Class Warfare

From Jim Webb, in the opinion section of the Wall Street Journal Online:

"The most important -- and unfortunately the least debated -- issue in politics today is our society's steady drift toward a class-based system, the likes of which we have not seen since the 19th century. America's top tier has grown infinitely richer and more removed over the past 25 years. It is not unfair to say that they are literally living in a different country. Few among them send their children to public schools; fewer still send their loved ones to fight our wars. They own most of our stocks, making the stock market an unreliable indicator of the economic health of working people. The top 1% now takes in an astounding 16% of national income, up from 8% in 1980. The tax codes protect them, just as they protect corporate America, through a vast system of loopholes."

Though his opinion is politically motivated, and goes on to lay the blame squarely on the Republican party, the thesis is correct. The rich are getting richer, the poor are staying poor, and the middle class is slowing disappearing. The agent of the rich, of course is the government, the weapon, is the tax code.

The strange thing is that they are doing this without a fight. The reason is simple--taxes are boring, and nobody likes taxes. One poll I found showed that 85% of Americans were for the permanent repeal of the Death Tax.

Statistics show that the tax currently effects less than 3% of families--the 3% with estates valued over $1.5 million.

I had to search very hard to even find an argument against--but did come across this well written article by Diane Lim Rogers, in the San Francisco Chronicle:

"'Death tax' repeal unfair to those who owe 'birth tax'
Diane Lim Rogers

Wednesday, May 31, 2006

Despite the political gridlock in Congress that has already stymied many tax and spending bills this spring, Senate Majority Leader Bill Frist, R-Tenn., has announced his intention to schedule a Senate vote on repealing or further cutting back the estate tax sometime in June. The House of Representatives already passed permanent repeal last spring.

Estate-tax legislation keeps coming up during each session of Congress, because the entirety of the 2001 tax cuts -- including a gradual phase-down of the estate tax (to eventual repeal) -- expire after 2010. Talk of a "compromise" coming out of the Senate has centered around how much estate-tax relief to maintain from here forward. There's been no talk of allowing the law to sunset and returning to the pre-2001 estate-tax levels. But some will keep insisting on permanent repeal.

Many members of Congress have taken to referring to the estate tax with the "populist" label, "death tax," and have suggested that all Americans should worry about facing this tax when they die.

Well, the estate tax may be appropriately called a "death tax" for the super rich, but for the vast majority of Americans, there is no tax due at death. The total U.S. population stands at nearly 300 million, and in recent years there have been around 2.4 million total deaths per year. The Urban-Brookings Tax Policy Center estimates that this year, with the estate-tax exemption level up to $2 million (or $4 million per married couple), there will be only 12,600 taxable estates. In other words, a mere one-half of 1 percent of deaths (or 1 in 200) will be assessed any estate tax. Calling this a "death tax" -- as if it applies to all, or even many, Americans who die -- is truly false advertising.

To put this in perspective, according to the National Center for Health Statistics, in recent years more than 18,000 people per year have died from an accidental fall. In other words, an American is 50 percent more likely to die from falling than to die owing a dime of estate tax.

So the estate tax actually affects a very small number of the wealthiest of families, just as it was intended to do. Under the law, it will affect a smaller and smaller number of families from now through 2009, when the exemption level reaches $3.5 million ($7 million per couple), and fewer than 1 in 300 of the deceased (only 7,200) will incur any estate-tax liability. Because the distribution of wealth is so highly skewed, however, the estate tax at its higher exemption level would still collect $16.3 billion for the government in 2009 -- or almost 90 percent of this year's estate tax revenue -- even though there would be fewer than 60 percent of this year's number of estate taxpayers.

So the difference between outright repeal and an higher exemption level than written into the law is small in terms of the number of households who will be relieved of the tax (everyone versus almost everyone), but huge in terms of lost revenue.

For almost all American families, repealing or reducing this tax would not provide any tax relief. Yet permanent repeal of the estate tax would cost the American people nearly $1 trillion in tax revenues, including interest, in the course of just the first 10 years of extension, from 2012 to 2021. Over several decades, this would add trillions of dollars to a total national debt that has already reached $8.5 trillion. (A compromise of establishing a higher exemption could cost much less than repeal, yet still could produce a substantial loss of revenue.) This is what all Americans should pay attention to when it comes to the subject of the "death tax." Repeal of the estate tax would only worsen the financial burden that our children and grandchildren will have to bear -- a message that the U.S. Senate should hear.

The problem is that there is no such thing as a free tax cut, unless -- ironically in this case -- you die before the bill comes due. It is those born into our current fiscal quagmire who can't avoid the burden -- an inherited share of the public debt that is, to date, $28,000 per American, and rising. However, this amount probably understates the burden on the youngest and yet-to-be-born Americans, because the commitments to programs such as Social Security and Medicare will rise over their lifetimes. By adding to the debt, estate-tax repeal would eventually raise this per-person burden -- the "birth tax" -- by thousands of dollars over their lifetime (including more than $3,000 from just the first 10 years after it would take effect).

This "birth tax" is a true cost imposed on all American babies. It cannot be repealed, no matter how upset Americans eventually get about it. Through the harmful effects of deficits on national saving, these future adults will be less likely to have the means to pay off these debts and are in danger of facing a lower standard of living than adult Americans today.

So repealing the estate tax would swap a "death tax," which affects hardly anyone and has been found to have little effect on economic decisions, for a higher "birth tax," which would be universal and seriously detrimental to future economic growth. "

Diane Lim Rogers is the research director for Budgeting for National Priorities at the Brookings Institution in Washington, D.C.

I think Ms. Lim has finally found the way to get the point across. It's not the repeal of the death tax that is being determined, its the implementation of "the birth tax".