Wednesday, April 13, 2005

Estate Tax v. Insurance

The House GOP voted today to permanently abolish the estate tax, which according to the LA Times affects about 30,000 people a year. (That means it affects approximately 1 in 9,500 people in the U.S.) Of course, these thirty-odd-thousand people are taxed at an mean rate of about $3 million apiece (which explains why they lobby so furiously to see it abolished).

To put things in perspective, if we were to put that estate tax into the Social Security trust fund, it would make up close to a quarter of the projected long run shortfall, all by itself.

4 comments:

Anonymous said...

1) I think there's a bit of a problem with your math here. The estate tax affected 30-odd thousand of the people who died last year, but a cursory examination of the wealth of Americans reveals that almost 2% would be affected by the estate tax when they die, not, as you claim, 0.01%. In other words, it's thirty thousand divided by the one-and-a-half million who died last year, not thirty thousand divided by the entire population of 250 million.
2) I think your image of an estate-tax-abolition-lobby packing the halls in Washington is a bit stretched. Isn't it a lot more plausible to suppose that the disproportionate wealth of our representatives in Congress suffices to explain the push for abolition? In other words, that representatives are acting out of self-interest, rather than that they're catering to the desires of a special-interest group (to which they happen to belong)?
- Lars

purpleprose said...

The estate tax affected less than one percent of those who died last year. (Or rather, it affected less than 1% of the heirs of those who died last year.) While there may be some justification for raising the minimum threshold over time -- especially if this or some future administration decides to inflate its way out of the Bush-led fiscal crisis -- there's just as equally a good reason to make the estate tax more progressive: say, 0% for everything up to $2m, 50% for everything up to $10m, 75% for everything up to $50m, and 95% for everything after that. Can anyone look me straight in the face and say that "deserve" to inherit more than ten million dollars? Making every generation earn their own way is the flip side of a meritocracy that gives anyone a chance to get to the top. If you believe in the latter value, you need to believe in the former, as well.

Anonymous said...

"And my advice to those who die: declare the pennies on your eyes"
- Lars

Anonymous said...

I couldn't resist... still though, I take your point. As indeed I did even at the first post. You don't need to convince me; I'm all in favor of progressive taxation, ESPECIALLY on inheritance. And of course you're right, progressive taxation and social mobility go hand in hand. But you're not adressing the substance of my first post a) about the math, and b) about the mechanism by which our "representatives" come to endorse a reactionary tax repeal by a MASSIVE margin.
- Lars