Promoting Meritocracy by Restoring the Estate Tax

The New York Times reports that the unnaturally orange John Boehner, the Ohio Republican who dreams of becoming Speaker of the House, suggested this morning that while his priority was to provide a tax cut to the richest 2% of Americans, he would reluctantly support President Obama’s plan to provide relief to only the other 98% of us who make less than $250,000 per year.  Perhaps not surprisingly, Mr. Boehner has already walked this comment back, issuing a statement suggesting that he was returning to the Republican position, which is that all Americans will only get a tax cut of approximately $6,000 on average if the richest 2% of Americans are given an extra $103,000 on average per year.

I’ve already explained why the Republican’s insistence on giving $103,000 more per year to the richest 2% makes no fiscal or economic sense.  But buried in the New York Times article was an even more insidious proposal from Mr. Boehner – to extend the current one-year moratorium on the estate tax.

The estate tax is a tax on the transfer of wealth at one’s death.  This year, there is no estate tax, as George W. Bush gradually allowed rich families to inherit a higher percentage of their decedents’ estates, with the tax entirely eliminated in 2010.  Moving forward, President Obama wants to return the estate tax to its 2009 levels, which exempted the first $3.5 million of an estate from any taxes, and applied a 45% tax rate to any value above that $3.5 million.  Republicans like John Boehner, however, want to permanently eliminate the estate tax.

President Obama’s position is clearly the correct one for our country for a number of reasons:

  • Budgetary Cost: The Republican’s proposed elimination of the estate tax would blow a $667 billion hole in the budget over ten years in comparison to President Obama’s proposal.  At a time of cutbacks to critical government services (police, firefighters, education, public health, etc.), and long term budget deficit concerns we cannot afford to give an extra $667 billion to wealthy inheritors.
  • Fairness: The people who pay the estate tax are paying it on money that they did nothing to earn.  If I had a rich relative who died and left me a $5 million estate, I would be extremely upset about their death, but I would not be upset that I received only $4.3 million after the estate tax, rather than $5 million.  Taxes for core government services have to come from somewhere, and the estate tax is probably the fairest place for them to come from.
  • Restoring Meritocracy: The estate tax is the most progressive and meritocratic tax in the country, as it impacts only the richest 0.3 % of estates and helps prevent the perpetuation of wealth in wealthy families from generation to generation.  Contrary to Republican myth, only approximately 80 small businesses and farm estates nationwide owed any estate taxes under the 2009 standards.  With the income gap between the richest 1% and middle class Americans tripling between 1979 and 2007, it is critical that we restore the estate tax in order to help reduce that gap.

Our country is faced with critical needs to restore basic government services, repair our infrastructure, reduce our long term deficit, and further boost our economy.  Each of these requires that government has adequate revenue to do its job well.  In the face of these needs, Republicans are proposing to provide even more resources to the wealthiest families in our country by eliminating the estate tax and giving an average of an extra $103,000 to the top 2% of Americans.  By contrast, President Obama is taking the common sense position of restoring an estate tax that touches only the top 0.3% of estates, opposing further tax relief to the wealthiest 2%, and providing a tax cut to folks making under $250,000 per year.  When it comes to taxes, it is clear that President Obama is on our side, and the Republicans are not.

Do you support restoring a tax on the richest 0.3% of estates in order to help reduce the budget deficit and provide basic government services?  If so, let folks in your community know by sending a letter to the editor of your local newspaper.

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14 Responses to “Promoting Meritocracy by Restoring the Estate Tax”

  1. JoeThePlumber Says:

    The people who pay the tax “did nothing to earn it”?? I hope you haven’t thought this one through. Your rich relative had to have earned that money from somewhere. They might have had their own business or just worked very hard for an entire career and saved it up. These earnings were taxed along the way. Taxes for “core government services” should come from taxing the original income stream. It should not come from some arbitrary additional tax that happens when someone dies. This money has already been taxed at least once. And as we’ve seen with the ineffective so-called stimulus bill, the government would never be able to trickle down this money to the lower classes. Restoring the estate tax would in no way help reduce the income gap.

  2. Winning Progressive Says:

    Joe – the person paying the estate tax is the one who is inheriting the money. He or she did nothing to earn that money. The rich relative who earned the money is dead.

    A large proportion of a wealthy estates consists of previously “unrealized” capital gains – such as increases in the value of real estate, an art collection, or other asset that one holds until one’s death – that were never subject to income taxes. That is part of the reason the estate tax exists.

  3. Linda Featherinll Says:

    Only slightly off topic:

    This is from the DCCC.

    “Let me be clear — we will retain the majority in the House if we have you standing with us and fighting back against every vile GOP attack and dirty trick. We know the truth when Democrats have the resources to get their message out and turn out voters — Democrats win. It’s as simple as that.”

    I’m inclined to agree.

  4. Joseph O'Shaughnessy Says:

    This is about as good and as clear as it gets in explaining the problem with estate taxes and the disingenuous position of the Republicans on taxes in general.

  5. JoeThePlumber Says:

    WP – the person inheriting the money did nothing. That’s correct. But why should the money be taxed twice? It’s already been taxed. The rich relative has already paid taxes on it once. Whether or not they’re dead is irrelevant. Why should the money be taxed more than once?

    And how do you think the person inheriting the assets pays the estate tax? By liquidating part of those assets. Real simple.

    How do you know that so much wealth was never subject to income taxes? When my dad died I inherited his house. How do you think he was able to buy that house in the first place? With AFTER-TAX earnings from working all his life. People don’t buy real estate, art, stocks or bonds with fake money. They buy it with after-tax money that they’ve earned by working.

    If my dad died holding some IBM stock, why should the government take a piece of it? Why can’t that stock simply be transferred to me and my siblings and we pay taxes on it when WE decide to sell it.

    You make no logical sense at all.

  6. Linda Featheringill Says:

    Interesting article on estate tax. Clearly explains the rationale.

    And to Joe-The-Plumber, unless you inherited more than 3.5 million dollars, sit down and be quiet. This isn’t about you.

    Historically, governments have served the rich and powerful before serving the people.

    We are doing a little better now but we still have to fight to influence how our government behaves.

    The rich folks, by the way, hire people who work full time to influence government. We as individuals don’t have the money to compete with the lobbyists and as working people, we don’t have the time.

    Together, however, we can make a difference. Speak up. Write letters. Call your congresscritters. Talk to your neighbors.

  7. JoeThePlumber Says:

    Linda – sorry but I will not sit down and be quiet like you said. My dad fell into the estate tax when he died. He never made over $100,000 a year during his lifetime. But he saved like crazy and after working for 50 years his house was worth $600,000 and his retirement account was worth $750,000. And in 1999 when he died the exemption was only at $1.0 million. There is no way that somebody making $100,000 a year should fall into the estate tax (ie death tax) trap.

    And we have no idea what the Congress will set the new exemption limit at. So please don’t try to tell me that this is only about “rich” folks. This is more than just the “rich”. It’s about all of us.

    The estate/death tax is confiscatory, punishes people who save and is double (or perhaps even triple) taxation.

  8. Nathanfl Says:

    The estate tax was implemented to help reduce the pernicious influence of inherited wealth. Money Is power and by passing on a huge estate, you transfer power from generation to generation. I thought we lived in a representative republic and not an aristocracy or a monarchy?

  9. JoeThePlumber Says:

    Nathan – you’re kidding, right? Someone who works hard their whole life to make a good living for their family shouldn’t be able to pass on that estate to their kids? The government must take a big chunk of it even though it’s already been taxed at least once?

  10. Peggy in Pittsburgh Says:

    I’m new to this site and just got into this debate. I have mixed feelings about it because I was in the situation that Joe the Plumber was. BUT my father could have set up his will in such a way as to avoid the children from having to pay the taxes. IF the older generation is advised to do so then the tax could be missed. All it takes is lawyers and financial advisers to assist!! With the amount of money that could be earned and the help it would provide for the lower and middle class, I say go for it.

  11. JoeThePlumber Says:

    Peggy – in once sentence you say that there are ways to skirt the tax. But then you say you’re in favor of it because it will provide for the lower and middle class.

    Do you really think it’s fair to tax someone when they die after working their whole life and saving money as they go? Just to see it heavily taxed AGAIN before it goes to their children??

  12. Morning Feature – Does Mitt Romney Support the Radical 2012 GOP Platform? | BPI Campus Says:

    [...] the estate tax, which applies only to the estates of billionaires and millionaires and is the fairest and most meritocratic tax of [...]

  13. Progressive Guide to 2012 State Ballot Initiatives - Part 1 of 2 | Winning Progressive Says:

    [...] estate tax, which applies to estates valued at greater than $1 million.  As we’ve explained previously, the estate tax is the fairest and most meritocratic kind of tax there is. For more on why [...]

  14. Morning Feature – Winning Progressive’s Guide to 2012 State Ballot Initiatives: Part 1 | BPI Campus Says:

    [...] we’ve explained previously, the estate tax is the fairest and most meritocratic kind of tax there is. For more on why [...]

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