Estate Taxation and Social Responsibility

Clinton left a surplus, which was squandered. The economy is only "doing well" from the point of view of those who rely upon investment income--those who earn wages and who are actually employed have either settled for lower wages, or have had their effective income cut by the failure of their income to keep pace with capital gains earnings, and who now pay more for everything than they did six years ago, in large measure due to the obscene profits of energy companies--one group who has certainly done well from this administration. Many people on the Gulf Coast would ask you what the hell all the money you allege has been spent was actually spent on, and how their lives are even as good as they once were, let alone better. Many of those who were evacuated have never returned. That the administration is able to pay for an unjust and illegal war, as well as squandering money ineffectively on the Gulf Coast arises from the fact that we've gone into hock with the Chinese on an unprecedented scale--effectively, the Shrub has paid for his party out of the pockets of generations as yet unborn.

Oh yeah, a real rosy picture.

The failed implementation of the trickle down theory is one thing but the basic premise is hard to refute.

Companies that consistently make money employ people and those that consistently lose money do not. The more mopney people have to spend the more money (typically) they do spend, which benefits business, which benefits employees. The problem people have is that it benefits some people more than others

The problem you have in believing that nonsense is that you don't understand economies of scale. Durable goods sales are a bellweather of the health of the economy because sales of durable goods (washing machines, fridges, tvs, etc.) indicate that large numbers of the population feel sufficiently comfortable with the amount of disposable income they to go out and buy what are for them, large ticket items. Economies of scale are usually understood in industry. If i make something which includes widgets, and i can buy widgets at $1.50/M, but i can buy them at $0.95/M if i buy one hundred thousand widgets or more, then i can produce my product more cheaply and profit either buy increased margin, or by competing more effectively to sell more units. It works in understanding the consumer economy, though, too. If a few people are getting very wealthy, but most people are doing no better, and especially if their income is not keeping up with inflation in the cost of living, they buy fewer durable goods, and fewer goods of all descriptions, apart from necessities. Economies like that stagnate. That business are able to make better profits because of international outsourcing, and therefore offer a better return on investment only means that capital investors do better--it doesn't mean that wage earners automatically have more disposable income to spend. Your view seems to suggest that if capitalists earn more money, they automatically hire more people, or give raises, or give cost-of-living-adjustments. These days, they just open a new plant in Indonesia, and a call center in Bombay.

No, it isn't, really. It assumes models of behavior which are not provable in real life. It, along with the 'laffer curve,' cannot be extracted from any existing data set.

Cycloptichorn

If nobody could afford washing machines, fridges, tvs, etc. except for a few very wealthy capitalists, then those companies would soon go out of business once they sold to those few people who can afford it. That simply isn't the case though as those industires are doing quite well. You would be hard pressed to find a household without, at the very least, a fridge and TV.

Less people can afford higher ticket items like luxury cars, boats, and expensive jewelry but they add to the economy just like everyone else and are still large industries with vast sales.

There are still jobs to be had and money to be made (unemployment is what, 4%?). Although I do think that continued outsourcing could result in a reversal of fortunes.

You don't agree that companies that make money employ people and those that don't make money don't employ people?

Well, the point is JP, that these things take time. It takes a long time to completely f*ck the economy, and the capitalist can still make money like a house afire during the process. Wall Street can be up, and it will be possible for some people to contend that means everyone's doing just fine. The fact of exporting employment overseas, and operations such as Walmart driving down employee incomes, mean that the gap between wage income and capital income grows. Reagan did a damn fine job of damaging organized labor, and the general population has little resort to agitate for better conditions, while capital continues to purchase politicians who will make "the right" decisions. It is neither safe to assume that more money for capitalists will result in more money for labor, nor that capitalists are not so stupid as to foul their own nest by destroying the consumer economy which has made them wealthy.

Point taken.

Is taxing at a higher rate those that make more money the answer to the problem, though? I don't think this will keep jobs and higher wages here in the US. In fact, I would think that once you start cutting into the profits, they will search even harder for cheaper labor.

Interesting how this thread, in a way, has come back full circle to the thread from which it was spawned.

Back on point - The Estate Tax has been and should always be a SOCIAL TAX as well as a source of revenue targeted for military as it was originally designed.

http://www.faireconomy.org/estatetax/ETHistory.html


"A History of the Estate Tax
At the core of the American experiment is our collective rejection of European hereditary aristocracy and vast inequalities of wealth. Yet, just 100 years after its founding, the United States was wracked by economic panics and the inequalities brought about by the industrial revolution and the excesses of the Gilded Age (1870- 1910). These changes shattered America's perception of itself as a land of opportunity.

Fortunately, our nation rose to the challenge. We had a vibrant debate ?- in the public square and in Congress ?- about the great disparities of wealth and power that existed at that time. This robust controversy over how to address these inequalities involved ordinary men and women and the elites of the time, the Carnegies, Rockefellers and Roosevelts. The debate ran among farmers, urban reformers, religious leaders, and nascent labor unions.

Many Progressive Era (1900-1918) reforms resulted from this period, such as: child labor laws, voting rights for women, and the establishment of an income tax, which required the extraordinary step of amending the constitution. The estate tax was another one of these reforms. Those who made the case for the estate tax advanced arguments that are vital to the contemporary debate.

First, there was the belief that the hereditary transfer of concentrated wealth is incompatible with American values and democratic aspirations. Several decades after the passage of the tax, Franklin D. Roosevelt said, Great accumulations of wealth cannot be justified on the basis of personal and family security … Such inherited economic power is as inconsistent with the ideals of this generation as inherited political power was inconsistent with the ideals of the generation which established our government."

A second belief was that society played a significant role in the creation of individual wealth and therefore had some claim upon the wealth of the very rich. In 1906, [/B]President Theodore Roosevelt proposed a federal inheritance tax, saying, "The man of great wealth owes a particular obligation to the State because he derives special advantages from the mere existence of government." Roosevelt recognized that wealthy citizens benefitted particularly from government protection of wealth and property rights.

The permanent estate tax, after a generation of agitation, got a final push toward passage as part of preparations for World War I. The Emergency Revenue Act of 1916 included an estate tax and also increased income taxes and instituted an excess profits tax to discourage war profiteering. The first estate tax was imposed on the value of an estate over $50,000 (roughly $850,000 in today's dollars) at a graduated rate of one to five percent.

Facing a budget crisis during the Great Depression, Congress raised the top estate tax rate to 70% on fortunes in excess of $50 million ($666 million in today's dollars). In 1936, the estate tax provided a full 11% of federal revenue. Until 2001, the estate tax remained essentially unchanged, apart from rate adjustments and periodic increases in the amount of money exempt from tax.

At the heart of the current campaign to abolish the estate tax is a systematic distortion of the facts as to who pays it and who would most benefit from wholesale repeal - allegedly, farmers and small businesspeople. In fact, behind the grassroots image, there operates an entire industry of anti-tax lobbies, think tanks, polling firms, and PR experts. The anti-estate-tax lobby was funded with money from some of America's richest families, including brand names like Gallo (as in wine) and Mars (as in candy).

In 2001, estate tax repeal proponents were anticipating an easy victory until a Boston organization called Responsible Wealth organized a group of affluent Americans, including Bill Gates Sr. and Warren Buffett, to announce their opposition to total repeal. Faced with this opposition, and the need to limit the cost of the tax cut, Congress passed and President Bush signed a bizarre tax cut bill that slowly phases the estate tax out until 2009, repeals it entirely in 2010, and then magically brings it back to life in 2011.

In June 2003, pro-repeal forces tried to make repeal of the estate tax permanent. Thanks in part to a truly grassroots campaign coordinated by United for a Fair Economy, that effort failed in the Senate. Right now, the future of the estate tax is uncertain, but it will take a prominent spot on the public agenda in the coming months and years."

Yes, the same thing occured to me. It is rather hard to compartmentalize these matters, because they all impinge one on the other. (I've taken your quotes out of order for precisely this reason.)



One of the complaints--of the crocodile tears variety--which capitalists make is that they are reaching the point at which they can no longer afford to do business. Yet we have organized labor, a securities and exchange commission, tougher banking regulations and a deposit insurance corporation, occupational health and safety regulation, unemployment compensation insurance and workers' compensation--all progams which capitalists howled would bankrupt them, and run them out of business. The net effect, however, has been to improve the quality of life for everyone, despite graft, corruption and gross cheating, and a healthier consumer economy means more money for the capitalists.

The problem is how to prevent capitalists from exploiting other people to avoid costs and responsibilities which they face here. That is why, in the other thread, i said the move to economic equity could take centuries.

jpinMilwaukee: You've had two opportunities now (here and here) to explain whether your position on taxation has something to do with what you might term "fairness." We eagerly await your response.

With all the imperfections of capitalism, there's nothing in man-made economics to improve on it. Socialism seems to work towards capitalsim to improve their system, while capitalsim seems to work towards socialsim. It's the balance that counts.

Sorry Joe, to many conversations to keep up.

I try not to base my opinions on fair or unfair. I simply believe that those that work, within the framework of the law, to improve their outcome should be entitled to the outcome in which their work has brought them. If that means I think taxing them more is unfair and taxing them the same is fair then so be it, but I don't see how that proves anything.

The economy is doing "well" because the government is spending money it doesn't have. Deficit spending always increases growth. The problem is it can't be kept up forever.

Some quick math and a look at the budget figures..

GDP from 2004 to 2005 growth 309 billion
Deficit spending 319 billion, Amount of deficit that contributes to GDP 96 Billion - 744 billion of Fed govt spending contributes to GDP. % of deficit in US fed spending. 319/2472

So almost 1/3 of the growth in GDP is coming from govt deficit spending.

paradox, Most analysits tell us that the deficit as a percentage of GNP is what counts. However, I see the current deficit on top of our trade deficit, and added to that the consumer debt. I wonder how much longer our country will live on credit and pay the piper when it becomes all due?

I read an interesting piece in today's paper about the trade deficit; that the numbers our government shares with us is low-balled, because they really don't have real numbers. When the China and Japan quits buying our debt, we're going to see what inflation is all about. Gold is now over $600/oz.

Interesting note in looking at GDP growth -

Durable goods dropped 1.47% in 4th quarter of last year, not a good sign.

ECONOMIC REALITY COLUMN 4/25/2006
Time For Honesty Long Overdue

US Treasury Secretary Snow recently said the US could not tackle "global imbalances" itself with regard to current trade and current account deficits. The US last year lost $805 billion through its current account deficit and has lost a total of $4 trillion over the last 10 years cumulatively. But according to Sec. Snow and the US government, the US is not to blame and bears no accountability for these losses.

These "global imbalances" have likewise resulted in the acquisition of $8 trillion of US assets over this period. Foreign toys, cars, Christmas lights, and other goods have been exchanged for our companies (8,200 acquired in last 10 years), natural resources, and government debt (47% now foreign owned). Hardly seems like "free" trade.

The $6 trillion of assets the US acquired of foreign interests over this period will not make up for the lost jobs and economic and national security due to this net imbalance.

Now the US Treasury is advocating IMF-led enforcement of currency manipulation much like the US has ceded control over its international trade to the WTO. Our sovereignty is being undermined. The US Treasury has yet to label any other country a currency manipulator despite this monumental trade and current account imbalance.

When will we realize our out-of-control consumption is being financed by the mortgaging of our country? The reluctance of our government to act quickly and decisively in this country's best interest should be evidence that we have already passed a major crisis point. We are being exploited at every turn but have been hoodwinked through the lure of cheap subsidized consumer goods.

Set,

I've been thinking about this and am not sure we have it right yet. Wouldn't you say that essential items like fridges and food are more readily available to the masses now than in times past? Even non-essential items like big screen TVs, luxury cars (or multiple cars) and other recreational items (snow mobiles, ATVs, boats, home entertainment, etc.) are readiy available to those with only modest means. Wouldn't this imply, even if the income gap is increasing, that the life quality of those at the bottom are still improving (in comparison to past times)? I suppose we would also have to take the amount of debt accumulated while acquiring items.

Do you think this trend has reversed recently or will in the near future?

jpinM, You are correct; more Americans now own homes than any time in our history. That means more household appliances and everything else that goes into making a home. On balance, the standard of living for most Americans have improved dramatically during the past several decades - especially when we compare it to other countries.

I still don't feel comfortable with the debt load our government and consumers hold.

I agree about the debt thing. One thing that worries me is the massive amount of debt students have after graduation. I'll still be paying back my student loans the same time I'll be paying my for my kids school (if I have any). Add on a mortgage and car payments and that is a HUGE chunk of income out the door every month.