Taxes, like ice cream, come in many different flavors. However, unlike ice cream, taxes are politically polarizing, and are strangely all over the news lately. Why this is, I’m not quite sure, but unseen forces in our universe seem to be conspiring to bring it up, so let’s take a look:
Estate tax/Death tax
Did you know we didn’t have an estate tax anymore? True!
George Steinbrenner, longtime owner of the Yankees, died this week. And while his ill-health had been apparent for a while, what was not apparent is that a strange sense of timing led his demise to happen during the first year since 1916 that we haven’t had an estate tax. Because of this, his family will receive all of his personal wealth, estimated at $1.15 Billion, and likely continue to own the Yankees franchise. Some members of congress are trying to re-institute this tax, but other issues (see further down) are frustrating their efforts.
Our country, founded on many – sometimes strange and contradictory – principles, decided very early on that royalty, and royal families of the kind that exist in Europe, were a bad idea. To prevent this from happening, Americans instituted an elected presidential and legislative branch – i.e., George Washington was our president, not our king. Being powerful politically was something you had to do at least nominally on your own (although plenty of family “dynasties” happen anyway – the Adams, the Bushes, the Clintons, the Gores, the Daileys, Romneys, etc.).
Much, much later (1916, actually) congress instituted an estate tax – being powerful financially was something you had to earn now too, at least partially, since the first estate tax rates topped out at 10%… so if your father had a million dollars, and he left you $900,000, you’d still probably be doing ok.
The estate tax, or “death tax” as conservative opponents have taken to calling it, has become a lightning rod of criticism from people who point out that a family farm or a family business, may screw over essentially middle-income workers when it comes to estate taxes, as the asset value of a business fails to reflect the fact that it may barely break even year-to-year, and the small business owner may be paying themselves peanuts.
Good points all around, though a zero-percent estate tax certainly seems a bit of a radical change when looking at a chart showing the top-level estate tax rate from the past 94 years (psst: who doesn’t love charts??): Estate Tax Rates
Is it time to cut back?
The Bush Tax Cuts
President George W. Bush passed a comprehensive set of tax cuts during the first term of his presidency. Those tax cuts are set to expire this year, and lots of people have lots of opinions on what to do – or not do – as they end. Many Republicans want to renew them, like a library book you’re really getting into, but aren’t quite done with. They’ve been saying in recent days that tax cuts, while obviously reducing the amount of money that the government collects, pay for themselves by spurring on economic growth, which leads to… more revenue collected by the government! Many media outlets are questioning this logic, or at the very least, claiming that the GOP is behaving one way when the topic is tax cuts, and another when the topic is unemployment benefits – both of which have a stimulative effect on the economy, though are treated quite differently by different parties. This disagreement is, in fact, why congress hasn’t gotten around to renewing the estate tax yet this year.
Taxes: they’re not all vanilla
With a Financial Reform bill on its way ever closer to President Obama’s desk, the political class in Washington turn to energy/climate change legislation, long discussed but little acted upon. One of the most divisive issues involved is a carbon tax, or tax on fuels that release carbon into the environment. The Carbon Tax is an effort to essentially put a price on pollution – in this case, carbon pollution – that has a cost to society to clean up or otherwise deal with.
Groups that release carbon, or are in business with people who do, don’t like the Carbon Tax. This list includes car companies, oil companies, energy companies that buy coal to burn to make electricity, states that do a lot of coal mining, states that get money from oil revenue, and on and on. They are less adverse, it seems, to cap-and-trade proposals. In “cap-and-trade,” the government gives out permits to people that already pollute. It tells them that it will never take the permits away, but that a company can only pollute, going forward, if it has permits. Economists think that what will happen is that companies that pollute less will haggle with companies that pollute more to buy the permits – since more permits is the only way you can expand your polluting company, the theory goes. Once this starts, companies will hopefully whip themselves into a frenzy in polluting less, so that they can expand their coal-burning electrical plants, steel mills, car plants, etc.
What’s the right call?
Each tax option presents us with a set of choices – someone will “win” with each decision, and someone will definitely “lose.” The trick is picking the option that fits your tastes and values, not just what is more cleverly marketed than the next. Think about what the outcomes are likely to be for each, dig a bit deeper into it, and then tell someone what you think (posting a comment to this story counts!). Ideally, this would be your congress person, senator, candidate for governor, but telling just one other person means that this discussion won’t be stuck in the land of Washington DC. After all, everyone deserves ice cream!