Judge Not and All That – Justifying a Higher Estate Tax

Judge Not and All That – Justifying a Higher Estate Tax

Is paying taxes a moral issue? I’m not so sure, but then I’m commonly the odd man out.

The Biden administration has proposed a raft of new taxes – more like a boatload – on estates and inheritance. The president’s reason is simply to pay for new spending, in particular his couple-of-trillion infrastructure plan, and who knows what else. It’s a straight sell, you would think, but the justifications are flying, laden with political fire and brimstone, American-style.

We hear warnings over the budget deficit, though no proposals have surfaced to shrink it. That can be chalked up to ‘smokescreen’. The morality card has been slapped on the table: the rich are getting richer, their privilege ever more entrenched, so something needs to be done – what could this be? The administration has proposed giving the IRS an extra $80 billion over the next ten years to pay for increased enforcement. That tells us everything.

If you’re wealthy and die, and these things do happen, your heirs should expect a clipped windfall, assuming President Biden’s plans are passed.

Historically, Americans have disdained ‘reaper taxes’, and these levies were generally temporary.

The first death tax on record helped pay for the Quasi-War with France, a cannonball-laced curiosity that lasted from 1798 to 1800. Why, they’d just helped us win the Revolution! What had happened? These two rebellious cousins were fighting over the terms of their alliance, you see, and I’m not even sure which side won.

An inheritance tax was levied during the Civil War and repealed five years after it ended. The estate tax was born to pay for the Spanish-American War, another vainglorious foray, best forgotten. The estate tax didn’t become a permanent fixture until 1916. Sixteen, oh unluckiest number! The 16th Amendment legalized the income tax; alas, there’s no sweetness to savor in those digits.

And so, as it goes with all others, estate and inheritance taxes are no foregone conclusion; merely a convenience, like income, gas, excise and sales taxes. We decide we need government; we know it ain’t free; taxes must follow. It’s unfailingly painful, but can’t the proceedings advance without all this pulpit thumping?

Curious the things that raise moral opprobrium, the latter word clearly designed to transmit portents of judgment. Let’s consider the case of a friend I met in college and knew for years after, who has sunk from the picture and you’ll soon find out why.

Jess studied philosophy – strike one – took his PhD, is now a professor. Back in our day, he favored a form of mathematical jazz that frazzled his brain, I think, aided by vigorous smoking of choice South Asian greenery. He didn’t imbibe herb or vibe for pleasure, mind you: only to improve the smoke-filled corridors of his mind. Or so he wanted me to believe.

Jess obsessively created his own reality – and morality. Guess who was ‘bad guy’? In 1987, getting ready to shift from DC to Illinois for grad school, I bought a Toyota Tercel. Two doors, one unripped seat, 80k on the clock. It looked like an Amtrak, ran like the speed train from Tokyo to Kyoto. It would just about do.

Yet Jess was enraged.

“How do you justify it?” – he wanted to know. Justify what, to whom?

“Spending all that money.” My tin machine rang up $800. “Yes – but how do you justify it?” Ah, I needed a car. “Why – can’t you walk?”

Mind you, Jess had a car – a 1985 Nissan 300ZX, a smooth racy rocket versus my repurposed Pepsi can. A graduation present from his parents, and I saw the sticker: $18,600 in 1980s money. Second hand, mind you.

Jess’s lecture was clear: why didn’t you give that money to the poor? When was the last time you helped the needy, I asked. “Well, never, ha-ha.” Droll.

So sell the red spacecraft, buy a cheap beater, and feed the Lord’s lambs, I offered. “I thought about it, but – weeell…” The starship had swell leather seats, power to burn rubber, enough room in the back for shenanigans. Oh, you impoverished folk, just enrichissez-vous, OK?

Grad school’s a time gobbler. My university town had no bus line and I needed a car to get promptly to class and the bar – sorry, grocery store – or whatever else it might be. Plus, this was central Illinois. It’s colder than Moscow, and the winter is longer. Walk, my sweet caboose.

So here I am justifying owning a car. Meanwhile, my fellow Americans are called to justify achievement, family traditions of success in business and farm, where thousands work. How have they sinned? If the rich must pay more for good public cause, stand before these free citizens and state your case. Civic pride has not gone out of style in America, and our hearts have not burned to lump coal.

Remember the old Monty Python routine, the gameshow parody, Blackmail? The punchline: “We don’t morally censure; we just want the money.” A pretty good start for launching a tax-hike proposal, it seems – or is it just me?

The Biden administration has proposed increasing the top corporate, income and capital gains tax rates on the wealthiest citizens to help fund the president’s comprehensive infrastructure plans.

The president and Capitol Hill Democrats propose reducing the estate tax exemption (now $11.7mn for individuals and $23.4mn for married couples) to $3.5 million while raising the top applicable rate to 45% (40% now). Today, very few Americans actually pay the estate tax, given the elevated exemption, and the Democrats aim to correct this perceived shortfall.

The administration also hopes to eliminate the step-up in basis at death, a traditional part of estate and inheritance planning they say has allowed wealthy estates and heirs to avoid paying a reasonable share of taxes.

Issues of fairness and family – or morality – surround these issues, which are being widely debated in broader society.

Observers believe concrete proposals could reach a vote this year, but as always in politics, delays could occur. Anyone with a substantial estate should maintain close contact with their estate planning team in what are shaping into interesting times, I’m afraid, for our country.

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