Democrats and Republicans: Ideological Divide and the Estate Tax
By Travis on Jul 22 th, with 1 COMMENT
The question of whether or not to raise taxes in order to bring the federal dept under control has been raging for the past few months. On one side, Republicans refuse to consider any tax hikes, believing this will slow down the still ailing economy. On the other side, Democrats counter that without raising taxes there is no way to equilibrate the books without destroying programs that people need. Unless you are living under a rock you have not doubt heard the heated rhetoric.
It can be hard to understand how two parties, both of whom claim to be working towards the same goal, can have such fundamentally different views on how to get there. The reason is that there is a foundational difference in each party’s view of what enables an individual to be successful. This conflict of visions is epitomized in the debate over estate tax.
The reverberations of this argument could also very well have far reaching consequences in an area of inheritance that has hitherto been completely tax-free: digital assets.
To start with lets get some facts about federal estate tax down. Firstly, the estate tax is currently at 35% of any inheritance over $5 million, which is not willed to a federally recognized spouse or charity, this is the lowest it has been since 1931 (not including 2010 when there was no federal estate tax). Second, these current rates mean that the estate tax only applies to 0.14% of inheritances in the US, but would still generate around $11.2 billion in revenue. With such a small percentage of Americans subject to this tax you may ask, ‘why such a big fuss?’ Again, the principle reason is ideological. Who has the right to the money that you made?
Democrats believe that true capitalism is only possible through equality, and that unregulated free markets cannot provide this equality. The estate tax, they believe, is a good way of making sure that wealth does not become distributed to just a few families and that each generation proves itself, rather than simply living off inheritance. They claim that, as the inheritor did nothing to earn the money, she does not deserve it. In the words of Winston Churchill the estate tax, “provides a certain corrective against the development of a rich and idle class.” Liberals also argue that no man is an island. That it is the government and society that created the environment within which the entrepreneur could succeed, and as such an inheritance tax is completely justified.
The death tax, as Republicans call it, is seen as an affront to capitalism for several reasons. For one, it disincentivizes hard work and entrepreneurism. A study done by the conservative lobby group the US Tax Foundation, in 1994, found that the 55% estate tax level, which existed at that time, had the same effect as doubling an entrepreneur’s top effective marginal income tax rate. Many conservatives would agree with liberals that an inheritor did nothing to earn that money. However, they would say, neither did the government. The money belongs to the person who earned it and as such they can do whatever they damn well please with it, including leaving it to an heir. A tax of this nature is seen as punishing wealth gained by legal means and implicitly declaring that socialism/collectivism is superior to capitalism. Finally, Republicans cite that estate taxes are so difficult to regulate that most of the money gained from them just goes toward the cost of policing, so there is not much benefit for the government to begin with.
So will there still be an estate tax in the future and will it be expanded to include digital assets? Yes and yes. Though the estate tax has significantly fluctuated in recent years, it brings in far too much money to be abolished, especially in times like these. Not only that, but taxing 0.14% of a population who just got a multi-million dollar inheritance isn’t likely anger the majority of Americans, many of whom are struggling to pay the bills.
As far as digital assets there is simply too much value in them the government to ignore them forever. However, as with many technologies, laws are struggling to keep pace with the amorphous evolution of the Internet. Though the definition and implementation of such a tax will be quite difficult, and the first attempts will almost certainly be inadequate, efforts towards it are no doubt already underway.
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- democrats · Digital Assets · estate tax · federal debt · heir · inheritance · money · republicans · tax · technology · US tax foundation
July 29, 2011 at 10:55 am, Aland Coons said:
One issue no one ever seems to bring up when discussing taxes is privacy! Anything that the government decides to tax becomes less than private. My income for example is an open book every year on my 1040. My assets become so through a death tax.
Personally I support a point-of-sale tax that puts the burden on corporations to report what they sell (at retail ONLY not business to business) such as the “FairTax”.
I don’t argue left or right on taxes. Sure there are legitimate roles for government that require some funding. But my right to privacy has been invaded from the first day I decided to exercise my right to work.