Should I care about the estate tax?

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OK, so the Bush administration wants to repeal the estate tax. Now, I can certainly understand why people would be against a big giveaway to the rich, but it's not like the effect on the federal budget is really that enormous. In 2003 the estate tax brought in 20 billion. By comparison, the 2003 Federal original tax receipts were about 800 billion and the 2004 On-budget deficit is 567 billion On the other hand, it's about the same amount of money the feds expend on "Science, space, and technology" every year.

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5 Comments

I'm finding it hard to take the side of the Republicans on this issue... and I generally do side with Republicans on economic issues. However, complaining that the government takes 50% away from rich kids who didn't earn the money in the first place doesn't resonate with me.

I do, on the other hand, understand the frustration about passing a private business from one generation to another -- and here is where I think there should be ZERO tax. This is especially true for farmers where capital costs are enormous. However, I feel I have not been given the whole story when it comes to private businesses and the estate tax.

On the businesses, its only the amount above the threshhold (which is pretty high, even for a farmer.), and you can pay over 17 years! at 3% interest.

The estate tax is really structured to not do that big a number on the "small businessmen and farmers".

So a farm worth $3 million is subject to $795,000 in inheritance tax. Over 17 years, that's $48k per year to a farmer that is likely not clearing more than that after all is said and done. No wonder farming is becoming owned by big corporations. A corporate farm of the same worth doesn't pay any of that.

Sure, it's not that much compared with the federal deficit. But the Washington Post reports this: "Reducing agricultural spending by $5.4 billion is a key part of the administration's plan to cut the federal deficit in half." So (a) the Bush administration doesn't seriously intend to cut the deficit in half (big surprise, I know), (b) they *intend* to make it far worse, and (c) surprise, it'd help solve the Social Security issue.

As E.J. Dionne in the Post makes clear, to the extent that there is a Social Security crisis, reducing the tax (a Democratic proposal that would tax estates only above $3.5 million) would still cover between one quarter and one half of the estimated Social Security shortfall.

So even if you are so foolish as to believe the Bush administration's empty pronouncements on Social Security, you've got them prioritizing preserving large estates over the long term preservation of the nation's elderly.

But, on a grander vision basis, I think there's a nice principle that helps keep the US from aristocracy. There should be forces to pull dynasties back to the mean, as a means to keep US population socially mobile.

Trouble is, no one has ever found a case of a family farm or business that had to be sold to cover the estate tax. Not even it's backers could find one.

The aristocracy-proofing argument should resonate (does Paris Hilton need *another* Porsche?). Assuming Bill Gates is still worth US$50 billion at his passing and the estate tax tax were to take as much as 90% of that, are we to feel sorry for his offspring, having to scrape by on a measly $5 billion? (Bill Gates Sr is vocally opposed to scrapping the tax: he's one of those rarities, a guy who feels fortunate, rather than entitled.)

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