The estate tax is so very incredibly easy for the rich to avoid that they have spent tens of millions year after year for decades trying to have it eliminated.
It’s so easy to avoid that the republican party has made eliminating it one of its big policy goals. They actually did ramp it down to zero for a year under Bush the lesser. For reasons that cannot be explained given that it is so easy to avoid it came back a year later because eliminating it was deficit inducing and the rules under which they eliminated it required it to be ‘deficit neutral’ at some point in the future.
Yes, its a policy that doesn’t matter, yet it is very bad that the Republicans are going to make another (doomed) run at getting rid of it this year.
Gosh, that sounds kinda stupid doesn’t it?
Maybe the billionaires want you to think the estate tax is easy to avoid so you won’t resist eliminating it? Maybe it’s marketing. Maybe a lot of tax avoidance takes the form of switching taxes paid from one form to another so in the face of an inheritance tax some income will be manipulated into being capital gains or regular income or whatever and taxed at those rates, but if you were stupid enough to eliminate the inheritance tax it would instead be taken as inheritance taxed at zero.
Maybe we ought to stop repeating the evil billionaires marketing points, eh?
I wouldn’t argue with the idea you propose…but in a capitalistic society (as we are in)…money is the common denominator and it’s far easier and simpler to just tax that…or the goods/services which are a proxy for money.
Until we migrate to a life altering global economy like you see in Star Trek or something, we are going to have to work with the system we have and find ways to fix it; not just keep breaking it more like we’ve been doing.
They aren’t lazy; they’re “job creators”, “captains of industry”, “visionaries”, “forward thinkers”. All that is really hard work, I’ve been told. By them, and those that want to be them.
But low wages, affordable healthcare options, affordable education, housing solutions for the homeless… that shit’s HARD, yo!
Meanwhile, unless things radically change between now and when I croak, I can at least assure everyone that my heirs won’t be living the high life on what I leave behind. Taxed or not.
It’s the definition of “invest” that really needs to change. Having a reduced rate on actual capital investments doesn’t sound so bad. Take that spare money, loan it to a company so they can buy some capital items and they pay you back, sounds great.
Take that same spare money, play a hand of blackjack with it. Doesn’t sound much like a capital gain if you win. Yet, that’s effectively exactly what you’re doing buying stocks. Unless you’re buying the IPO or new issue shares, none of what you’re paying goes to the company to invest in anything. When you sell it to the next guy (for more or less), the company didn’t get anything out of that transaction. Treated the same as income, regular interest, or gambling winnings income would all make more sense.
Actually, that demographic has had their defined benefit retirement completely replaced with a 401K that’s going to be all capital gains when they retire. See above though, it’s not really investing in capital improvements, and should probably just be called income. (Retirement Blackjack). Edit: I screwed this one up, it’s already treated as regular income, as pointed out below. Which reinforces the point that it should change for everyone to regular income.
I like a nice high number. People have no idea what things really cost and what “rich” really means. Start lowing the number, and they start to think the family down the street that’s technically in the top 1% is also hiding a private jet and NY penthouse they don’t know about. As big as the difference is between the 99% and 1%, it’s just as big between the 1% and the .1%. Technically, in RI at $346,657 and in MA at $582,774 you’re in the 1%. But, nobody at that level is buying a jet, yacht, or NY penthouse. (They’re super well off, don’t get me wrong. But, they’re not the Lifestyles of the Rich and Famous.)
That sounds fine, as long as there are some carve outs. I know, the nuance makes it a pain, but there’s some real value in here. The small farmer sitting on 100+ acres of land that’s valued over $5M but is farming it actively and not clearing enough to pay the taxes. We don’t really want to force them to sell it to get the cash. Better to simply set a basis that’s low enough so if they do sell it, the gain can be taxed. This way, if they keep working it, no issue, if the convert it all though, taxed just fine. Same for other types of working assets. The small business owner that leaves his kids a $10M company, they didn’t really get $10M unless they sell it or strip it for it’s assets.
Both of those examples are very different from a trust fund that’s all liquid. Or any financial instrument that’s just paper and not working. See the first item. If it’s just stock, that’s not working for anyone and might as well be liquid that can be sold.
I realize that would need some rules around what can be liquidated or not, or setting cost basis and probably rules around what’s just a luxury item vs actual working resources. Don’t really want people putting all their money in art to avoid having to liquidate. And is a rental property the same as the house you live in? Or an LLC that’s technically the company, but all they do is hold the financial instruments.
Maybe it’s just as simple as “is it a working business or not”. Or setting the value high enough that selling something doesn’t matter. But, if small business make the economy work, we don’t want to force the liquidation of small businesses everytime they’re handed down. Maybe it’s just defining what “small” is.
Taxing workers more than investors is fair, conservatives also argue, because investors and workers are really the same people at different stages of their lives. When you’re young, you save and pay high tax rates on your wages. When you’re old, you get to enjoy the lightly taxed proceeds of that invested income.
This argument also assumes that inflation is non-existent and all young workers actually earn a wage high enough to save anything at all. Oh right, wealthy conservatives never argue in good faith when there is money within their grasp
Well, yes. You are investing your money, by buying a small share (literally!) of the company, all of its property and its current and future profits. And that’s why buying stocks is not a game of blackjack, where money just gets shifted around but nothing new is generated.
(Yes, you can gamble in the stock market, in various ways; mostly, that’s a good way to lose money.)
While you’re technically buying a part of the company, it’s so far removed that it hardly matters. If they provide dividends, you’re getting that. But, you’re not really getting anything else that we would think of as part of ownership. At least not unless you’re investing huge monumental sums.
If I buy a share of IBM. I’ll get an IBM quarterly dividend. And, that’s about it as far as ownership rights. No matter the price I pay for the share, unless it’s a brand new share offered by IBM, IBM will not get any of the money. Technically, I’ll get to vote too, but it’ll hardly matters. To control even 1% of the IBM shares and get that little voting influence, I would need to buy over 9 million shares for more than a billion dollars.
Let’s say I invest $50,000 in IBM. IBM will get nothing from it. I’ll get about 370 shares. In 2018, that would have gotten me $2,300 in dividends. And, I’ll be able to vote 0.00004% of the total shares to influence my ownership rights. If the price goes up 5% and I sell, I’ll make another $2,500. If it goes down 5% and I sell, I’ll lose $2,500 wiping out the dividend gain. In either case, none of the buyers money goes to IBM either. IBM’s stock price easily swings more than 5% over the course of a year based on the trading whims of the market more than anything actually done by IBM directly.
It definitely looks more like gambling than investing in the company allowing them to make capital improvements.
You can make what even the market thinks of as gambling trades, things that have more an more risk, volatility, and exposure. But, that doesn’t mean the rest of it is any less of a gamble.
Generally, I’m with you, except for this part. What is the rationale for taxing investment income less than earned income? I’m curious.
The argument I’ve heard before is that we don’t want to discourage investment. However, it seems to me that money made that doesn’t require any active effort > money made that you have to work for. Investment income is always better than income you had to actively work for.
Let’s put it another way: I have a choice A: to earn $100k per year in investment income in a mutual fund or B: $100k per year in a typical 60 hr/week office job. I’ll take A every time. That’s basically retirement! I’m going fishing…
Let’s say you have $1,000,000. You can invest it, you can spend it, or you can put it in a sock under your bed.
If you put it in a sock under your bed, it does no one any good. From a societal standpoint, this is the least useful thing to do with the money. But for you personally, it means that you’ll always have it.
If you spend it, it helps the economy a bit. This is a bit more useful from a societal standpoint. But if you spend it, you can’t have it later, so personally, this is the worst solution, because then you will have to get more money somehow.
If you invest it, it helps generate even more economic activity than if you spend it. From a societal standpoint, this is the best way, it’s like spending it on crack! And from a personal standpoint - not only will you (probably) have the money later, but you’ll have even more money later!
Thus, from a societal standpoint, we want to make this the best option. We want to make putting it under a mattress the worst option. We want to make spending it an option too.
Remember, all tax deductions and strategies are done with the purpose of driving societal behavior, often times as much as raising revenue; which most people forget about. That’s why we have a big tax deduction if you buy an electric car or install solar panels or make energy efficient home remodels or buy a home or give to charity or give shelter to someone who was displaced from a hurricane. (I mean, there are some misfires in the tax code, but it all sounded good to someone at some point.) (Also, Trump is an idiot.)
Taxing unearned income less than earned income promotes saving and investing instead of spending, which makes it more likely that you will contribute more to the economy, buy more stuff later for longer, and that you will be less likely to require government assistance.
Also - it makes it easier to retire, which frees up another job for someone else. Keeping that tax rate lower means that you are more likely to be able to get by on your savings which makes it more likely that some day you’ll say “I’d rather be out fishing”, which frees up your job for someone else, lowering unemployment.
You put a lot into constructing this scenario and just stated the main point in the middle with no explanation.
Suppose I spend the $1M to buy $1M of IBM stocks, thereby giving the $1M to another person who already had around $1M in assets but giving IBM no money to put to use in their business. Explain how this is better for society than spending the money.
But that’s not the comparison. The comparison isn’t, what do I do with money I have lying around. It’s what should be taxed more - money I make from building things (earned income) or money that I make from investing money I have lying around (unearned income).
What makes that investment income more valuable to the common good, thus incentivized by lower taxes, compared to production income, made by the blood and sweat of my labor?
The reason I ask is, I think I know the answer. Nothing. In fact, we really should be incentivizing people to make things and to be productive, not incentivizing people to to make unproductive capital slightly more productive.
When investments were limited to brick-and-mortar factories and trading ships, you could almost argue investment income was equal in value to income earned with labor. After all, the investment helped to create the environment where people could make and trade things, thus earning from their labor. But in a modern financial system, the VAST majority of investment goes into imaginary value far, far removed from enabling labor income. Why the hell do we value unearned income over labor? Because the people with the capital to cruise along with investment income have captured the government and wish it to be so.
Well there is the cynical answer that most people’s blood and sweat labour is not really up to much, better to encourage people to invest in those whose labour is worth something. Quite frankly if we could get, say, Donald Trump to just let someone who knows what they are doing look after his money, we’d all be better off, right?
That is part sarcasm but partly genuine. The reality is that we don’t actually need all of us beavering away as good little worker drones. We haven’t done for decades if not longer.
Incentivising more of us to ‘earn’ our income is really no benefit to anyone.
The question of why we let people and businesses keep vastly more money than they possibly need while letting them get the benefit of publicly funded infrastructure without ensuring that it is fully funded is another question…
Another way to consider your question is - it is possible to argue that lower tax rates for ‘investment’ income are intended to incentivise people to make things and be productive.
Contrary to what big businesses would like people to believe (in most countries at least, I can’t swear to the position in the US), most companies are not multi-billion or even multi-million publicly traded entities.
Most companies are one or two man/woman bands with perfectly ordinary businesses like plumbers and construction workers, sandwich shops, unicycle makers, etc. set up as limited companies mainly for the limited liability protection - and also for the fact that taking your ‘earnings’ as dividends rather than a wage is often more tax efficient than just being Joe Bloggs the self-employed plumber.
Those people get the benefit of ‘investment’ income just as much as any plutocrat resting on their invested wealth.
This is a point I struggle with too. The best I can come up with is:
Society benefits if those who have ideas/products are able to obtain finance to make them a reality.
Being able to obtain finance via the capital markets is a societal good.
In order for people to have confidence in investing in capital markets, it is important that shares are freely tradeable so that people can invest knowing that if they change their mind on the utility of the investment or circumstances change they can get their money out (and the company doesn’t have to hand the money back which could put them under which would not be good for society).
Therefore it is good for society as a whole for people to be able to buy $1,000,000 of IBM stock even if IBM gets no additional benefit from the transaction.
It is better for society than simply spending the money because it is supports society in a more structural way - it upholds the confidence in the market generally, making it more likely that other businesses can flourish, whereas spending the money directly only supports those businesses you buy from.
Does that work?
It’s not particularly convincing to me.
Certainly I don’t see that it’s necessarily enough better to make it worth giving it special tax treatment.
