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loganmule · 07-10-2005, 07:45 AM

Smooth, your posts on this have been excellent, although admittedly you have been preaching to the choir. I, too, would like for Galt to provide sound reasons for his position.

Given the disparity existing between the very rich and all of the rest of us, the reality is that the very rich are going to shoulder a higher tax burden. This may be seen as "unfair" to the rich, but there simply won't be enough money to fund government otherwise. My take on this is that we should look at taxation options which are efficient, in the sense of encouraging people to work to support themselves and acquire personal wealth, so that the government (i.e, we the people) don't have to bear that cost.

I wrote to my U.S. Senators, Bayh and Lugar, both of whom supported estate tax repeal, to ask them to oppose it this time around. Here's what I wrote to each of them:

"Dear Senator Bayh:

I am writing to request that you oppose estate tax repeal, and if politically viable, to suggest an increase in it to affect the wealthiest Americans.

What the House of Representatives did still shocks me, particularly when a reasonable compromise was offerred as an alternative. My hope is that the error won't be repeated in the U.S. Senate.

I'm a conservative attorney who does estate planning, among other things, and in that capacity, I see some good reasons for imposing tax on the estates of the very wealthy (pick a number...10 mil or whatever). First, the person who made all that money is dead...there's no deterrent to a corpse to take money back in taxes if he made too much. Second, the repeal would reinstate carryover basis...problematic for practitioners, and a burden on those who otherwise wouldn't be paying anything (eg, estate consisting only of 1 mil in farm ground having a basis of 100k results in 900k capital gain to heirs upon sale, which would be avoided entirely by current stepped up basis). Third, the bottom will drop out of charitable giving (currently, it's easy to tell a client in the maximum bracket that a charitable gift will have no net cost to the heirs). Finally, there is the inefficient "rich kid" syndrome...lots of times second and third generation heirs live on and spend down their inheritance, when maybe they otherwise would be motivated to do something.

Neither does it make sense politically to repeal the estate tax. As you know, the exemption amount already is $1,500,000.00, and this will increase to $2,000,000.00 next year, if the law remains unchanged. Only a handful of people in my county have a sufficient level of wealth to need estate tax planning at that level, and most of them are able to minimize, if not eliminate, the potential tax on their estates. In light of this, it's hard to view estate tax repeal as anything other than a break for the very wealthy at the expense of the little guy, who then would potentially incur capital gain tax on an inheritance.

Estate tax has been referred to as a form of socialism, but that can be said of all "progressive" taxes imposing a greater burden upon the wealthy, eg, graduated income tax rates. Some redistribution of wealth is necessary, and given the extreme gap between the few of great wealth and the many in the middle class or below, generating enough taxes to fund our government must be progressive. The object should be to opt for a system of taxation which is efficient and provides incentives to workers. I'd rather have lower income taxes during my lifetime and incur a substantial tax on my estate (eg, graduated to 70% or more) above a reasonable amount. Does it make sense to be able leave your family a generous inheritance on a tax free basis (eg 10 mil), knowing your estate will take a huge tax hit above that, but enjoy less tax during lifetime in the bargain? Absolutely, in my opinion.

I appreciate your allowing me to share with you my thoughts on the estate tax issue. Please consider them, for what they may be worth, when you are called upon to take a stand for Hoosiers on the question of repeal."

Here's what Bayh wrote back:

> Thank you for contacting me about the estate tax. I
> appreciate your thoughts on this important matter.
>
> I believe the estate tax can discourage investment and hard
> work. It can also have a harmful effect on family-owned
> businesses and farms. Hoosier families should be able to pass
> along their farms or small businesses to the next generation, rather
> than being forced to sell them to pay the estate tax. It was for these
> reasons that when the permanency of the estate tax repeal came up
> for a vote in the Senate in June of 2002, I was one of nine
> Democrats to vote in favor of full and permanent repeal. At that
> time, there was a projected surplus of $1.6 trillion from 2003
> through 2012, making the elimination of this tax compatible with
> balanced budgets and preserving Social Security and Medicare.
>
> As you know, the fiscal condition of this country has
> deteriorated sharply since that point. The most recent
> Congressional Budget Office estimates project a federal deficit of
> $368 billion during Fiscal Year 2005. The return of structural
> deficits on the eve of the Baby Boom retirement is a deeply
> troubling development that requires immediate attention on both
> sides of the aisle. While I continue to support the goal of
> permanently repealing the estate tax, I will evaluate the
> accomplishment of this goal in light of the current fiscal condition
> of this country.
>
> Thank you for contacting me. I hope the information I have
> provided is helpful. My website, http://bayh.senate.gov, can
> provide additional details about legislation and state projects that
> may be of interest to you. I value your input and hope you will
> continue to keep me informed of the issues important to you.
>
> Best wishes,
>
>
>
>
>
>
> Evan Bayh
> United States Senator

Not to let his statement about the potential harm to Hoosier farmers and small businessmen go unchallenged, I wrote again:

"Senator Bayh:

Thank you for your reply.

I know of your position on the estate tax repeal. Your reasons for supporting it are valid, and need to weighed against the grounds suggesting a potential net benefit in retaining it in some form.

I suggested a $10mil unified credit exemption amount. In my experience, this would be sufficient to exempt Hoosier farmers and small business owners, so that their estates could pass intact to their heirs. While anything over $10 mil isn't "small," in my opinion at least, additional protection could be afforded to Hoosier farmers and businessmen in the form the the special use valuation, family owned business exemption, and installment payment of tax. As for discouraging investment and hard work, studies demonstrate that productivity and time spent working generally decline, as individuals attain sufficient wealth to amply provide for themselves and their families.

Total repeal of estate tax, with the reinstatement of carryover basis, clearly favors the very rich (and therefore the very powerful) over the other 99% plus Hoosiers. The few holding extreme wealth get to trade down to at most capital gain rates upon the disposition of property, while all other Hoosiers end up exposed to taxable gains on inherited property which otherwise would pass tax free to them, even under the relatively low current $1.5mil exemption amount.

I agree with you that in a time of huge deficit spending, cutting taxes would be imprudent, and shouldn't be considered until our government can be operated at a true surplus (i.e., surplus funds without borrowing from social security tax revenue). Should that time come, however, I would ask that you carefully weigh the adverse impact which estate tax repeal would have upon the vast majority of Hoosiers.

Thank you again for your consideration of my thoughts on this matter."

Give Bayh credit for responding again, this time with the generic "thanks for your input, I'll carefully consider it" message.

Estate tax impacts only a very few, but they have LOTS of money, and the political power that goes with it. In a perfect world, I would hope to see the exemption go up to somewhere between 5mil and 10mil, indexed for inflation, with an increase in the graduated rate to a higher maximum, e.g., 70%. In the world we live in, it will be a victory to simply prevent repeal.

07-10-2005, 07:45 AM	#25 (permalink)
loganmule Junkie Location: midwest	Smooth, your posts on this have been excellent, although admittedly you have been preaching to the choir. I, too, would like for Galt to provide sound reasons for his position. Given the disparity existing between the very rich and all of the rest of us, the reality is that the very rich are going to shoulder a higher tax burden. This may be seen as "unfair" to the rich, but there simply won't be enough money to fund government otherwise. My take on this is that we should look at taxation options which are efficient, in the sense of encouraging people to work to support themselves and acquire personal wealth, so that the government (i.e, we the people) don't have to bear that cost. I wrote to my U.S. Senators, Bayh and Lugar, both of whom supported estate tax repeal, to ask them to oppose it this time around. Here's what I wrote to each of them: "Dear Senator Bayh: I am writing to request that you oppose estate tax repeal, and if politically viable, to suggest an increase in it to affect the wealthiest Americans. What the House of Representatives did still shocks me, particularly when a reasonable compromise was offerred as an alternative. My hope is that the error won't be repeated in the U.S. Senate. I'm a conservative attorney who does estate planning, among other things, and in that capacity, I see some good reasons for imposing tax on the estates of the very wealthy (pick a number...10 mil or whatever). First, the person who made all that money is dead...there's no deterrent to a corpse to take money back in taxes if he made too much. Second, the repeal would reinstate carryover basis...problematic for practitioners, and a burden on those who otherwise wouldn't be paying anything (eg, estate consisting only of 1 mil in farm ground having a basis of 100k results in 900k capital gain to heirs upon sale, which would be avoided entirely by current stepped up basis). Third, the bottom will drop out of charitable giving (currently, it's easy to tell a client in the maximum bracket that a charitable gift will have no net cost to the heirs). Finally, there is the inefficient "rich kid" syndrome...lots of times second and third generation heirs live on and spend down their inheritance, when maybe they otherwise would be motivated to do something. Neither does it make sense politically to repeal the estate tax. As you know, the exemption amount already is $1,500,000.00, and this will increase to $2,000,000.00 next year, if the law remains unchanged. Only a handful of people in my county have a sufficient level of wealth to need estate tax planning at that level, and most of them are able to minimize, if not eliminate, the potential tax on their estates. In light of this, it's hard to view estate tax repeal as anything other than a break for the very wealthy at the expense of the little guy, who then would potentially incur capital gain tax on an inheritance. Estate tax has been referred to as a form of socialism, but that can be said of all "progressive" taxes imposing a greater burden upon the wealthy, eg, graduated income tax rates. Some redistribution of wealth is necessary, and given the extreme gap between the few of great wealth and the many in the middle class or below, generating enough taxes to fund our government must be progressive. The object should be to opt for a system of taxation which is efficient and provides incentives to workers. I'd rather have lower income taxes during my lifetime and incur a substantial tax on my estate (eg, graduated to 70% or more) above a reasonable amount. Does it make sense to be able leave your family a generous inheritance on a tax free basis (eg 10 mil), knowing your estate will take a huge tax hit above that, but enjoy less tax during lifetime in the bargain? Absolutely, in my opinion. I appreciate your allowing me to share with you my thoughts on the estate tax issue. Please consider them, for what they may be worth, when you are called upon to take a stand for Hoosiers on the question of repeal." Here's what Bayh wrote back: > Thank you for contacting me about the estate tax. I > appreciate your thoughts on this important matter. > > I believe the estate tax can discourage investment and hard > work. It can also have a harmful effect on family-owned > businesses and farms. Hoosier families should be able to pass > along their farms or small businesses to the next generation, rather > than being forced to sell them to pay the estate tax. It was for these > reasons that when the permanency of the estate tax repeal came up > for a vote in the Senate in June of 2002, I was one of nine > Democrats to vote in favor of full and permanent repeal. At that > time, there was a projected surplus of $1.6 trillion from 2003 > through 2012, making the elimination of this tax compatible with > balanced budgets and preserving Social Security and Medicare. > > As you know, the fiscal condition of this country has > deteriorated sharply since that point. The most recent > Congressional Budget Office estimates project a federal deficit of > $368 billion during Fiscal Year 2005. The return of structural > deficits on the eve of the Baby Boom retirement is a deeply > troubling development that requires immediate attention on both > sides of the aisle. While I continue to support the goal of > permanently repealing the estate tax, I will evaluate the > accomplishment of this goal in light of the current fiscal condition > of this country. > > Thank you for contacting me. I hope the information I have > provided is helpful. My website, http://bayh.senate.gov, can > provide additional details about legislation and state projects that > may be of interest to you. I value your input and hope you will > continue to keep me informed of the issues important to you. > > Best wishes, > > > > > > > Evan Bayh > United States Senator Not to let his statement about the potential harm to Hoosier farmers and small businessmen go unchallenged, I wrote again: "Senator Bayh: Thank you for your reply. I know of your position on the estate tax repeal. Your reasons for supporting it are valid, and need to weighed against the grounds suggesting a potential net benefit in retaining it in some form. I suggested a $10mil unified credit exemption amount. In my experience, this would be sufficient to exempt Hoosier farmers and small business owners, so that their estates could pass intact to their heirs. While anything over $10 mil isn't "small," in my opinion at least, additional protection could be afforded to Hoosier farmers and businessmen in the form the the special use valuation, family owned business exemption, and installment payment of tax. As for discouraging investment and hard work, studies demonstrate that productivity and time spent working generally decline, as individuals attain sufficient wealth to amply provide for themselves and their families. Total repeal of estate tax, with the reinstatement of carryover basis, clearly favors the very rich (and therefore the very powerful) over the other 99% plus Hoosiers. The few holding extreme wealth get to trade down to at most capital gain rates upon the disposition of property, while all other Hoosiers end up exposed to taxable gains on inherited property which otherwise would pass tax free to them, even under the relatively low current $1.5mil exemption amount. I agree with you that in a time of huge deficit spending, cutting taxes would be imprudent, and shouldn't be considered until our government can be operated at a true surplus (i.e., surplus funds without borrowing from social security tax revenue). Should that time come, however, I would ask that you carefully weigh the adverse impact which estate tax repeal would have upon the vast majority of Hoosiers. Thank you again for your consideration of my thoughts on this matter." Give Bayh credit for responding again, this time with the generic "thanks for your input, I'll carefully consider it" message. Estate tax impacts only a very few, but they have LOTS of money, and the political power that goes with it. In a perfect world, I would hope to see the exemption go up to somewhere between 5mil and 10mil, indexed for inflation, with an increase in the graduated rate to a higher maximum, e.g., 70%. In the world we live in, it will be a victory to simply prevent repeal.