Discussion with a Progressive about the Estate “Death” Tax

 

 

By Dr. Kevin McNamee

The following is a discussion with a Facebook Progressive which illustrates the divide in our country regarding paying ones “fair share and transferring wealth”. 

This discussion was prompted by Senator Sanders question to President Trump’s Budget Director about the proposed elimination of the death tax. 

SENATOR SANDERS: I asked Trump’s budget director a very simple question: Why is it more important to give the Walton family, the wealthiest family in America, a $52 billion tax break than to fund programs that provide health care to millions of Americans. 

CONSERVATIVE ANSWER: The money Senator Sanders argues to get through the death tax has already been taxed once when the person earned it. When the person dies, the Federal government wants more of it through the death tax. Senator Sanders forgets the average person is not Walmart’s founding family members and would like to not be taxed again for money that has been taxed once. 

This is why family farms are being bought up by big corporations, many foreign owned. The farmers children cannot afford the inheritance tax and have to sell the farm. The Federal government wants to take what it did not earn. 

PROGRESSIVE ANSWER: The “death tax” only kicks in for estates worth over $6 million dollars. Repealing it is not exactly a populist move. $12 million for a couple. Most of that wealth is taxed at the capital gains tax which is taxed at a significantly lower rate. 

Just keeps the rich rich. Not exactly in accord with the pull myself up by my bootstraps narrative those that pursue these policies espouse.

CONSERVATIVE ANSWER: That money has already been taxed once by the Feds. Why does the government deserve more? The messaging has been, “take from those who have been successful and give it back to the government.” 

The “rich” made enough and more than me. People think it now comes back to them. Wrong. It feeds the government machine; a highly inefficient vehicle to deliver a service. Is it your position that double taxation is Okay or is it the “rich”  made a lot of money, more than me, so I am going to take it from them because I want some of that? 

Those who worked hard and earned it legally, filling a market need, deserve it. Congratulations to them. I do not feel any envy of their wealth. I celebrate a country where one can work hard providing a needed product or service and be paid for it. Some more than others. 

By the way, the tax rate on short term capital gains is higher if within 12 months. Over 12 months it is taxed at a lower long term capital gains rate. 

What is not discussed, and should be, is the following. Think about this. Thomas Sowell pointed out in his book Trickle Down Theory. 

  1. People invest their hard earned money in a place where they make the most return. 
  1. The city, county and state offer bonds that are not taxed on the state OR federal level are  known as tax free bonds. 
  1. If a person makes enough to be in the combined state and federal tax rate of 50%, (it is actually higher, and where the “rich” are in this bracket) the rich lose half their money on the investment to taxes. 
  1. Strategy is to put the money into tax free municipal bonds earning 7%. This is similar to a real return of 14% because of not paying taxes. Hard to beat a 14% return invested elsewhere. 
  1. Study in the early 1920s showed the following. I am going to use loose numbers here but illustrates what happened. 

There were 1,000 people who paid over $1 million in taxes. The Federal government wanted to get more money so tax the rich at a higher rate and get more back. So they did. Next year only 250 people paid $1 million in taxes. Where did the money go you ask? Why a drop in people paying? 

Answer, the rich moved their money to tax free municipal bonds for the city, county and state which do not pay federal or state taxes. 

Conclusion, an increased federal tax rates reduces the amount the Feds collect because people move their money to where they get the best return. 

This gets complicated.

If the tax free municipal bonds are changed to not being federally tax free, people will move the money off shore. 

I do not have an answer yet to this other than reduce federal income tax rate so the Feds get more by keeping it out of tax free municipal bonds. 

Lots to think about, but higher taxation on the “rich” to get more federal tax dollars is not the answer. 


Kevin McNamee

Dr. Kevin McNamee, a 2018 candidate for the Thousand Oaks City Council, is a 20 year resident of Thousand Oaks and business owner for over 28 years. As a member of the Thousand Oaks Rotary, he volunteers his acupuncture and chiropractic clinical services at the Westminster Free Clinic to many of the city’s illegal immigrant and under-served population. His practice specializes in chiropractic, Asian and herbal medicine, blended with traditional Western diagnostics and treatment protocols. Dr. McNamee provides pain prevention services to organizations like the Los Angeles Police Department. He provides presentations for middle and high school students which change their attitudes about illegal drug use and abuse. He is also a part-time instructor at Ventura College in the Water Science Department.

 


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