Questions for conservatives

[Gustaf]

I'm afraid this is too stupid to be worth my time in responding. I suggest you take a basic course in economics (or maybe just try thinking a little) and you might get how this actually works.

It's NOT stupid at all. It's an empirical issue, not a theoretical one, and the empirical evidence is still mixed, as far as I understand. Do people really care about their kids and, if they do, how much and in which sense is very much an open issue. I wouldn't make categorical statements either way.

That there would be no effect on the margin goes against pretty basic theory, I'd say. I never quantified my statement. To take one example and think that it proves that there is no effect indicates having no understanding of how economics works.

[Gustaf]

It disincentivizes people to be successful.

That is a lie.

Reporter:  Hey Mr. Gates are you going to start Microsoft?

Bill Gates:  No.

Reporter:  Why not?

Bill Gates:  Estate Tax.

Reporter:  I don't get it.

Bill Gates:  (sighs)  If I start Microsoft and have to pay estate tax decades from now when I'm dead my heirs will only get $30 billion instead of $60 billion.  What kind of person would relegate their children to living on $30 billion?!  I simply can't do that to them.

Reporter:  But I thought you were going to give most of it away anyway?

Bill Gates:  That's irrelevant.

Reporter:  But if you don't start Microsoft your children will have to live on a lot less than $30 billion.

Bill Gates:  Again that is irrelevant. You must be a dumb ass Democrat liberal that doesn't understand economics.
The End.

I'm afraid this is too stupid to be worth my time in responding. I suggest you take a basic course in economics (or maybe just try thinking a little) and you might get how this actually works.

Like clockwork.

Yeah, I considered being cute about that, but, again, it didn't seem worth the effort. You seem to not really understand what I was saying, you see.

If you had said that the effect is unlikely to be very large I'd agree. I never claimed otherwise. But calling it a lie based on Bill Gates...well, that wasn't very convincing.

[ag]

That there would be no effect on the margin goes against pretty basic theory, I'd say. I never quantified my statement. To take one example and think that it proves that there is no effect indicates having no understanding of how economics works.

That's the danger of basic economics ) It makes things look simpler than they are.

Constructing a theory where it would even have an opposite effect wouldn't be difficult at all. Suppose I don't really like my children, but want everybody to think I like them. A large estate tax would give me an excuse to spend the money on myself or to donate it to my favorite cause - you know, kids, the government would have taken it all, anyway. But that would, actually, increase my incentives to earn: I'd be spending on my own precious self, not on those stupid kids.

Or, for that matter, how about this one. Expectation of inheritance could destroy incentives kids of rich people have to work: why bother, if I am going to have more money than I could possibly spend in a lifetime. If you think that children of good businessmen might inherit their parents' talents, this would be outright waste.

In fact, I could write zillions of fairly basic theories that could go either way. In principle, I could even find parameters under which even without any esoteric considerations of the sort mentioned above you'd be working the more, the higher you are taxed (income effects could be funny). True, you would be unhappier - but you would, actually, create more jobs ))

Or, for that matter, I might simply not care about kids. Yes, of course, people leave inheritances. But whether they do this for the sake of the kids, or because they don't know when they'd die and do not want to be penniless if they happen to live long, is not such a simple issue to resolve (I've seen some studies, and, if I recall correctly, there might be some bequest motive detected in them - but it is, definitely, not something easy to resolve).

Which one of these theories is right is not something you could resolve by thinking hard. You need to test it with real data. And doing that is not easy.

BTW, even if there is a distortionary effect of estate tax that would have people work less, there is no reason to believe that this distortion is bigger than the distortion from the income tax. So, given that, in any case, taxes should be collected, it could well be more efficient to tax estates more and incomes less. Once again, I am not claiming this - I don't know. But there is nothing so special about the estate tax that would make it obvious that it is something not to be done.

[ag]

To sum up, I am the econ prof here and I suggest that the claims of stupidty stop ))

[Gustaf]

That there would be no effect on the margin goes against pretty basic theory, I'd say. I never quantified my statement. To take one example and think that it proves that there is no effect indicates having no understanding of how economics works.

That's the danger of basic economics ) It makes things look simpler than they are.

Constructing a theory where it would even have an opposite effect wouldn't be difficult at all. Suppose I don't really like my children, but want everybody to think I like them. A large estate tax would give me an excuse to spend the money on myself or to donate it to my favorite cause - you know, kids, the government would have taken it all, anyway. But that would, actually, increase my incentives to earn: I'd be spending on my own precious self, not on those stupid kids.

Or, for that matter, how about this one. Expectation of inheritance could destroy incentives kids of rich people have to work: why bother, if I am going to have more money than I could possibly spend in a lifetime. If you think that children of good businessmen might inherit their parents' talents, this would be outright waste.

In fact, I could write zillions of fairly basic theories that could go either way. In principle, I could even find parameters under which even without any esoteric considerations of the sort mentioned above you'd be working the more, the higher you are taxed (income effects could be funny). True, you would be unhappier - but you would, actually, create more jobs ))

Or, for that matter, I might simply not care about kids. Yes, of course, people leave inheritances. But whether they do this for the sake of the kids, or because they don't know when they'd die and do not want to be penniless if they happen to live long, is not such a simple issue to resolve (I've seen some studies, and, if I recall correctly, there might be some bequest motive detected in them - but it is, definitely, not something easy to resolve).

Which one of these theories is right is not something you could resolve by thinking hard. You need to test it with real data. And doing that is not easy.

BTW, even if there is a distortionary effect of estate tax that would have people work less, there is no reason to believe that this distortion is bigger than the distortion from the income tax. So, given that, in any case, taxes should be collected, it could well be more efficient to tax estates more and incomes less. Once again, I am not claiming this - I don't know. But there is nothing so special about the estate tax that would make it obvious that it is something not to be done.

Eh, I know. That's why I support having an estate tax. You have a tendency to make very far-reaching conclusions about other peoples' opinions.

The reply that you just gave is hardly stupid, but I maintain that the one Link gave was. His second post even further underlined that he doesn't really get it.

Anyway, a model where the income effect is that strong goes against all the research I've come across on labour supply (although feel free to point to papers indicating this). And a model that assumes people don't care about their kids...well, that sounds like the kind of model bad economists would come up with. I think it is fairly reasonable to assume people on average do take their children into consideration to some extent.

As I said, I'd be inclined to agree that the quantitative effect of estate tax probably isn't very large. I never claimed otherwise.

[opebo]

I can certainly confirm that I would far rather the government get it than any members of my own family.

[Link]

It disincentivizes people to be successful.

That is a lie.

Reporter:  Hey Mr. Gates are you going to start Microsoft?

Bill Gates:  No.

Reporter:  Why not?

Bill Gates:  Estate Tax.

Reporter:  I don't get it.

Bill Gates:  (sighs)  If I start Microsoft and have to pay estate tax decades from now when I'm dead my heirs will only get $30 billion instead of $60 billion.  What kind of person would relegate their children to living on $30 billion?!  I simply can't do that to them.

Reporter:  But I thought you were going to give most of it away anyway?

Bill Gates:  That's irrelevant.

Reporter:  But if you don't start Microsoft your children will have to live on a lot less than $30 billion.

Bill Gates:  Again that is irrelevant. You must be a dumb ass Democrat liberal that doesn't understand economics.
The End.

I'm afraid this is too stupid to be worth my time in responding. I suggest you take a basic course in economics (or maybe just try thinking a little) and you might get how this actually works.

Like clockwork.

Yeah, I considered being cute about that, but, again, it didn't seem worth the effort. You seem to not really understand what I was saying, you see.

I think the problem is with the way you expressed yourself, not my comprehension.

It disincentivizes people to be successful.

I think if you made that statement to 100 people 99 would interpret it the way I did.

It disincentivizes people to be successful≠Sometimes in certain uncommon niche situations it may disincentives people but not to a degree that is germane to this conversation or economic policy.

There is a difference.

If you had said that the effect is unlikely to be very large I'd agree.

Unlike you that is exactly what I said...

Are there certain niche situations where it may come into play?  Sure, maybe.

But calling it a lie based on Bill Gates...well, that wasn't very convincing.

Unfortunately I have a limited writing staff so I could only put on a small play with a cast of two.  Some other characters that I considered budget permitting were...

Warren Buffet
Michael Bloomberg
Steve Jobs
Mark Zuckerberg
Micheal Dell
Michael Jordon
Tiger Woods

The list goes on.  I think you get the idea.  You are just going to have to trust me.  When Michael Jordon was practicing free throws in high school the vagaries of an oppressive estate tax were not on his mind.

At any rate if your position is that it is possible for an estate tax to discourage some kind of further risk taking when you are playing so far out on the curve already in certain isolated situations then sure I already stated I agreed with that before you wrote your rebuttal.

[ag]

I can certainly confirm that I would far rather the government get it than any members of my own family.

Nothing under the current US law, unless I am sadly mistaken, would prevetn Your Lordship from making arrangements to that effect while you are still with us.

[dead0man]

..and yes, we need to get used to higher unemployment numbers.  They will continue creeping higher and higher as we become more and more efficient.  This is (overall) a good thing.

This is nonsense: both because efficiency doesn't mean higher unemployment and because higher unemployment is, most definitely, a bad thing. Though, of course, that's a subjective statement: may be you like people suffering, I don't know. So let me modify this: it's a bad thing for those of us who are not sadists.

I don't think I was clear.  We are becoming more efficient, that is a good thing.  No, being more efficient doesn't require there to be higher unemployment, obviously, but we are certainly heading for a time when we will need fewer and fewer workers.  I certainly didn't mean to imply (and I don't really think I did) that higher unemployment is a good thing.  The "good thing" is us being more efficient and that there will be fewer people that have to work.

..but my point in posting was that we still manufacture a lot (more than ever and more than the PRC).  Our air isn't clean because manufacturing left.

[Beet]

Forgive me of my ignorance, the longer I am out of school, and not working in the econ field, the more my knowledge atrophies, whereas the more the knowledge of professionals such as ag grows are they build up more experience, but:

Where is the connection between higher efficiency and "needing fewer workers"? If the marginal cost of production declines, under the perfect competition model, wouldn't all of the gain be captured in consumer surplus? Lower prices, growing volume, and all that (and as far as total market size must grow, in the 19th cent. it was imperialism, today globalization under Pax Americana, that opens up new markets; one truly wonders how capitalism will change when the market is finally saturated globally or if technological advance slows dramatically). As Gustaf said, labor shifts elsewhere. This time it hasn't. Why not?

[Politico]

Do liberals realize that all of one's estate has already been taxed, in some cases multiple times already, and an estate tax is ultimately one last tax for dying?

I am not a liberal (in the US sense of the word), but why is that even relevant? What's wrong w/ taxing things in different ways - especially if some of these happen to be relatively non-distortionary?

I am not opposed to different forms of taxation, but I am philosophically opposed to essentially taxing somebody for dying. If people are dying without having paid enough taxes in their lifetime, the remedy is to ensure people do pay enough taxes in their lifetime rather than relying upon a death tax.

I strongly believe that individuals should be free to choose what happens to their estate without state interference. They can do a better job of passing along their legacy than the state. In my opinion, the honorable thing to do is pass along the vast majority of one's estate to productive organizations (e.g., charities, universities, etc.), not Opebo's beloved bureaucracies. But I do not think anybody has the right to tell somebody they cannot pass along everything they have bought and paid for onto their relatives, or whomever they please.

[Gustaf]

It disincentivizes people to be successful.

That is a lie.

Reporter:  Hey Mr. Gates are you going to start Microsoft?

Bill Gates:  No.

Reporter:  Why not?

Bill Gates:  Estate Tax.

Reporter:  I don't get it.

Bill Gates:  (sighs)  If I start Microsoft and have to pay estate tax decades from now when I'm dead my heirs will only get $30 billion instead of $60 billion.  What kind of person would relegate their children to living on $30 billion?!  I simply can't do that to them.

Reporter:  But I thought you were going to give most of it away anyway?

Bill Gates:  That's irrelevant.

Reporter:  But if you don't start Microsoft your children will have to live on a lot less than $30 billion.

Bill Gates:  Again that is irrelevant. You must be a dumb ass Democrat liberal that doesn't understand economics.
The End.

I'm afraid this is too stupid to be worth my time in responding. I suggest you take a basic course in economics (or maybe just try thinking a little) and you might get how this actually works.

Like clockwork.

Yeah, I considered being cute about that, but, again, it didn't seem worth the effort. You seem to not really understand what I was saying, you see.

I think the problem is with the way you expressed yourself, not my comprehension.

It disincentivizes people to be successful.

I think if you made that statement to 100 people 99 would interpret it the way I did.

It disincentivizes people to be successful≠Sometimes in certain uncommon niche situations it may disincentives people but not to a degree that is germane to this conversation or economic policy.

There is a difference.

If you had said that the effect is unlikely to be very large I'd agree.

Unlike you that is exactly what I said...

Are there certain niche situations where it may come into play?  Sure, maybe.

But calling it a lie based on Bill Gates...well, that wasn't very convincing.

Unfortunately I have a limited writing staff so I could only put on a small play with a cast of two.  Some other characters that I considered budget permitting were...

Warren Buffet
Michael Bloomberg
Steve Jobs
Mark Zuckerberg
Micheal Dell
Michael Jordon
Tiger Woods

The list goes on.  I think you get the idea.  You are just going to have to trust me.  When Michael Jordon was practicing free throws in high school the vagaries of an oppressive estate tax were not on his mind.

At any rate if your position is that it is possible for an estate tax to discourage some kind of further risk taking when you are playing so far out on the curve already in certain isolated situations then sure I already stated I agreed with that before you wrote your rebuttal.

*sigh*

Anyone who knows economics would know that any discussion on taxation is about aggregate effects on the margin. I mean, obviously I wouldn't be claiming that estate taxes would stop Bill Gates from founding Microsoft.

This is because your argument can be equally applied to income tax. If I were to say that income taxes (especially progressive ones) disincentivizes success you could also have made your cute Bill Gates example. And it would have been equally clueless.

Now, had you said "are you claiming that it would prevent people from becoming super-rich, because surely that makes no sense? I'm asking since I don't know much about economics so maybe I'm missing something" I would probably have replied with an explanation, an apology for not wording it clearer and a nice smiley.

But you decided to go with "that is a lie" and being all smartass-y about it. And people who are both ignorant and arrogant are very tedious to discuss with, in my experience.

And of course where you said that was not in the post I was responding to. But I'm glad you saw the light. I did point out that you could probably do it if you just thought a little instead of spending time trying to write zingers.

[ag]

This is nonsense (what Politico says). Dead people do not pay taxes: once you are dead, you don't do anything. The taxes are paid by the heirs. In fact, estates are already treated very lightly. The logical thing would have been to treat any estate income as income, at the normal rates for the income tax.

Also, there is every reason to believe that this tax is both less distortionary and less unpleasant for those that bear them, than the regular income tax. While the bequest motive might be there, it is also pretty well established that the big chunk of estates are left because of the precautionary motive: people don't know when they'd die and would like to have some wealth around in case they happen to live long and need expensive services as they get old. What you propose is to tax people, while they are alive: i.e. make them pay when they are old and might need these resources themselves, make it difficult for them to make savings for when they are at their most vulnerable, pushing them towards dependency in old age.

To sum up, this nonsense about "taxing death" is both bad policy (from the conservative standpoint) and sickening demagogy (from any standpoint).

[opebo]

I can certainly confirm that I would far rather the government get it than any members of my own family.

Nothing under the current US law, unless I am sadly mistaken, would prevetn Your Lordship from making arrangements to that effect while you are still with us.

yes, american law is terrible on that front - inheritance should be stipulated by law, not left up to the individual.

[Gustaf]

This is nonsense (what Politico says). Dead people do not pay taxes: once you are dead, you don't do anything. The taxes are paid by the heirs. In fact, estates are already treated very lightly. The logical thing would have been to treat any estate income as income, at the normal rates for the income tax.

Also, there is every reason to believe that this tax is both less distortionary and less unpleasant for those that bear them, than the regular income tax. While the bequest motive might be there, it is also pretty well established that the big chunk of estates are left because of the precautionary motive: people don't know when they'd die and would like to have some wealth around in case they happen to live long and need expensive services as they get old. What you propose is to tax people, while they are alive: i.e. make them pay when they are old and might need these resources themselves, make it difficult for them to make savings for when they are at their most vulnerable, pushing them towards dependency in old age.

To sum up, this nonsense about "taxing death" is both bad policy (from the conservative standpoint) and sickening demagogy (from any standpoint).

While that is all true, people do find it tasteless for emotional reasons which is a large part of the explanation for why estate taxes are controversial. It's been the same in Sweden with property taxes. Despite being a good tax it was abolished simply because people were too mad about it.

[muon2]

I am, emphatically, not a libertarian, but a free-market liberal (European usage of the word). I have nothing to say about what Ron Paul thinks - we, most definitely, are not on the same page on pretty much anything. We wouldn't even recognize each other's support of free markets, as we would fundamentally disagree on what IS a free market. I have no clue what makes sense to Ron Paul - he, sure, does not make any sense to me.

You can change religions, you can change political parties - no problem. I guess, you think religion is different from a party (as an atheist, I fail to see how, but ok). Fine.  Let it be the Republican party. So, once again, would a restaurant that only hires Republicans and only serves Republicans (and asks you to show a confirmation of a financial contribution to that party) be ok? You know, there are other restaurants in town - you can always go there. And if a restaurant is ok, why not a big plant or a school district? I am the boss of the major employer in town, I agree to give all my employees a 15% raise, as long as they spend half of that raise on contributions to Republican candidates, and I fire everyone who doesn't contribute. You know, you are a registered Republican, so you can vote in a primary and have an impact on who the candidates are. And, sure, you can go work for the Salvation Army if you don't like my factory. What's wrong about it?

This an excellent example. In IL for decades it was common practice with both parties in governmental offices for employees to have to pay to buy tickets to their bosses' party events or lose their job/promotion/etc. The law eventually forbid it, but the practice continued. It caught up to former Gov Ryan who raised money that way as SoS in the 90's. He is currently serving time in federal prison for exactly that crime.

[Politico]

Ag,

I tend to see eye to eye with you on issues of economics, but I think you are going a bit too far with regards to my comments on the estate tax. However, I do concede that I descended into the realm of politics a bit too much with my rhetoric about "the death tax."

This is nonsense (what Politico says). Dead people do not pay taxes: once you are dead, you don't do anything. The taxes are paid by the heirs.

If we want to get into semantics then you are absolutely correct that the taxes are actually paid or not paid by the heirs. However, by the same token, we have to consider that the estate is ultimately not transferred until the estate taxes are paid. This begs the question of who really owns the estate in the time between death and the payment of taxes: Who the dead person bequeathed the estate to, or the government? I believe the people of a free nation own the government, and it is not the case that the state implicitly owns the people and their possessions until they "pay their dues," or at least from the standpoint of the transferring of estates. I do not think this is a radical notion, at least not anymore than your comments on collective bargaining (which I agree with you on).

You must be logged in to read this quote.

You have to consider that the estate tax creates a forced market for lawyers/accountants who specialize in avoiding or enforcing the estate tax. I say forced because this market would not exist without the estate tax. It would probably be better for the economy if those lawyers/accountants were involved in other, more productive, areas. Furthermore, consider the case of a farm that has been passed along from generation to generation. Sometimes the heirs of these "family farms" are now forced to sell off their family farm to big agricultural companies in order for the estate tax to get paid. I think it is patently wrong for the government, intentionally or unintentionally, to create these types of distortions in favor of special interests.

You must be logged in to read this quote.

I agree with much of this, but you jumped to the conclusion that I believe people are taxed too little while they are alive, specifically in old age. That is not the case. My positions on this board have made it quite clear that I believe people are taxed enough already. If somebody else believes people are not taxed enough in their lifetime, they should make that argument in the court of public opinion, and let the chips fall where they may. In my opinion, the estate tax is pushing the envelope even further than it ought to. Finally, it is an especially unsavory tax, IMHO, especially with regards to many families that inherit farms.

[ag]

Well, the simplest reform to get rid of the issue of the "estate" being taxed would be to treat inheritance just as if it were regular income, to be taxed at a regular income tax rate. Of course, this would, in practice, mean sharp INCREASE in estate taxes in most cases. Which only serves to make the point: inheritances are not really much taxed. Which, from the standpoint of optimal taxation, would seem to be rather strange: taxing inheritance income would seem to be a less distortionary way (in comparison w/ taxing investment or wage income) of financing WHATEVER the level of public expenditure you'd think is optimal.

[ag]

I can certainly confirm that I would far rather the government get it than any members of my own family.

Nothing under the current US law, unless I am sadly mistaken, would prevetn Your Lordship from making arrangements to that effect while you are still with us.

yes, american law is terrible on that front - inheritance should be stipulated by law, not left up to the individual.

Well, unless you find costs of making a sworn will prohibitive, it would seem that now your Lordship shifts from making a statement about what you'd like to be done w/ your own posthumous assets to what you'd like to be done w/ those of other people. As your views, clearly, are only shared by a minority of US citizens, I can only advise you that, perhaps, you could issue appropriate regulations to deal w/ the estates of your serfs.

[ag]

While that is all true, people do find it tasteless for emotional reasons which is a large part of the explanation for why estate taxes are controversial. It's been the same in Sweden with property taxes. Despite being a good tax it was abolished simply because people were too mad about it.

This is why, rather than taxing estates it would make sense to tax the income the heirs get from the estates. This, purely formal, change, would have the impact of switching the default. Rather than taxing something otherwise not taxed, one could offer steep discounts off the regular income tax rates )

[Gustaf]

While that is all true, people do find it tasteless for emotional reasons which is a large part of the explanation for why estate taxes are controversial. It's been the same in Sweden with property taxes. Despite being a good tax it was abolished simply because people were too mad about it.

This is why, rather than taxing estates it would make sense to tax the income the heirs get from the estates. This, purely formal, change, would have the impact of switching the default. Rather than taxing something otherwise not taxed, one could offer steep discounts off the regular income tax rates )

How would this work though? Do you mean all income generated over a life-time that can be traced to inherited assets? Because that seems like it would be pretty thorny to monitor.

I'd also note that typically a traditional estate tax needs to be accompanied by a similar tax on gifts, since you want neutrality between inheriting and being given stuff.

Also, fun aside: last week I adjudicated a debate on essentially abolishing inheritance. 1st government, arguing for state confiscation of all inherited assets beyond a primary residence and $80 000 got the win from me.

[I spent the winter writing songs about getting better]

As long as Paris Hilton's alive, there's not going to be much support for abolishing the estate tax besides amongst obnoxious teabagger types.

[ag]

Actually, in the US gifts are taxable, I believe.

The simplest arrangement, of course, would be to treat gift and inheritance as income in the year you obtain it. Not that hard to monitor: your great-aunt has died and left you USD$50,000 in a year in which you earned USD$20,000, so your gross income should be USD$70,000 and that's it. Then, of course, you could have different rates not only for wage and investment, but also for inheritance income. But the default should be that it is your income, period.

[opebo]

Well, unless you find costs of making a sworn will prohibitive, it would seem that now your Lordship shifts from making a statement about what you'd like to be done w/ your own posthumous assets to what you'd like to be done w/ those of other people. As your views, clearly, are only shared by a minority of US citizens...

No, I'd just like there to be clear orders of inheritance - directly to the offspring, wife, etc, by strictly regulated shares.  None of this leaving it to favorites, cats, or the Philharmonic.

[ag]

Well, unless you find costs of making a sworn will prohibitive, it would seem that now your Lordship shifts from making a statement about what you'd like to be done w/ your own posthumous assets to what you'd like to be done w/ those of other people. As your views, clearly, are only shared by a minority of US citizens...

No, I'd just like there to be clear orders of inheritance - directly to the offspring, wife, etc, by strictly regulated shares.  None of this leaving it to favorites, cats, or the Philharmonic.

And I do love my cat.