Monday, November 06, 2006

Estate tax

In Washington, we're being asked to vote on an initiative that would repeal the state Estate tax law. The tax, under current census, will be paid by a total of just 300 individuals in our state, including Bill Gates, Sr. who supports the tax.

To qualify, your estate must be worth more than $4 million. Up to that point and it's all written off. Only monies above that high mark are taxed. So, any heirs will get at least $4 million. And I'm supposed to feel sorry about the burden and alleged unfairness of this tax? That's what proponents say in their ads and editorials.

A common argument made by proponents is that the Estate Tax is unfair because it taxes income twice. This deception is designed to further the notion implied by misleadingly referring to the tax as the "Death Tax". The inference being that the state is taxing the money of the dead individual. Seen from that view point it would seem pretty grim to be taxing a corpse.

However, that is a lie and it completely distorts what is happening. The Estate Tax does not affect the corpse which, we can safely assume, has no more use of money. Rather what it does is it taxes the income of the heirs - unearned income, mind you. In other words, say you inherit $10 million from your wealthy uncle. That's $10 million in income to your pocket. You are being taxed on your income. And, you're only being taxed on $6 million of that $10 million total. You're still getting a helluva income. You're just not getting the whole shebang. It's like winning the Lotto and taking the cash payoff in a lump sum rather than over 20 years. Sure, your original jackpot was $10 million, but because you want it all now, you get around $6 million.

To say that the state is being unfair when it taxes an heir's income is ridiculous. The claim that the money is being taxed twice is completely specious because the person being taxed is not the corpse, but rather the heir. Once that is realized, then the argument falls apart. Where's the unfairness? Hey, my income is taxed twice and I bet most people's income is taxed at least twice. For instance, a newspaper company pays taxes on it's income, right? And it uses it's income to pay employees, right? Then the employee pays an income tax as well, right? Is that money taxed twice then? And what happens when that employee makes purchases and pays a sales tax? Is that money taxed a third time?

See the ridiculousness of that argument? After dispensing with that position, there is no further argument for repealing the Estate tax other than "I'm a rich person or an heir to a rich person and I want to keep my money." In essence, that's what Seattle Times editor Frank Blethen is saying when he argues to repeal the tax. Blethen's family is only worth a fraction of what the Gates family is worth and his won't pay as much in Estate taxes, yet he whines about fairness while Gates views it as paying a debt to a society that allowed him to achieve.

To make matters worse, the money from Estate taxes in Washington is earmarked for education. At a time when Washington school districts are scratching for funding, Blethen wants to cut one source of that funding. He says it's about "fairness" but how fair is it to shift the burden of that lost funding onto the backs of people who are less fortunate than his family? The money has to be made up somehow and his paper is forever and a day claiming that the education system is under funded and in trouble.

For shame, sir, for shame.


Scott said...

I like the term death tax. I want a death tax on those that scammed out of taxes in their lives. They may want to take it with them, but I say, let's tax them at least once!

B.D. said...

Amusing because there's some truth to that.

I noticed a mistake in my original post when I used the lottery example. In that example, I use a tax of 40% on unearned income. While close to being correct for the lottery, it is far from being correct for the Estate tax which has a top rate of only 19%.

Also of note is that KUOW last night replayed a portion of the debate between Bill Gates, Sr. and Blethen. The latter claimed that Washington state was losing a competitive edge to other states due to this tax. Gates, Sr. pointed out that those states have income tax (something he favors by the way since it is a progressive tax) and if Blethen's friends want to pay income tax rather than estate taxes, then more power to them.

Blethen also indicated that he'd likely spend the money he saved on the Estate Tax in our community. This is, of course, hardly the case. Likely that he might invest some of it locally, but unlikely is that his trickle down economic funds would end up benefiting many Washington residents.

In this debate Blethen reveals himself as the person he truly is: do as I say, not as I do. A mentality all too common with the wealthy - that of privilege over substance. I still say, for shame, sir.

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