UTC)
It can. Mainly because the Internal Revenue code, for clause after clause and definition after regulation, defines exactly what should be taxed. Which, logically, leaves the rest of the universe free of tax... An example of the result of carefully crafted regulation, The duty of the citizen is to obey the law. The fact that legislatures are normal human people, and can't write long, nuanced, well formed laws, but want to, is one of those things that YOU have to deal with.

Edited at 2010-09-21 12:21 pm (UTC)
21st-Sep-2010 12:05 pm (UTC)
One further note on the dodging: it's an estate tax. It's only dodged by people who are dead. Are you sure that jail is the best solution? It's a good general purpose remedy, I'll grant you: but I was expecting something nuanced, fitting...
23rd-Sep-2010 09:38 am (UTC)
The purpose of estate tax, when it was introduced, was to prevent the formation of enormous - that is the important word - private fortunes acquired by heirs who have done nothing to deserve them and who incidentally gain political and social power just by virtue of their birth. It was, in other words, an anti-aristocratic measure. That is what it should have remained. I admit that the ravages of inflation and governmental bad faith have turned it into a tax on the lower middle classes and discouraged people from leaving their children the modest nest egg that it is natural to want. Succession taxes should certainly be reformed, and they should hit exactly the same people who dodge them - along with all other taxes. (Rupert Murdoch, it was once shown, pays 0.3% in tax of all the money he makes in the United Kingdom.) There is nothing special about rich men dodging tax; they do it all the time. That is, it is not an argument specifically against succession taxes: if it is an argument at all, it is against all taxes.
23rd-Sep-2010 12:50 pm (UTC)
It is not an argument against all taxes: only against those which are so carefully tailored and defined that they can be avoided. In other words, the tax code, specifically and exactly, shows one of the major flaws in the idea that a legislature is capable of drafting large bills which exactly fit the situation.

24th-Sep-2010 09:38 am (UTC)
This is nonsense. Anyone who ever had anything to do with the law knows that it is exactly the most loosely drafted obligations that are the easiest to dodge, and that the reason to design laws carefully is that otherwise human and diabolic ingenuity is more than up to the task of nullifying them. Any tax system must be designed, like any other feature of law, with the intention that it should be followed and as much proof against legal trickery as possible. The trouble is that the rich don't go to jail nearly enough, because judges would rather use their power to deny the public will and corrupt the Constitution than to actually enforce the laws against people who really have power.
23rd-Sep-2010 09:44 am (UTC)
Oh, and as for your witticism about jailing the dead: apart that it would be a wholesomely insulting thing to do to dig up their expensive caskets (as you call them) and ceremoniously translate them into jailhouse burial grounds to keep company to the other dead criminals, you obviously understand that I meant nothing of the kind. The people I wanted to enjoy public hospitality are the tax dodging specialists and the heirs who hire them. It would make little difference; battening on unearned wealth before, living on public money afterwards - parasites either way. And taxes on inheritance are not "txes on the dead"; as everyone knows who does not want to make mischief with words, they are taxes on INHERITANCE - that is, on the acquisition of wealth by heirs. The principle is no different from that of capital gains tax (whether or not that is a good idea) or income tax.

Edited at 2010-09-23 09:45 am (UTC)
23rd-Sep-2010 12:45 pm (UTC)
A tax on inheritance is, legally, a tax on the privilege of passing wealth by gift or devise. This is another of those carefully nuanced, crafted laws passed by those wise legislators you so revere. It is not heirs who can pass on wealth this way, but those who pass it on to them. It is, quite literally, a tax on the dead, whether everyone knows this or not. While they were alive, their wealth in banknotes was an outstanding demand on the government in return for services: I can hardly blame the government for wanting to steal it back and cancel the debt, can I?

It is the parents, not the children, who hire tax specialists, and who are at liberty not to. Again, you tailor policy in an un-nuanced way.

"unearned wealth"

It certainly was earned. Taxes were paid on it, it was invested in projects that employed other people. Heirs spent time and affection and rearranged their lives around their parents, and, while you can't put a price on love, ignored parents certainly can.

As a matter of fact, the only one in this sequence who didn't earn it was the government.
24th-Sep-2010 09:34 am (UTC)
The government, of course, has nothing to do with the legal framework, societal stability and military protection that allowed those people to accumulate wealth - yeah, right. And your assumption that heirs are always loved by their forebears deserves nothing but laughter in response. The reason to create empires - financial or otherwise - has nothing to do with family love and everything to do with family pride (study the internal relationships of Napoleon's family before you answer, and don't tell me they were not typical). Even so, since when is love a justification for handing someone immense power over people and things? If that were the case, I could easily have made a certain woman an Emperess. No, what you are saying is that families that have great power should be allowed to accumulate even more power, generation after generation. To which I answer: Les aristos a la lanterne!
24th-Sep-2010 10:19 am (UTC)
"Three generations shirtsleeves to shirtsleeves" is a saying that came into use before the estate tax. Power generation after generation comes from other sources than wealth: and trying to reach it by focusing on wealth is a distraction.

Appeals to slogans appropriate to village life in pre-rational development are hardly an answer.
24th-Sep-2010 10:28 am (UTC)
"Three generations shirtsleeves to shirtsleeves" is also comfortingly wrong, as generations of Rockefellers, Sainsburys, Agnellis/Elkanns, and so on, could tell you. And the slogan in question came from revolutionary Paris, which was even then hardly a village.
24th-Sep-2010 10:41 am (UTC)
The slogan is appropriate to pre-rational village life. The stressors which caused the regression of society to that level are not difficult to recall: but that does not mean that it is currently appropriate. There are middle-class Rockefellers, and absent the political arm, the dynasty would be headed that way faster.
24th-Sep-2010 06:03 pm (UTC)
And of course the political career of successive Rockefellers has nothing to do with inherited wealth. You keep making statements that don't connect.
24th-Sep-2010 06:52 pm (UTC)
It's the other way around. The wealth increases due to political connection, and is less in those family members without it.
25th-Sep-2010 09:10 am (UTC)
But no Rockefeller would have got into politics unless their forefather had set up Standard Oil.
25th-Sep-2010 04:09 pm (UTC)
Correct. But useless. Given the large number of people in politics, it would be surprising if none of them came from wealthy backgrounds.
26th-Sep-2010 07:24 pm (UTC)
Sophistry. Rockefellers don't get into politics to become small-town mayors or state representatives. They head straight for the Senate and become serious players. And that for no reason except inherited wealth.
27th-Sep-2010 03:01 pm (UTC)
So the effect of wealth is not that they don't enter politics, it's that they enter it at the national, rather than the local level? And you thought my idea was sophistry?

The wealth gives them a claim on resources. It must be managed, and employs many people in that process, as well as leading to new ideas and new investments. Some work out, some don't. People who go into politics also create wealth -- mainly private wealth, frequently their own (see the many studies on the returns of Senate stock portfolios). Among the places they have to spend that wealth is in persuading voters to keep sending them back. This year, like 1994, looks like one of the years where persuasion won't work as it has previously. And that is where those who want to cut the government back to something that can be handled by those elected to it come in. We know that whatever local village goodness the representatives have, they can't write long bills. Every time they do, they bobble it. Doing so requires understanding too many things at once, and no one has more than seven to 10 holding spaces in their brains to handle current work. As a citizen, it is my privilege to obey the law AS THEY WRITE IT, not as they would have wanted to write it had they actually been able to understand it, and to hold the govenment to those laws as a standard.

Your agricultural village orientation has problems with claims on resources not backed up by local virtue, and you don't think creating jobs is a virtue.
28th-Sep-2010 07:14 pm (UTC)
When are you planning on setting the American House of Lords? My agricultural village orientation is that of Washington, Jefferson and Franklin: "We hold these truths to be self-evident..." It was the King of Britain who fought his side of the war on the principle that "influence" is a necessary and justified part of society, and that one man is more important than another, not because of anything he did, but because of birth. And if you don't believe me, read the poet Cowper's disbelieving reaction to the American idea of political equality. Incidentally, it is also that of Winston Churchill, who, as a leading member of the Asquith-Lloyd George governments of the early nineteen hundreds, was a leading proponent of the tax on inheritance. What amazes me is that you probably still think of yourself as a libertarian, when the logic of your argument is driving you to something that has no match except in the oldest reaches of Toryism.
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