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September 19, 2005

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Just to put it in more understandable terms, based on lost revenue and extra interest to pay for the national debt caused by the lost revenue, in the 17 years from now until the end of 2021, the Treasury will lose - if the estate tax is permanently gutted - $1.35 billion EACH WEEK.

That is just little less than what Iraq currently costs us.

So why would so many Senators and Representatives vote to repeal estate taxes to the detriment of nearly every one of their constituents?

Because they are told to and they don't have a spine.

Who has the longer learning curve - Bush or Congress? Both are longer than the American people.

Great post Mimikatz. While I support the ceiling at around 1 million, it also needs to be said that one of the reasons why prices of average homes are rising so much is because of an already-unsustainable and unfair financialization of our economy. So I'd hesitate to keep the cap much higher. For all the very affluent 1 million dollar homeowners, we're getting more and more very poor, partly as a very indirect result.

While we're discussing money, can someone explain the assumption that we'll need to fix the Alternative Minimim Tax? Again, the logic is the same, that more and more middle class families qualify for the AMT. But is the AMT so onerous that upper middle class shouldn't be paying that tax? This is something I've never seen questioned, though, so I may be missing something.

It's stronger when you mention merit, when you say in some way that recipients of the estate tax shouldn't get a free ride instead of contributing to American society through a productive working life like all Americans. Because we're all in this together.

Emptywheel: Yes, there are good reasons to have the estate tax exemption at $1 million, although I fear that it would leave too much of the family farms and businesses that have been exploited in the pro-repeal PR campaign exposed to the tax. With a $2M cap, that faction is substantially reduced.

On the AMT, it was designed to keep the wealthy from escaping a fair share of taxes due to tax shelters. The problem is that it was never indexed for inflation. Now it hits "ordinary" upper middle class people and exposes them to a higher tax rate than those with higher incomes that is mostly investment income and who have fewer deductions. To figure your liability under the AMT you add back in deductions for state and local taxes and mortgage interest. If those deductions are above a threshold, you have to pay the AMT. This hits people hardest in (blue) states with high taxes and high property values such as NY and California. That is why it is considered a "blue state" tax. These states, of course, already provide the federal gov't with much more in tax revenue than they get back in programs, so not fixing the AMT is just another way of transfering money from the blue states to the red states, and it makes it all the more difficult for those blue states to provide their citizens with high-quality educational institutions and other services that they want and are willing to fund.

Damn you're good, Mimikatz. Thank you for that.

Maybe the approach, though, should be a rethinking of what we value in society and how we protect it. Because, onerous as the real estate prices are on the coasts, the mortgage deduction still can mean that a middle class person pays less in housing than a working class person, because the latter doesn't have the ability to buy a house (I know it can happen because it happened to me when I quit working and went to grad school in a fairly expensive city). And as the prices of houses go up in the bay area, it will mean more and more middle class people are paying tons of money for studios without getting the mortgage deduction. I wonder what would happen if the mortgage deduction did disasppear--would prices come down? Would it have the effect of leveling out wages?

Similarly, couldn't we address the family farm question in such a way that we're really helping the smaller farms up their noses in debt (which includes some of the million dollar farms, but has a lot more below those levels).

There are evidently provisions in the estate tax for deferring or reducing taxes on family farms and businesses that stay in the family to minimize the need to sell the business to pay the taxes. That is the essential knock on the tax at the $1-3.5M level. Actually, prices are SO high on the west coast that it is now cheaper to rent than buy. You can pay $800,000 for a 900 sq ft house in a reasonable neighborhood. Loss of the mortgage deduction would cause house prices to come down, as would higher interest rates. It is kind of like gas taxes--people say we should reduce gas taxes to keep the price down, but the price will have a way of finding its maximum effective point, and the difference will just go to the oil companies not the gov't. Here the difference is now going to sellers, but soom the mortgage companies will be making more.

In terms of making things fairer, I would like to see steeper top rates and an end to the preferential tax on dividends and capital gains. Maybe some preference for long term gains, but I'd much rather go back to the old system of having the first x amount of dividends be tax-free (in the '60s it was $600) and the rest taxed at ordinary income rates. Wages and salaries are taxed twice, for Social Security and income taxes, while dividend income is taxed once, and that only at 15% tops. That is REALLY unfair.

Great post Mimikatz.

the mortgage deduction still can mean that a middle class person pays less in housing than a working class person, because the latter doesn't have the ability to buy a house

The price of buying a place is outrageously expensive in all the big cities (especially on the W. Coast, but here in Chicago, too). But in the rest of the country, lots of pretty moderate-income people own houses now, and they certainly couldn't do it without the deduction. Whether you think the explicit official encouragement we've seen in recent years for everyone to buy instead of rent is good or bad in the long run is another question (I think it's good, overall).

Actually, prices are SO high on the west coast that it is now cheaper to rent than buy.

That's the case in Chicago, too. I owned a nice house in the dread burbs for a few years and couldn't stand it (the burbs); it's MUCH cheaper for me to rent in the city than to own.

I'd much rather go back to the old system of having the first x amount of dividends be tax-free (in the '60s it was $600) and the rest taxed at ordinary income rates.

How do you feel about the cap. gains exemption for the first $250k you get from selling a house you've lived in for three years? Should that be a lower amount? Or the same? Kind of gets back to 'wheel's point a little.

Wages and salaries are taxed twice, for Social Security and income taxes, while dividend income is taxed once, and that only at 15% tops. That is REALLY unfair.

I was having an argument today with a flat-tax/crypto-libertarian true-believer, the kind of person who, even though we're talking via a blog, still palpably screams '19 years old and bow tied'. Not very nice of me to say, but..hey, sorry. People like him think progressive taxation is immoral, but don't have a problem with having a lower effective rate for really wealthy people than for people who actually work for a living. I was a little hard on him (not in a personal way) because I've just had it with this shit! These people, just like 'dominionist' christians, demand respect, not due to their shit making practical sense or being fair, but because they really really believe it. It's fantasy! You have to be a very rich country to get away with being this infantile, and this..well, just plain weird.

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