28 July 2005

The Poor Rich Man: A tragedy made for Hollywood

The wealth lobby is in a frenzy again, in its attempt to rid the nation of the oh-so-burdensome estate tax. We are given images of small-time farmers, hoe in hand and sweat on brow, having to sell the family farm to pay the evil IRS. It's a story made for Hollywood. When the movie's made, however, the producer should add the caveat--"any resemblance to real events completely coincidental."

A new study by the Congressional Budget Office recently examined estate tax returns filed by farmers and owners of small businesses in 1999 and 2000. The numbers that will owe estate tax with the generous exemption scheduled to take effect in 2009 will have dwindled to 65 farm estates (yes, 6 tens 5 ones) and only 13 would not have enough cash to cover the bill.

Factcheck.org points out that the amount of extra taxes paid out on the small number of estates that are elligible is actually much smaller than ads suggest. Unrealized capital gains (being subject to capital gains taxes) are not taxed again, for example. And as with other tax codes, the wealthy do a pretty good job of hiding their income from the taxman anyway.

Of course, some might ask why we'd want to tax the wealthiest more anyway. Shouldn't the wealthy be able to keep their hard-earned money? Putting aside for the moment the question of whether it's "hard-earned" or not (owning a hotel chain or making money on rent of assets hardly strikes me as "hard-earned"), there's the question of who has contributed what to create wealth. When someone owns a hotel chain or a transport company, they "consume" publicly funded resources at a much greater rate than does the average person. The local police in many cities log many hours protecting the hotel, answering calls there, guarding the bank holding the hotel's deposits, and so on. The roads, traffic cops, snow-removal tractors and so on that make the transport company possible also come from public funds. So in a sense, the creation of wealth is never due to the actions of a single individual. So is it too much to ask that those who have benefitted most from the existence and maintenance of the country's infrastructure and other networks give back some of this money? In place of the 13 poverty-stricken farmers, the ads should feature the millions of poverty-stricken workers who contribute so much and get so little in return.

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