[1]The headline on the front page of yesterday’s (Monday, January 12, 2009) Wall Street Journal read “Obama Plans to Keep Estate Tax”. This is the opening salvo of President-Elect Obama’s tax hike and wealth redisribution plan.
In 2009, estates of less than $3.5 million per person and $7 million per couple are exempt from taxation. The value of estates over that are taxed at 45%. Under current tax law, signed by President Bush in 2001, there is no estate tax in 2010. As I joke with my clients, if you’re going to die, do it in 2010, because under current law, in 2011 the estate tax reverts to Clinton-era levels–a $1 million exclusion, with the rest taxed at 55%.
Here’s why the estate tax, in and of itself is wrong. Congress has the Constitutional right to tax any and all sources of income. Sources of income include corporate income, personal income, interest income, capital gains income and dividend income. Taxation on interest income is a double tax, in that it was taxed once when the person made the money and again when they saved it. Taxation on capital gains is a double tax, in that the income to buy the stock or mutual fund or any investment, for that matter, was taxed when the person made the money and again when they sold the investment. Taxation on dividends is a triple tax because dividends are a distribution of corporate income back to the investor. The corporate income has already been taxed once, the personal income to buy the investment was taxed, and now the dividend itself is taxed.
This is wrong, and violates conservative principles.
An estate tax is nothing more than government’s attempt to steal from invidual’s who have worked, saved, took risks and prospered. These dollars have already been taxed once, twice and sometimes three times. In football, it would be considered piling on, and there would be a 15-yard penalty for unnecessary roughness. With the government, however, it’s an opportunity to soak the rich, get them to pay their fair share, because paying taxes on the same income two or three times isn’t quite enough.
Fairness aside, the reality is that it will not generate a significant amout of revenue to close a projected $1 trillion budget deficit into the forseeable future. But it will create the illusion of getting the rich to pay their fair share, and redistributing the wealth to those less fortunate. As Henry Kissinger was fond of saying, “Perception becomes reality”.