Why we need the Estate Tax

An extremely important article, Wealth Happens (note this is a copyrighted article which I've posted under fair use doctrine rules - copies and a full summary can be found here) on the impact of GOP policies on wealth distribution appeared in the April 2002 edition of Harvard Business Review.

The article makes it clear that if the GOP continues to skew the tax laws in favor of unearned income and against taxes that tend to more evenly distribute wealth, like the estate tax, we are likely to hit a tipping point where we suddenly become Guatemala where as few as a half dozen hyper-rich control as much wealth as is now in the hands of several hundred thousand people.

The article discusses research based on the 1897 work of the Italian Pareto on wealth distribution where a computer model uses relatively simple financial transactions to show what happens to wealth distribution as you change the rules, for instance reducing capital gains taxes or eliminating the estate tax. The model accurately predicts exactly what we are seeing, and points to the highly likely end result - if the pattern continues - of hitting that tipping point.

Really scary shit.

I'd also like to take a moment to rebut the cornerstone of the GOP argument against the etate tax, double taxation. The reality is that the lion's share of assets subject to the Federal Estate Tax - which, one should note is completely separate from individual state taxes on estates that in some instances affect a significantly greater percentage of estates than the federal tax - are capital assets, things like stocks, bonds and real estate, that have appreciated substantially from the time they were purchased.

While it's true that the initial investment may well have been made with after tax earnings - though of course the assets may just as well have been purchased with an inheritance - the bulk of the value of these assets is from capital appreciation and, if the estate tax were to be repealed this appreciation would never be taxed - 0 tax, nada, nothing.

So, the real story is that the estate tax is the ONLY tax levied on the great majority of estate assets that are subject to the tax - which of course are assets in excess of the exemption, which is on the order of $1MM, and that aren't sheltered in things like a bypass trust (see http://library.findlaw.com/2000/Feb/1/128329.html) and that haven't already been passed on under the $10,000/year/person gift exemption prior to a person/couple passing away.

More good ammo for keeping the Estate Tax can be found here.

And some more info on how the GOP's plans are bad even for a good chunk of already wealthy Americans (thanks to Kossack Irrelevant Prolixity for the link).

And, if the HBR article doesn't provide enough reason for keeping the Estate Tax, perhaps this article, Inequality kills, will.

And here's a link to yet more info on the nasty state of wealth distribution and the corrosive effects on our democracy: http://www.lcurve.org/.

PS The first page of the HBR article didn't scan very well - blow it up to %150 to read it...