Tuesday, August 23, 2005

Knaves Waiting for a Vote

Even the normally complacent Kleinrock (subscription required) has been shocked by what it calls the GOP's "Biased Survey on Estate Tax Repeal." The Kleinrock report notes:
While [the GOP] questionnaire recipients will probably be against the government profiting from a person's demise, they also might not know that few estates actually pay the tax. That shortfall in knowledge will likely make them side with abolishing what is dubbed the "Death Tax" on the questionnaire.

This support will come despite the fact that roughly 99 percent of estates pay no estate tax at all. Among the few estates that do owe taxes, the effective tax rate -- that is, the percentage of the estate that is paid in taxes after the exemption and deductions to, say, charities -- averaged about 19 percent in 2003, according to the IRS. That percentage is far below the top estate tax rate of 50 percent.

Questionnaire recipients also will not know that for many large estates that do owe estate taxes a substantial proportion of their assets have never been taxed. According to the Joint Committee on Taxation, the majority of assets in estates valued over $10 million consist of untaxed capital gains -- that is, property, stocks, and bonds that have appreciated in value since they were first purchased by the decedent but have never been subject to tax.
However, the report then quotes at length baloney dished out by knavish courtier William Beach of the Heritage Foundation as to the alleged negative impact of the estate tax. It is interesting to note that Beach, one of the A Team hacks who regularly lobbies against the estate tax, has apparently abandoned the argument that the estate tax forces families to sell their closely-held businesses and farms. This argument was so plainly specious that even he must have realized that it was a clear loser.

Economic arguments, on the other hand, are more difficult to refute. More often than not they are developed in academic-like papers that are difficult to contest in 25 words or less. One of Beach's arguments is as follows:
[The estate tax] directly undermines job creation and wage growth; and these . . . effects make death tax repeal everyone’s concern. [In other words, even we cannot make the case with a straight face that most or even many Americans will be directly affected by the estate tax. So we have to create the bogey-man of collateral economic damage.] Heritage Foundation economists estimate that the federal estate tax alone is responsible for the loss of between 170,000 and 250,000 potential jobs each year. This additional employment never appears in the U.S. economy because the investments that would have resulted in higher employment are not made.
Where's the study that Beach relies on? So far as I can determine, there was only one Heritage study, published in 2002 by Alfredo Goyburu entitled "The Economic and Fiscal Effects of Repealing Federal Estate, Gift, and Generation Skipping Taxes." The study does not support the 170,000/250,000 figure used by Beach. Instead, the predicted job-creation numbers run from a low of 25,000 to a high of 121,000.

Even these numbers are suspect since the Goyburu's analysis "incorporated a capital gains exclusion of $1 million on transferred estates and a $3 million exclusion on spousal transfers." In other words, the analysis uses an assumption of a tax break that is not in the bill being considered by the Senate. Thus, we are offered a comparison between a Heritage apple and a Congressional lemon. For any analysis to have value (and it's not clear that this one does), it must at least attempt to analyse the same proposal that is being voted on.

Kleinrock picked up on the easy stuff--that the survey question was the political equivalent of "Do You Favor Continued Beating of Your Wife." However, it failed to dig a couple of levels down and examine the substantive contentions being bandied about by Beach.

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