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Volume 16, Spring 2004 |
Business & Government
Death to the Death Tax?
Staff Writer
The lasting legacy of the Bush administration might not have to do with the war in Iraq or any foreign affairs. More than likely, the domestic state of the economy will be remembered as the determining factor in a reelection bid.
Now that people have shifted attention away from the Middle East, most only want to see an economic recovery.
According to a CBS News/New York Times poll, the president's current approval rating stands at 51 percent, a significant decrease from the 73 percent approval rating during the first weeks of the war against Iraq last April. Now that people have shifted attention away from the Middle East, most only want to see an economic recovery. However, with interest rates so low, large budget deficits, and high jobless claims, President Bush has yet to achieve any progress.
The president has only some influence over the economy, so his plans must have the intended consequences. Unfortunately, strained foreign relations are often followed by a nation's fear of retaliation, which have a depressing effect on spending and investing. Domestically, the president had the opportunity to stimulate American businesses through an innovative tax plan, which seems to have failed.
The nation has lost two million jobs in two years, in comparison to the addition of five million jobs in 1999 and 2000, and the stock market indices remain flat. The tax cuts are helping to make the wealthy even wealthier. The problem is President Bush's position against progressive taxation.
Recent tax changes do not benefit those in need, unless the rich are considered needy.
The president has said, "These are the basic ideas that guide my tax policy: lower income taxes for all, with the greatest help for those most in need. Everyone who pays income taxes, benefits." Yet, recent tax changes do not benefit those in need, unless the rich are considered needy.
According to a study conducted by Deloitte & Touche, the average tax break for a single person earning $41,000 is $211, whereas a single person earning $170,000 averages a $2,743 tax break. The tax break for the poorer individual is only 0.5 percent relief compared to 1.6 percent relief for the richer individual.
President Bush has made it clear that his tax bills are designed to be fair. "My tax cut plan is not just about productivity, it is about people," he says. "Economics is more than narrow interests or organized envy. A tax plan must apply market principles to the public interest. And my plan sets out to make life better for average men, women and children." The problem with such a laudable statement is that it's a proven lie.
Other than tax studies, the bill's inequity is most evident when applied to the Federal Estate Tax. Before the Bush tax plan was implemented, the estate tax stood at 55 percent; but it will be phased down to 45 percent by 2009. In 2010 the tax will completely disappear.
To explain the tax further, it is important to note that, at the time of death, a person's real estate, savings and other accumulated wealth are valued. When the tax bill was first passed on May 23, 2001, the first $1 million were exempt from this death tax. Therefore, the 55 percent tax was applied to wealth exceeding $1 million. By 2009, that exemption will climb to $3.5 million.
The death tax rarely matters, except for the very rich.
This does not even affect most Americans. Firstly, the death tax does not apply to a spouse. Secondly, even with a house value at $500,000, the death tax exemption still protects savings and investments valued up to another $500,000. Therefore, the death tax rarely matters, except for the very rich. Lastly, the death tax does not penalize the person who earned their extreme wealth. Instead, the tax penalizes rich children, those who did nothing to earn the money, and only received it through an inheritance.
With this tax plan, impoverished families earning minimum wage must still pay income tax, yet starting in 2010 the children of the upper class will be untaxed on their inherited money.
So, as taxes to the rich decrease, the government will not receive the benefit of those taxes, which could go to the many efforts Bush promised to fix: build schools, roads, finance reconstruction in Iraq, support inner cities, feed the soup kitchens, and be injected into a failing economy.
In 2003, Forbes Magazine valued the 400 wealthiest people to total a net worth of about $955 billion. Therefore, if we include the $1 million exemption for each of those 400 people, it would not even lower their total net worth to $954 billion. If it is assumed that they all die in 2010 or later, when there might be no federal estate tax, it means that, at 55 percent, the federal government loses $524.7 billion dollars.
Bill Gates is worth $46 billion. Therefore, his three children would each inherit $6.9 billion within the old taxation system. In the new system, if their father dies in 2010, they would receive over $15 billion. It is safe to assume that his children will hardly notice the billions of dollars in taxes; they will still be the richest teenagers in the world and it will not be due to any of their own hard work.
One justification for this form of reduction in taxes is to protect small business owners and farmers. The White House's official website claims, "Eliminating the death tax will allow family farms and businesses to be passed from one generation to the next without having to break up or sell the assets to pay a punitive tax to the federal government."
The death tax could have been eliminated for certain people and businesses, but not for others.
Like any legislative bill, the death tax could have been eliminated for certain people and businesses, but not for others. Farmers already enjoy plenty of income tax breaks through special tax codes. Similarly, the tax plan could have included special provisions for exempting farms and small businesses from estate taxation, as it already does spouses.
The loss of revenue from the elimination of the death tax will undoubtedly have to be found elsewhere. Even if equally distributed, it means that the lower class will be forced into paying higher income taxes than with the old system.
The high income tax must be paid in addition to traditional payroll taxes, such as Social Security and Medicare. These payroll taxes mirror a regressive tax, where the poor pay a higher percentage than the rich due to a ceiling in the taxes.
Talk show host Jerry Springer suggested completely eliminating the payroll tax for everyone on their first $20,000 of income. Unfortunately, he never pursued his run for Congress. He felt contractual obligations would have hindered his ability to help his constituency. Had he pursued a second run at politics and been able to implement his own tax plan, the economy would have been stimulated with equality. Everyone would have been offered the same tax break on their initial income. However, the rich would have shouldered slightly more of the burden because the ceiling would have been eliminated.
Eventually, the death tax will return, courtesy of a glitch in the bill.
It is commonsense not to tax the initial earnings of all people, because everyone uses those dollars for basic human needs. The first $20,000 for the rich and for the impoverished alike must be used to purchase food, clothing, and housing. Unfortunately, President Bush places more importance on securing the future of wealthy children than the basic needs of all Americans. Eventually, the death tax will return, courtesy of a glitch in the bill. Unless further action is taken, in 2011 there will again be a federal estate tax. By then, Americans should hope that Congress will have the defiance and courage not to revive the death tax. Instead, the citizens of this country should be hoping for massive reform, including universal healthcare, an end to destructive foreign relationships, and possibly a new policy on taxation that includes a small exemption from the payroll tax for all.