Sunday, April 17, 2005

Comrade Max - Speaks Truth

Had to take a quick break from the euphoria of tonight's concert. Thanks for beer & catfish. Otherwise, I'd have to throw myself off the porch or deck. Jeez....

MaxSpeak, You Listen!: "April 16, 2005

Matt aroused a ignorant furor over his estate tax post. The House of Paleozoic Hominids has voted for repeal, as it has in the past; the fate of the tax will be decided in the Billionaire Boyz Club, a.k.a. the U.S. Senate. A few basics, as the tax hovers on the brink:

1. The event that triggers the tax is NOT death. 'Death tax' is a politically-interested misnomer. Most who die (98%) pay no such tax. The occasion for the tax is the transfer of a large amount of wealth. That's why it is called 'The Estate and Gift Tax.'

2. Those to whom the tax applies DO NOT give up half their estate. The average effective rate for the larger estates is under 20 percent. The marginal rate is around 50 percent. A few years ago, I had to try and explain the distinction to Bill O'Reilly on national television.

3. Estate taxation IS NOT double-taxation. Much of the income accumulated in estates has NEVER been taxed. This includes appreciation in the value of financial assets, unincorporated businesses, and farms held until death. Even so, double taxation is not exactly unknown. If they don't like double-taxation, why don't the wingnuts campaign for the abolition of the sales tax? It taxes the use of income that has already been taxed. I think I know why.

4. There is NO NEED for the recipient of a family business or farm to liquidate in order to pay tax. In today's world of marvelous financial intermediation, it is a trivial matter to securitize that portion of an illiquid firm required to pay the tax, which incidentally need not be paid all at once. Contrary to Matt, the Gov already facilitates paying the tax on the installment plan for 'small business.' Some say the value of the business lies in the expertise of the decedent. If this is so, the business is worthless and no tax would be due with appropriate appraisal of the firm's value.

5. Matt's distinction between an estate tax and an inheritance tax is meaningless. An estate tax with a million dollar exemption and an inheritance tax doled out to ten people, each with a $100K exemption, are equivalent.

6. We do know of at least one family farm forced to liquidate under Government Oppression. That was the chicken farm of a lady who, along with other landowners, was expropriated so that the stadium of the Texas Rangers could be built. The culprit was a well-known acolyte of enterprise and freedom. O Justice, where art thou?

7. Come to think of it, the build-up in the value of the Texas Rangers, since it is owed partly to forced sales of land, is another example of income that has never been taxed. Kind of a parable on Weath in the U.S.A. There ya go.

Best single reference on the E&G Tax is here.
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