I've gotten several emails in the last few days from people who think my position on the estate tax and on the best way to handle the approaching sunset date of the Bush tax cuts is "class warfare." The emailers don't like my suggestion that those at the top of the income distribution should pay more in tax, not less.
This "class warfare" label is used as an attack to divert the attention from the way money, prestige and power is accruing to those at the very top of our society while the vast majority are losing purchasing power. The label is intended to squelch discussion, without engaging in consideration of the underlying fairness issues.
Yes, I'd leave the estate tax in place without the huge increase in the exemption amount that most in Congress appear to be contemplating. And for good reason. The death of the person who accumulated a large estate is a reasonable time to tax that estate. Much of the accumulation won't have been taxed during the lifetime. Most of the accumulation is in the form of financial assets. If inherited, they are received with a step up in basis. If held til death, they are passed on with another step up in basis. Yet during the holder's lifetime, many advantages accrue merely because of the accumulated wealth, even when it is unused. Status, prestige, power--all flow from accumulated wealth. And the person with that wealth benefits enormously from the society that allowed it to accumulate--a stable environment for further investments, a vigorous market, a healthy federal reserve bank safeguarding fiscal policies, institutions from local to state to federal that provide advantageous investments (e.g., municipal bonds that pay interest that can be excluded from income for federal income tax purposes). The danger from enormous accumulation of wealth is that the decision making processes in democratic institutions will be captured by those influential wealthy and the concerns, needs and views of the vast majority of ordinary citizens will be ignored.
So a position in favor of an estate tax isn't class warfare. Rather, a position that is in favor of repeal of the estate tax is a form of class warfare against all those ordinary taxpayers who don't have the accumulated wealth, the benefits, the status, the prestige and the power and whose taxes will go up if the estate tax isn't collected from these enormous estates.
Yes, I'd also let most of the Bush tax cuts expire. Many are merely welfare entitlements for big business--such as allowing a credit, in the name of a stimulus, for research and development that would be done anyway and that should be expensed, not credited against the tax liability; or allowing deferral of taxation on active financing income in foreign subsidiaries. The individual rate cuts for capital gains and dividends resulted in too low a rate of taxation on those types of income flows that are predominantly enjoyed, again, by those at the top of the income distribution. That preference has come when economic growth has benefited those at the top while those at the bottom have suffered stagnating wages and real increases in prices for essentials. So I'd reinstate higher rates on capital gains and dividends. And I'd leave in place the other rate cuts for the lower brackets, but add a higher bracket surcharge. Ideally, that surcharge would be graduated, so those in the top 20% would pay the surcharge, those in the top 10% would pay more, those in the top 5% more, and those in the top 1% even more.
That's not class warfare. That is setting the tax burden in a way that appropriately allocates it to those who have the ability to pay.
We need to do this, because we need to ensure that the society can continue to provide public goods that are needed to underlay a sound, stable economic, social, and cultural system. (And as long as the war in Iraq continues, we are spending huge sums on the military that can't be diverted to these other important needs. If Stiglitz and Bilmes are correct in their assessment, that is $3 trillion to $6 trillion that is not able to be spent on infrastructure and other needs.) We need to spend considerably more money than we have been spending on roads and bridges, and we should spend much more on public transportation--intercity and intracity light rail lines in particular. We should also be spending much more on education. Every young person in this country should be able to attend college and receive a good education that prepares that person for a productive position in the modern economy. Lately, that American dream is becoming less of a reality for many. And we should be spending more to fund both basic research and research in health, agining and other areas of particular importance to our population.
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