A&F, Naked, and the Death Tax
Let's say that I work as an Abercrombie & Fitch model. Say I get $20 per spread that I do, in which I show off my tight, tone, sexy body. And just for kicks, let's track what happens to the money I get from doing 1 spread. Nothing too detailed or formal.
We know that the minute I get a paycheck, we should expect to see a reasonable chunk withheld by my employer for a governmental income tax. Say for kicks that this tax is $5, leaving me with a usable income of $15, called disposable income. Next, say that I am a fan of Naked Juice: Protein Zone. Packed with 34 grams of protein per bottle, it keeps me in shape to be a sexy underwear model. I go down to Albertson's and purchase a bottle for $5, leaving me with $10. But Albertson's really doesn't get the whole $5, for there is a sales tax of $1 included in the price I pay. Effectively, they get $4 and chalk another $1 up to the government.
Now Albertson's has to pay Jayne the janitor for cleaning up my messes, so Jayne gets a wage of $2. But of course, the government levies an income tax on Jayne, and in our bizzare world, it takes $1 from her (just to keep things on whole numbers). So Jayne has a disposable income of $1.
What's my point? Money circulates. No real surprise there. And that same "money" is taxed over and over again as it circulates. Everytime it hits a new agent, some of it is taxed. No surprise there. And those who want to abolish taxes aside, most of us take the fact that money is "double" or "triple" or "quadruple" taxed everyday. (In fact, there is a huge branch of economics devoted to just studying how money circulates.)
Which brings me to what is called the "double tax". The double tax, or better known as the "death tax", is nothing more than an inheritance tax on estates. It simply taxes a person when they receive a large estate from someone else. The estate tax, however, is neither really a double tax nor a death tax in any unique sense. Well, I suppose it sort of is - you are dead. But the tax isn't on you at that point, precisely because you are dead. It is on property that is no longer yours precisely because you are dead. In other words, the money has gone to someone else, and now that person is taxed on it as if it were an income, which in fact it is. So it is not at all that much different than the transfer of money from me to Jayne with the government taxing every step of the way - a process that you and I seem to take for granted everyday.
It is worth noting that both terms double tax and death tax were popularized by the Republican pollster Frank Luntz who felt that they would get voters all riled up about having to pay this tax. Those in favor of killing this tax will have you believe that most Americans are subject to this tax. Statistically speaking, about half of you probably think that. A 2003 poll found that over 49% of Americans believed that nearly all Americans were subject to the inheritance tax.
The truth, however, is quite different. Less than 2% of all American estates - and consequently a signficantly fewer percentage of the population - are subject to the tax. Still, the tax is very important because it provides a signficant chunk of the governmental income. The repeal of the estate tax, as urged on by the Bush Administration and the Republican Congress, would cost more than $70 billion a year in governmental revenue over the next 10 years, according to Professors Michael Graetz and Ian Shapiro of Yale. Other estimates show it having nearly a $1 trillion ($1,000,000,000,000) cost over the 10 year period.
I don't think that any of us enjoy the taxation process. It is tiring and tedious and feels pretty horrible to see someone else taking money right out of your pocket. But the thing is, none of us like a society without public services either - be it radio broadcasts, roads, schools, medical facilities, armed forces, or anything else that America offers. We can only enjoy comforts and protection through a government with resources-a-plenty. And with such a repeal, we would strip the government of direly needed funds. Unless we find a better way to let the Paris Hiltons of the world keep all of their inheritance (that they clearly earned) and still raise $70 billion per year for the provisions that the other 98% of Americans need, it would seem ridiculous to repeal the estate tax.
We know that the minute I get a paycheck, we should expect to see a reasonable chunk withheld by my employer for a governmental income tax. Say for kicks that this tax is $5, leaving me with a usable income of $15, called disposable income. Next, say that I am a fan of Naked Juice: Protein Zone. Packed with 34 grams of protein per bottle, it keeps me in shape to be a sexy underwear model. I go down to Albertson's and purchase a bottle for $5, leaving me with $10. But Albertson's really doesn't get the whole $5, for there is a sales tax of $1 included in the price I pay. Effectively, they get $4 and chalk another $1 up to the government.
Now Albertson's has to pay Jayne the janitor for cleaning up my messes, so Jayne gets a wage of $2. But of course, the government levies an income tax on Jayne, and in our bizzare world, it takes $1 from her (just to keep things on whole numbers). So Jayne has a disposable income of $1.
What's my point? Money circulates. No real surprise there. And that same "money" is taxed over and over again as it circulates. Everytime it hits a new agent, some of it is taxed. No surprise there. And those who want to abolish taxes aside, most of us take the fact that money is "double" or "triple" or "quadruple" taxed everyday. (In fact, there is a huge branch of economics devoted to just studying how money circulates.)
Which brings me to what is called the "double tax". The double tax, or better known as the "death tax", is nothing more than an inheritance tax on estates. It simply taxes a person when they receive a large estate from someone else. The estate tax, however, is neither really a double tax nor a death tax in any unique sense. Well, I suppose it sort of is - you are dead. But the tax isn't on you at that point, precisely because you are dead. It is on property that is no longer yours precisely because you are dead. In other words, the money has gone to someone else, and now that person is taxed on it as if it were an income, which in fact it is. So it is not at all that much different than the transfer of money from me to Jayne with the government taxing every step of the way - a process that you and I seem to take for granted everyday.
It is worth noting that both terms double tax and death tax were popularized by the Republican pollster Frank Luntz who felt that they would get voters all riled up about having to pay this tax. Those in favor of killing this tax will have you believe that most Americans are subject to this tax. Statistically speaking, about half of you probably think that. A 2003 poll found that over 49% of Americans believed that nearly all Americans were subject to the inheritance tax.
The truth, however, is quite different. Less than 2% of all American estates - and consequently a signficantly fewer percentage of the population - are subject to the tax. Still, the tax is very important because it provides a signficant chunk of the governmental income. The repeal of the estate tax, as urged on by the Bush Administration and the Republican Congress, would cost more than $70 billion a year in governmental revenue over the next 10 years, according to Professors Michael Graetz and Ian Shapiro of Yale. Other estimates show it having nearly a $1 trillion ($1,000,000,000,000) cost over the 10 year period.
I don't think that any of us enjoy the taxation process. It is tiring and tedious and feels pretty horrible to see someone else taking money right out of your pocket. But the thing is, none of us like a society without public services either - be it radio broadcasts, roads, schools, medical facilities, armed forces, or anything else that America offers. We can only enjoy comforts and protection through a government with resources-a-plenty. And with such a repeal, we would strip the government of direly needed funds. Unless we find a better way to let the Paris Hiltons of the world keep all of their inheritance (that they clearly earned) and still raise $70 billion per year for the provisions that the other 98% of Americans need, it would seem ridiculous to repeal the estate tax.
posted by arun at 6:27 PM
5 Comments:
Naked Juice: Protein Zone...yumm.
In order to make such an argument, you would first have to justify as to why we should redistribute the accumulated wealth of 2% to the masses.
Moreover, I do not believe that the transfer of wealth between husband and wife, or mother and son, is equivalent of Arun the consumer and Jayne the janitor. That is just a poor analogy. While money does circulate, one is inter-family exchange while the other is intra-family exchange.
Lastly, many families accumulate wealth on a familial basis. That is, their income is collected to make the family better off. This intention of pooling a family's resources is negated with the estate tax. It is, in effect, just a tax on a rich family for a death in the family.
Nice refresher on why we pay taxes (I enjoyed my 15 years of public education).
Respectfully though, I want to point out the Paris Hilton comment was snide. The post is fairly balanced, but the comment insinuates that inheritance money only goes to lazy kin.
Examplia gratia of an inheritance situation. Son takes care of sick mother, upon her death her "estate" is passed onto him. Obviously there are intangibles at play here. It is tempting to take a pot shots easy targets like Hilton, but it is unecessary.
Lastly, the estate tax affects families such as mine's. We are not "old wealth" and just noting that others aside multi-millionare heiresses and playboys also fall under the estate tax.
can't the redistribution of the top 2% be justified by the same rationale as the progressive tax? many rich people such as bill gates and warren buffett seem to favor the inheritance tax. buffett even considers his coffers a burden upon his children.
naked juice is pretty nasty, fyi
Well, family businesses usually get *surprise, surprise" exemptions. Btw, loved the Hilton aside. Keep the snark in.
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