ataxingmatter

Agribusiness, Food, Vegetarianism-----and Taxes

LindaMBeale — Thu, 19 Nov 2009 12:31:50 -0800

As some of you may know, I am one of the many people who eat a vegetarian diet. I don't eat cows, pigs, fish, whales, sharks, chicken, turkey, sheep, wild game, tame game... As I sometimes say when people ask me about my diet, I eat everything you eat, except for a very short list of items--the critters that can move themselves from one place to another (or move their appendages) under their own propulsion.

(Note that we often have two words for animals that we eat--their live-form word --e.g., cow, sheep, pig-- and their edible-corpse form word --e.g., beef, mutton, pork. That evolved when we borrowed the Romance language word for what we ate but kept the Germanic language word for the animals.)

It started when I was a child--I was one of those who would cut the meat into tiny pieces and then spread it all over my plate so it looked like I'd eaten it. The idea of eating a cow, with those beautiful liquid brown eyes, was repulsive. (My father came from a family with thirteen kids in the hills of Tennessee, so I'd seen cows up close.) I even took a whole piece of veal once and hid it behind the dining room cabinet (taking it out to the wastebasket after it dried)! I refused to eat the squirrel and venison that my dad brought home from hunting trips (mostly, if not always, somebody else's kill). I even refused to let my cocker spaniel share in that dead stock.

But now that I'm an adult, why do I maintain that diet? I get asked that a lot.

Funny, nobody says (with shocked exression)--"Gee, you eat meat? Why would anyone ever want to eat a toxins-laden dead corpse of an animal that lived a horrendous life and suffered an agonizing death? " But they do often ask--usually treating it as a good-natured tease about a wacky alternative diet--why I'd want to avoid eating corpses.

James McWilliams got me thinking about this again this morning, when I read his "Bellying up to environmentalism" in the Washington Post for Nov. 16, 2009, where he noted that we should be asking questions in the reverse, that make meateaters feel uncomfortable at defending their own meateating. After all, there's really no good reason for eating meat other than that someone is so addicted to its taste that he or she can't exert the willpower to do without it.

The whys for not eating meat, on the other hand, are legion. Let me just list a few here, from the mundane to the truly significant:

1. cooking is easier--throw veggies in a pot and steam them; throw veggies in a pot and make soup, throw veggies in a fry pan and fry them, throw beggies in a pot and bake them; and variants thereon

2. clean-up is a lot easier--none of that icky clinging greasy layer of animal fat on every pan

3. refrigerated leftover use is easier--throw the leftovers in a pot and steam them (etc. from one above) and there's none of that congealed lard on top of the leftovers in the fridge

4. rotten vegetables in the fridge are less disgusting than rotten corpses in the fridge

5. a decent diet is generally considerably cheaper

6. the more people who adopt a vegetarian diet, the more people who are currently going hungry could be fed: one of the many articles I've read said something that stuck with me (sorry, don't have the cite)--that it takes the same resources to feed one meat-eater that it takes to feed about 80 vegetarians. That's because of the huge waste as you use up primary foodstuffs to feed the animals that will be slaughtered, then use up primary energy stuffs to slaughter, process, ship and deliver the meat to the meat eater, compared to even transported vegetables (localvore, with vegetables, is even more saving of resources)

7. without meat-eating, there are no feedlots where animals literally eat and sleep out the remainder of their short lives in their own shit

8. you can have a small flock of hens who live out their natural lives with nice living conditions (indoor/outdoor)

disclosure: I had one hen who lived to be 22; she was still laying eggs up until the week or so before her death from natural causes

9. Hens lay bigger and bigger eggs each year that they live past the first year w(hen most are slaughtered) and they still lay fairly regularly

disclosure: 6 eggs every 7 days was typical in my experience

10. Even hens have personalities

disclosure: when I lived in upstate New York, I had one named Gumption who loved to fly up to the top of a two-story house and survey her domain, and another named "kiss me" who would follow me around all day like a pet dog

11. Animals that we eat are as smart as--or smarter than--animals that we keep for pets (pigs compared to dogs, for example)

12. Animals care for their young and suffer when their young are taken from them (think dairy cattle and the young that are bred so that the mothers will give milk)

13. Some eating of animals is even more obnoxious than the norm (think "veal calves" that are taken and put in tiny sheds to they can fatten without any musculature development or "foie gras" where geese are fattened by having food stuffed down their throats with a tube)

14. Life is precious: there is no reason to sacrifice animal lives to lead a decent human life, so why do it?

15. Agribusiness--the main way that animals are raised and sold for meat--is an environmental nightmare

use of fertilizers to grow the grain that is fed to the cattle that are fed to the humans results in polluted land, water and air and uses up petroleum and other resources
consolidation results in long transportation (inhumane to animals; wasteful of oil and gas resources)
the subsidies (including some tax expenditures) for agriculture have gotten out of control--costly, misdirected, ill-conceived, and essentially now a form of corporate welfare for huge agribusiness enterprises

16. A meatless diet is healthier for humans than a meat-based diet, so we could cut health-care costs by simply cutting out meat

17. The process of butchering animals is a cruel leftover from the dark ages--people who work in slaughterhouses are inured to suffering, and that may well spill over into their "normal" lives outside work

18. The process of butchering animals is itself a source of harm--

sick animals are slaughtered, making it possible that eaters of that dead flesh will be sickened as well (mad cow disease);
animals are slaughtered in the midst of their own excrement, and some of that excrement gets into the food chain (making people sick as well);
the leftovers from the animal slaughter have to be gotten rid of somehow, leading to even more water, land and air pollution
workers are exposed to awful conditions--not just the process of mercilessly killing animals day in and day out, but also the risk of infection and injury on the line

19. The use of antibiotics in animal feed (given to healthy and unhealthy animals alike) ensures that resistant strains will develop even more rapidly, while leaving excess antibiotics not absorbed by the animals to pass out in their urine and excrement and into the land and water to act as toxins to others (including fish and birds and humans) leading to additional environmental nightmares...

20. Agribusiness pig farms and cattle feedlots are a blight on any humans within their vicinity (as well as a disaster for the natural world, noted above under environmental problems) from the stench of the manure (that can pollute the countryside for miles around) to the ugliness of the barren, treeless manure-laden fields.

So what to do? Maybe we should enact an excise tax on all meat products, like a"sin" tax for sodas and sweets and cigarettes. Comments, anyone?

PS if you want to read about various "food safety" bills that are heading through Congress--and get the take of anti-corporatist writers on the subject of industry involvement in pushing particular views of what's good for us through the regulatory process--see this posting on the issue at Farm Wars.

Derivatives Regulation

LindaMBeale — Wed, 18 Nov 2009 16:27:19 -0800

Senate Banking Committee Chair Sen. Dodd is developing one bill for regulation of the financial sector. The Obama Administration has, of course, made various proposals for regulation. Now two House Democrats--Financial Services Committee Chair Barney Frank and Agriculture Committee Chair Collin Peterson --are indicating that they will push for more transparency and accountability for derivatives in whatever legislation is passed. Unlike the Obama Administration's proposal to exempt foreign exchange derivatives, the two House committee chairs want those to be exchanged either through clearing houses or on exchanges, to ensure greater transparency. See Grim and Nasiripour, Two Leading House Dems to Close $50 Trillion Loophole in Derivatives Reform Bills, Huffington Post (Nov. 18, 2009).

The banks don't like the idea. They still seem to think that they should be able to make money as they have in the past, in spite of the fact that the government has come to their rescue to ensure that they serve the public interest, not their private gains.

Perhaps the greatest problem with derivatives is that letting companies enter into "customized" derivatives with non-trade terms ensures that there will always be ample leeway for avoiding transparency and accountability. Derivatives can be tweaked and engineered to be an 'exclusive' product for each customer. Combine customized derivatives with the shadow financial system of hedge funds and the tangle web of counterparty relationships by which investment banks and hedge funds work together in the capital markets, and we are left with a great deal of space where the sunshine does not reach. Whatever regulation we put in place needs to reveal more about what goes on and perhaps prohibit some of the kinds of interlocking relationshiops that echo too eerily the way investment banks operated in the early 20th century, as described by Louis Brandeis in "Other People's Money."

Get Paid by the IRS to be Audited? Ayres and Nalebuff come up with a wacky idea

LindaMBeale — Tue, 17 Nov 2009 02:30:00 -0800

A recent article (hat tip to tax prof) suggests that we should pay taxpayers $3000 to be audited--in fact, pay them so much that in many cases it would overcompensate taxpayers for the trouble. See Ayres & Nalebuff, Winning the Audit Lottery, Forbes (Nov. 30, 2009).

Their argument goes like this:

1) more people should be audited--only about 2 per 1000 are now--or we need to be able to better target audits

2) but the intensive audits necessary to help the IRS better target audits are "an unfair burden for those who were slected" and led to "anti-IRS pressure" and the elimination of the "superaudit" program.

3) so therefore we should pay people to undergo the "extreme audit."

It would overcompensate most, but "go a long way to reducing the public opposition to auditing."
"The cost of an audit is just the kind of risk that government should insure"
the higher revenue from additional audits "should more than cover the costs of compensation"
this will help "end the stranglehold that anti-IRS forces have on compliance efforts"--becuase it is similar to the "Takings Clause" requirement that a government should be forced to compensate for use of its power

This is nuts. My list of reasons could be quite long. I'll stick to just a few.

1) Almost 90% of the population thinks that we should comply with the tax laws. If you start paying taxpayers to undergo audits, it is quite likely to have the opposite effect--can't you see the right-wing anti-tax nuts running ads that say things like "the government these days has to PAY people to undergo an audit--shows what a mess the tax system is" or "when the government pays taxpayers to be audited, it must mean that they know the audit is an unfair burden for anyone to bear"?

2) If the IRS pays to audit, it will want to make that payment pay off. Audits under this regimen would likely be harsher, and cause more taxpayer antipathy, rather than easing concerns. (This is similar to a comment by Peter Pappas on tax prof.)

3) We know that audits are a useful enforcement tool, so we should fund the IRS sufficiently to permit it to enforce the law appropriately. Paying taxpayers just distracts from the underlying issue--the fact that the number of audits has declined markedly over the last few decades, and the intensity of the audits has as well, as more audits are conducted as "paper" audits that don't reveal as much

4) Although most taxpayers are compliant, there are, we know, a number of really big tax cheats--like the people that hid money overseas, or the Wesley Snipes actalikes that just stop filing tax returns. We shouldn't be paying those cheats to undergo audits. The typical honest taxpayer's anger will necessarily rise--sort of like the bailouts for the banks, followed by the ridiculous bonuses partly funded--no matter how you cut it--out of taxpayer dollars. People just don't like that happening.

Congress undoing its own good works: HR 4068/S 2771 Small Business Penalty Relief Act of 2009

LindaMBeale — Mon, 16 Nov 2009 15:20:07 -0800

Most of the "American Jobs Creation Act of 2004" was poor tax policy that amounted to a tax windfall for businesses giving them their "wish list" of corporate welfare tax cuts--including especially the "temporary DRD" permitting multinationals to bring income home at a very low tax rate (and encouraging them to hold it invested overseas after the break ended until they can persuade Congress to give them a similar break again), the "manufacturing activity deduction" in section 199, the increased expensing of capital assets, the reduction of the foreign tax credit baskets so that multinationals could now cross-credit foreign taxex, look through treatment for noncontrolled company dividends, repeal of the AMT limitation on the foreign tax credit, extension of the active financing exception (letting banks treat their passive income as active income), and on and on.

But there were a few decent provisions in the bill--mostly as revenue raisers to offset some of the corporate largesse. The act imposed disclosure requirements for reportable transactions and much stiffer penalties for failure to disclose. These new penalties suggested that Congress finally intended to get serious about tax shelters and tax evasion generally. By giving the Treasury regs on disclosure some bite--$50,000 for a reportable transaction disclosure failure and $200,000 for a listed transaction disclosure failure--Congress was warning taxpayers not to play the "audit lottery game" by which they hoped to "get by" with avoidance techniques by flying 'under the radar'.

Not surprisingly, complaints about the "harshness" of the penalties were immediately forthcoming. Note that nobody needs to pay the penalty, since every taxpayer can affirmatively disclose. Thus, there's little basis for sympathy for someone who pays a penalty for failure to disclose.

But also not surprisingly, a bunch of corporate-friendly legislators has now proposed to undo the compliance-aiding penalties in the proposal of a "Small Business Penalty Relief Act of 2009 (HR4068/S2771).

Senators Baucus (who has tended to favor corporate tax breaks) and Grassley (ditto) along with John Lewis and Mike Crapo in the House claim that SEction 6707A needs to be modified to limit the penalty to 75% of the tax benefit received, with a minimum of $10,000 for corporations. They claim that this is necessary because "small businesses are being hit with millions of dollars in penalties" when the penalties were intended for "big corporate tax shelters." See press release and text of legislation (on BNA). See Vaughn, Bill Would Reduce IRS Penalties for Some Small-Busines Owners, Dow Jones (Nov. 16, 2009).

The release claims that small businesses "unknowingly" invest in listed transactions and shouldn't bear such a high burden. Doesn't make sense. Small businesses do tax shelters, and there's no excuse for lack of reporting. Why shouldn't they pay penalties that are large enough to be felt? The result is that these corporate-friendly Congressmen want the businesses to retain 25% of the value of using a listed transaction! Nuts. Penalty for these kinds of transactions should be more than 100% of the benefit received, to make them complete losers for the company. Amounts above 100% of the benefit are reasonable, since it is intended to be a penalty and not just a loss of unmerited benefits. Otherwise the tax lottery--the fact that many transactions are not discovered, or even if discovered are not adequately analysed to recognize them as tax shelters--will pay off again and again as companies get a percentage of the tax benefit AND the time value of the deferral in assessment of the tax due.

It is very easy to be aware of whether you are engaging in a listed transaction, and It doesn't take much of a tax lawyer to do the required analysis. Any small business that is engaging in listed transactions probably knows it is doing so, since they are generally transactions that are extraneous to the business and result in phantom losses that give great tax benefits without any corresponding economic loss.

The senators' and representatives' sympathies are misplaced. This is one more tax cut for corporations, while ordinary Americans are losing jobs and moving from the middle class into the lower income divisions daily.

Dodd's Financial Reform Proposal

LindaMBeale — Mon, 16 Nov 2009 11:57:04 -0800

I'm still waiting for Congress to take real action to deal with the hegemony of huge financial institutions, including the "shadow banking system" of hedge fund ownership of banks and other institutions.

Last week, I noted that Dodd has come out with a bill that does not pretend to hoe the party line. Whether that is good or not remains to be seen. But at least discussion of these issues seems tobe heating up again, now that we are a full year past the Sept. 2008 blowup.

Here are some useful links on these issues.

the discussion draft of Dodd's bill
Summary of Discussion Draft
Dodd, Banking Committee Deomcrats Unveil Comprehensive Financial Reform, Senator Dodd website (Nov. 10, 2009)
Financial STability Bill: Loopholes Destabilize It, Karl Denninger (Nov. 16, 2009) (setting out several key criticisms of bill's provisions)
Another Cost of Too-Big-to-Fail, James Kwak (Nov. 16, 2009) (addressing the value for TBTF institutions in terms of their savings on costs of funds--amount to 29 basis points from 2000-2007 and 78 basis points from fourth quarter 2008 through second quarter 2009)
The National Review: The Wrong Financial Fix, NPR (Nov. 12, 2009) (weighing in to claim that the Dodd approach is wrong because it is "undermining the institutions that have performed relatively well, such as the FDIC, politicising the Federal Researve, and creating a raft of new regulators with disconsonant mandates")

The FDIC's main failing was its decision to stop collecting insurance premiums from the banks it backstops for a decade. Had it collected them, it would have had a much more comfortable capital cushion during this crisis. The Fed's failings were more complex: ignoring the asset-price bubble in housing because rising home prices make homeowners happy, missing the fact that securitization had served to concentrate risk rather than to disperse it, and suffering from a consequent inability to foresee the deep and interlocking dangers presented to the world financial system by the housing bubble. (And it bears keeping in mind that the housing bubble itself was in no small part the outcome of longstanding government policies.)

Capital gains taxation and Medicare

LindaMBeale — Fri, 13 Nov 2009 03:00:00 -0800

I've often lamented the way the capital gains preference works. First, it distorts taxation by providing a clear preference for capital income over labor income. The purported rationale for the preference is based in economic theories that, as we have seen repeatedly, assume away most of the real world and satisfy themselves with mathematical formulations of human societies that are often so far removed from actual behavior that they may be little or no use as guidance for policy setting.

The capital gains preference justification has several veins. They include:

1) the idea that savings and investment should be preferred, so that those funds will help to "grow" the economy by funding businesses, creating jobs, etc.

2) the idea that capital is more "elastic" than labor and thus taxes on capital are more distortive

3) the idea that capital income is realized at a point in time but reflects increased value accumulated over a long period of time, so that part of the realized amount is actually inflation rather than increase in real wealth, and

4) the concern that if capital gains are taxed, investors will "lock in" their investments to avoid tax rather than selling, suffering a tax "hit" and re-allocating their resources appropriately according to the changing economy.

There are others, but these are perhaps predominant.

While there is some merit in each of these basic ideas, there are also significant counterarguments, alternative concepts that might lead to very different conclusions about whether it is appropriate to have a preference for capital gains (lower or no taxation) compared to labor income (higher and certain taxation).

For example, if one values a more egalitarian society where all members of the society have adequate opportunities to develop human capital, provide a decent life for themselves, and grow as individuals (a fundamental premise of democratic egalitarianism as espoused here), the preference for capital income, on efficiency grounds, is seen to be lacking. It emphasizes efficiency over everything else (like fairness). And it relies on a market-based theory that has been found lacking in accurately describing human behavior. Further, it is not clear that taxing labor and not-taxing capital leads to better economic growth. The academic literature that looks at the periods of broad-based economic growth seems to suggest that broad-based growth is ultimately better, and that broad-based growth depends on not disadvantaging labor vis a vis capital.

Capital is generally more elastic--most people with capital assets have lots of assets, while most people who labor for their income need to labor for their income. And capital is certainly more fungible than labor--at least to the owner of capital income versus the owner of labor income. But of course one problem that has shot into prominence in this fiscal crisis is the fact that owners of capital view labor as fungible. Need more money. Fire people. Want more to pay your top executives. Cut jobs at the lower end. Wanna distribute dividends. Fire people. The route to higher profits for owners is to push labor to perform even more productively or substitute machines for people or both. That doesn't necessarily lead to a good society. Over time, the results may be that the society transitions from one type of economy to another, but the transition period is catastrophic for the cut laborers, many of whom cannot find any real replacement jobs. Not clear, in other words, whether these factors should weigh in favor of favoring capital. Yes, someone with capital can take it out of one investment and put it in another, and tax on one and not the other could distort the decision. Maybe we need to deal with that, as far as our taxation of capital income goes, by being more careful to avoid rules that set up category distinctions. Maybe we need to mark-t0-market all financial investments.

The inflation argument has some heft, but it carries too far. Remember that there are ways to monetize assets without being taxed on them (called loans). And that the rules that exist now are extraordinarily favorable--monetize with a loan, die, leave to an heir who gets stepped up basis, the heir sells some (pays off the loan) with no gain, then retains plenty for another generation to do the same..... And of course, labor income is taxed through a withholding regime that collects the tax immediately while capital income gets maybe a 15-month (at least) delay since it is not taxed under withholding. And capital income can be selected--the timing and the amount are often in the hands of the holder of the financial assets (I'll sell the loss asset now; I'll hold the gain asset longer, etc.).

The lock in effect may be real, but one suspects it is overstated as well. Day trading certainly hasn't been deterred by the tax hit. And it is interesting that an objection to the estate tax seems to contradict the concern about lock in. Estate holders don't like it that the estate tax may force them to sell wildly appreciated assets (sometimes; some portion of the assets). But if lock-in is real, then this generational forced sale of some of an estate's assets would be a good, not a bad effect, of the estate tax.

So I, among others, have recommended that one way we can help pay for health care costs is to apply the payroll taxes (Medicare and Social Security) to capital gains and other income from capital (i.e., dividends, etc.) and not just to labor income. Looks like that idea has finally begun to see some daylight. Orszag, the White House Budget guru, has noted it as one thing "in play" to pay for health reform (instead of taxes on high-end insurance plans). See Orszag Says Capital Gains Medicare Tax 'in Play' on Health Bill, Bloomberg.com, Nov. 12, 2009.

Here again Obama's silly pledge not to raise taxes on anyone earning less than $250,000 (a quarter of a million annually) comes into play. The proposal only applies Medicare taxes to non-wage income for US couples earning above that amount. Id. But at least it does require "the very wealthiest Americans who have enjoyed tax cut after tax cut over the past eight years to pay their fair share." Id. (quoting USAction program director Alan Charney).

Financial INstitution Regulation--Dodd's proposals

LindaMBeale — Thu, 12 Nov 2009 03:00:00 -0800

Well over a year into the financial crisis, we still have no new approach to too big to fail (TBTF) banks, no new approach to exotic derivatives including synthetic CDOs, credit default swaps and others; no new approach to foreclosures; no new approach to regulation of the speculative, nonproductive activity that results in huge paychecks for a few thousand bankers and huge risk passed along to ordinary people through an implicit government guarantee. It's time to act, and action means doing some things that won't be liked by those who benefited from the bailout of banks and from the return to making money on trades instead of banking. Does this Congress have the gumption to do it?

Chris Dodd, chair of the Senate Banking Committee, has unveiled an ambitious plan for regulatory reform of the financial sector. The Fed would not be the overseer of banks but would be confined to its appropriate role of setting monetary policy. Consumer protection and bank regulation would be taken out of the Fed and put into a new regulatory agency. The Fed doesn't like it, of course; it asserts that regulating the big banks is part of the task of guiding the economy. See Cho, Dennis, and Irwin, Dodd's reform plan takes aim at the Fed, NY Times (Nov. 11, 2009). LIke the administration, Dodd's plan would also impose tougher capital standards and leveraging restraints, establish a new consumer protection agency, and punish financial institutions for recklessness. Geithner was making nice but apparently only because Frank had explained to him the considerable depth of the people's revulsion for the extent to which the Fed has aimed at returning us to the status quo ex ante of big banks that take a federal guarantee for granted so that losses are socialized, gains are privatized.

The Times reports that Bernanke "views the Fed's role in supervising banks as core to its mission." If that is so, why didn't the FEd do a better job of it back when this crisis was under development? And why have banks like Goldman and others been able to benefit magnificently from the federal guarantee and bailout of AIG, yet get away with claiming that they were "fully hedged" and so had no fears of loss?

More on the Estate TAx--the Heritage Foundation speaks gobbledygook

LindaMBeale — Wed, 11 Nov 2009 17:07:11 -0800

note: for some reason, the original item posted under the wrong date (it wasn't completed until Nov. 11 but published as though it were Nov. 10, and then also posted as the right date). I'd delete one posting, but there are comments on both, so I will leave both up. Sorry, in advance, for the confusion.

hat tip to Tax Prof and its commenters

The Heritage Foundation, I'm afraid I've concluded, is not a "think tank" at all--it's a propaganda tank. And the propaganda it spews tends to be in support of ideas that may sound sort of okay if you don't probe them very deeply but are apparently intended to further the benefits of society for the elites who already enjoy most of the benefits of society.

Look at their most recent take on the estate tax. Beach, Seven Reasons Why Congress Should Repeal, Not Fix, the [Estate] Tax (Nov. 9, 2009). (Yes, I "corrected" the title--after all, the use of "death tax" is an attempt to use emotions about death to move people to hold particular positions about the tax. And there's no such thing as a tax on death--death is not taxable income. What is taxed is the estate left by the decedent to heirs or beneficiaries who did nothing to earn it. So estate tax is the correct name, and death tax is a manipulative play on words.)

I've argued here, of course, that the current fiscal crisis (brought on by many of those people, by the way, whose estates will likely be big enough to be subject to the estate tax if we are not so foolhardy as to repeal it before they die) calls for rethinking the "tax cuts are always good" mentality that was set in motion with Ronald Reagan's "privatization, deregulation, militarization, and tax cut" dogma. We do need to rebalance our budget once we are through this crisis, and a good place to begin is by getting rid of tax loopholes that don't make sense and retaining or even increasing taxes that make a lot of sense. The estate tax is a tax that makes a lot of sense and should probably be increased, not eliminated.

(ASIDE: Reagan is often treated as though he was a great philosopher. What he was was a master of sound bites and a person with rigid views that were self-contradictory. You can't increase military spending, privatize government function at great costs to the government, and cut taxes to pay for those new subsidies for private business and the military-industrial lobby without running up huge deficits. So he had a big tax cut, and then tried to make up for it with a bunch of tax increases.)

So how does the Heritage Foundation seek to justify its proposal for repeal of the estate tax? It provides seven arguments:

1) the estate tax discourages savings and investments

True, to some extent, but probably much less so than proponents of repeal would have us believe. Any tax discourages what is taxed, so labor taxes discourage labor and taxes on capital income discourage savings. But much less so in the case of the estate tax (compared to a tax on wealth as it is accumulated). The estate tax doesn't have much effect on living accumulators, because their goal is to accumulate ever more--if anything, the estate tax may encourage saving so that they will have "enough" to leave. So while the Heritage Foundation says that the estate tax sends a signal in favor of consumption, the fact is that estates are continuing to grow at phenomenol rates. IN fact, we might well want to encourage the wealthy to consume more and even say that this might be a very positive incentive effect of the estate tax, if only it were true. Wealthy consumption would reduce the size of the estate and limit the windfall power of plutocracies.

Of course, the estate tax doesn't have any effect once the one who gathered the estate dies--the decedent can no longer be incentivized to save or not. The estate tax doesn't have any incentive effect on the people who acquire the estate (heirs, beneficiaries) since they are getting a pure windfall, whatever they receive.

2. The estate tax undermines job creation.

The Heritage foundation is claiming that the tax money is kept out of the investment stream and therefore undermines job creation. This is just a restatement of the same argument in item one.

Again, no empirical evidence here, of course. Right-wing economists consistently claim that the wealth in estates would be the source of powerful job creation entrepreneurialism if only we would leave that tax money as well to heirs, so they could invest to create jobs, but there's no evidence to support that claim. Entreprenuerialism doesn't ordinarily come from wealthy heirs to estates sitting in their effortlessly acquired empires. In fact, again, it is more likely that dispersal of big estates would do more for job creation than letting heirs continue to horde the wealth set aside by their benefactors in hidden overseas bank accounts or invested in emerging markets or in other ways passively collecting income as most capital assets do. Even if letting heirs receive that tax money to invest rather than giving it to the federal government might create a few jobs, it is equally true that government spending with the same money creates jobs and perhaps does it better. Heritage's argument here just amounts to the same old saw that government is less efficient at using money than the private sector is. And again, this is simply not an established fact. In fact, we have evidence to the contrary in many instances--there are numerous examples that privatization is less efficient/more costly at getting the same job done. Take subsidized student loans compared to direct student loans without banks as intermediaries. The first costs the government money (to subsidize the banks) while the latter makes money for the government. Take Blackwater (now Xe Company). It's employees are paid 2 to 6 times what soldiers are paid for doing the same job. Not more efficient, and in fact more costly. and fewer jobs because each job is paid so much. There are numerous examples that privatization is less efficient at getting the job done and that government may in some, maybe many, instances be better at job creation than rich guys hording wealth or buttressing up under-utilized family ranch empires.

3. Estate taxes suppress productivity and wage growth

This is just another version of two which was another version of one, since what the Heritage Foundation says is that productivity and wage growth are suppressed because there is less investment that keeps businesses from buying tools and equipment that keeps them from hiring new employees. As noted, maybe some investment isn't made that would have been made, but also government spending takes place that wouldn't have taken place. Hard to be sure where the tradeoff is in terms of productivity and wage growth. To the extent that the estate tax repeal amount would be horded in unproductive, locked in investments, releasing it to the government, which spends it back out into the main stream of the economy might well multiply the productivty much faster.

4. Estate taxes contradict the central promise of American life--wealth creation.

Folderol. The central promise of American life is not plutocracy--it is the promise that everyone has opportunity to live a decent life--to acquire life's necessities and to live secure in their homes. There is in fact a conflict between that true conception of the central promise of American life and the conception forwarded by the Heritage Foundation, because if the wealthy elite is able to continue consolidating their stranglehold over the wealth of this country without contributing to the common good through taxation (as the capital gains preference, nontaxation until realization, and repeal of estate tax would mean), we will end up with a have and have-not society, with the haves living in gated communities and the have-nots left to struggle in a very rigid and immobile class structure without opportunities for advancement.

5. Estate taxes hurt those who have tied their savings up in land

This is the same old canard that the estate tax causes the loss of family farms and ranches. It's simply not even true, as has been explained countless times (there are special provisions to provide an installment payment so that the limited taxes due can be paid out of the income).

Then the Heritage Foundation seems to suggest we should pity those wealthy farmers and ranchers whose land value has increased astronomically so that their immensely grown wealth means they do have some tax to pay and they might end up deciding to sell some small part to pay whatever taxes are due. So? just because they own it in the form of land, we are supposed to say--don't ever pay any taxes, just continue to accumulate immense wealth, and pass it on to your heirs so that they can become a plutocracy? I don't think so.

6. Estate taxes hurt African American business owners

The Heritage Foundation only talks about African Americans when it is attempting to co-opt a group and get them to support something against interest. This is not about African Americans but about businessmen--an argument that people who have businesses ought to be able to pass them along without being taxed.

7. Estate taxes hurt women business owners

Again, this hasn't got anything to do with women. It's about business owners, just like number 6. A

nd there is no real showing, by the way, that the estate tax hurts small business owners. The estates of small business owners are almost always below the exemption level. The estate tax gets the Bill Gates (Microsoft) and Waltons (WalMart) type business owners. And they can clearly afford to pay some tax. The Heritage Foundation in items 6 and 7 is simply trying to pull on heart strings. In fact, there is no reason at all to let the Walton billions accumulate and consolidate power once Sam Walton is gone.

This is pretty much a garbage piece. Although Beach, the author, has a title with the terms "data analysis" in it, there is no data analysis in this opinion piece. There are three footnotes. One presents a very incomplete picture about the politics behind the Bush Congress's ridiculous bill dealing with estate tax (gradual decrease in the amount of tax collected until 2010, when the tax would be repealed for one year, but then the tax would spring back into life as it was pre-2001 when all of the Bush Congress's tax cuts died their natural planned death). One is a quote to the author's own work claiming that estate taxes "kill the economy" (hardly credible, since the economy actually has done much better in periods of history when it was much higher than it is now, and performed only weakly under the Bush tax cuts). One is work by Holtz-Eaken and Cameron Smith where they "present an argument" that repealing the estate tax--ie "investing" (if it was invested) the taxes saved--would create 1.5 million jobs. That's a very weak piece itself.

For more comments, look at the commenters on tax prof. I particularly like an anonymous posting, where he notes (again substituting the correct term and providing only part of his comment) that

1) lack of [estate] taxes encourages investment lock-in and inhibits efficient allocation of investments

2) lack of [estate] taxes inhibits job creation (see 1)

3) lack of [estate] taxes discourages the real central promise of American life--that hard work and smarts, and not being born lucky, are to be rewarded

4) lack of [estate] taxes discourages the 19th century view that wealth comes from holding huge tracts of under-utilized land.....

And there's Chet Hardy's statement (an excerpt only here):

Its just amazing that the same people who decry deficit spending (Sen. Jon Kyl) turn on a dime and advocate repealing the estate tax. That's $20 billion per year folks. To put that in perspective, that's enough to provide health care to every child who doesn't have it. Its enough to build a new High Speed Rail line every single year.

More on the Estate TAx--the Heritage Foundation speaks gobbledygook

LindaMBeale — Tue, 10 Nov 2009 22:58:00 -0800

hat tip to Tax Prof and its commenters

So how does the Heritage Foundation seek to justify its proposal for repeal of the estate tax? It provides seven arguments:

1) the estate tax discourages savings and investments

True, to some extent, but probably much less so than proponents of repeal would have us believe. Any tax discourages what is taxed, so labor taxes discourage labor and taxes on capital income discourage savings. But much less so in the case of the estate tax (compared to a tax on wealth as it is accumulated). The estate tax doesn't have much effect on living accumulators, because their goal is to accumulate ever more--if anything, the estate tax may encourage saving so that they will have "enough" to leave. So while the Heritage Foundation says that the estate tax sends a signal in favor of consumption, the fact is that estates are continuing to grow at phenomenol rates. IN fact, we might well want to encourage the wealthy to consume more and even say that this might be a very positive incentive effect of the estate tax, if only it were true. Wealthy consumption would reduce the size of the estate and limit the windfall power of plutocracies.

Of course, the estate tax doesn't have any effect once the one who gathered the estate dies--the decedent can no longer be incentivized to save or not. The estate tax doesn't have any incentive effect on the people who acquire the estate (heirs, beneficiaries) since they are getting a pure windfall, whatever they receive.

2. The estate tax undermines job creation.

The Heritage foundation is claiming that the tax money is kept out of the investment stream and therefore undermines job creation. This is just a restatement of the same argument in item one.

Again, no empirical evidence here, of course. Right-wing economists consistently claim that the wealth in estates would be the source of powerful job creation entrepreneurialism if only we would leave that tax money as well to heirs, so they could invest to create jobs, but there's no evidence to support that claim. Entreprenuerialism doesn't ordinarily come from wealthy heirs to estates sitting in their effortlessly acquired empires. In fact, again, it is more likely that dispersal of big estates would do more for job creation than letting heirs continue to horde the wealth set aside by their benefactors in hidden overseas bank accounts or invested in emerging markets or in other ways passively collecting income as most capital assets do. Even if letting heirs receive that tax money to invest rather than giving it to the federal government might create a few jobs, it is equally true that government spending with the same money creates jobs and perhaps does it better. Heritage's argument here just amounts to the same old saw that government is less efficient at using money than the private sector is. And again, this is simply not an established fact. In fact, we have evidence to the contrary in many instances--there are numerous examples that privatization is less efficient/more costly at getting the same job done. Take subsidized student loans compared to direct student loans without banks as intermediaries. The first costs the government money (to subsidize the banks) while the latter makes money for the government. Take Blackwater (now Xe Company). It's employees are paid 2 to 6 times what soldiers are paid for doing the same job. Not more efficient, and in fact more costly. and fewer jobs because each job is paid so much. There are numerous examples that privatization is less efficient at getting the job done and that government may in some, maybe many, instances be better at job creation than rich guys hording wealth or buttressing up under-utilized family ranch empires.

3. Estate taxes suppress productivity and wage growth

This is just another version of two which was another version of one, since what the Heritage Foundation says is that productivity and wage growth are suppressed because there is less investment that keeps businesses from buying tools and equipment that keeps them from hiring new employees. As noted, maybe some investment isn't made that would have been made, but also government spending takes place that wouldn't have taken place. Hard to be sure where the tradeoff is in terms of productivity and wage growth. To the extent that the estate tax repeal amount would be horded in unproductive, locked in investments, releasing it to the government, which spends it back out into the main stream of the economy might well multiply the productivty much faster.

4. Estate taxes contradict the central promise of American life--wealth creation.

Folderol. The central promise of American life is not plutocracy--it is the promise that everyone has opportunity to live a decent life--to acquire life's necessities and to live secure in their homes. There is in fact a conflict between that true conception of the central promise of American life and the conception forwarded by the Heritage Foundation, because if the wealthy elite is able to continue consolidating their stranglehold over the wealth of this country without contributing to the common good through taxation (as the capital gains preference, nontaxation until realization, and repeal of estate tax would mean), we will end up with a have and have-not society, with the haves living in gated communities and the have-nots left to struggle in a very rigid and immobile class structure without opportunities for advancement.

5. Estate taxes hurt those who have tied their savings up in land

This is the same old canard that the estate tax causes the loss of family farms and ranches. It's simply not even true, as has been explained countless times (there are special provisions to provide an installment payment so that the limited taxes due can be paid out of the income).

Then the Heritage Foundation seems to suggest we should pity those wealthy farmers and ranchers whose land value has increased astronomically so that their immensely grown wealth means they do have some tax to pay and they might end up deciding to sell some small part to pay whatever taxes are due. So? just because they own it in the form of land, we are supposed to say--don't ever pay any taxes, just continue to accumulate immense wealth, and pass it on to your heirs so that they can become a plutocracy? I don't think so.

6. Estate taxes hurt African American business owners

The Heritage Foundation only talks about African Americans when it is attempting to co-opt a group and get them to support something against interest. This is not about African Americans but about businessmen--an argument that people who have businesses ought to be able to pass them along without being taxed.

7. Estate taxes hurt women business owners

Again, this hasn't got anything to do with women. It's about business owners, just like number 6. A

nd there is no real showing, by the way, that the estate tax hurts small business owners. The estates of small business owners are almost always below the exemption level. The estate tax gets the Bill Gates (Microsoft) and Waltons (WalMart) type business owners. And they can clearly afford to pay some tax. The Heritage Foundation in items 6 and 7 is simply trying to pull on heart strings. In fact, there is no reason at all to let the Walton billions accumulate and consolidate power once Sam Walton is gone.

For more comments, look at the commenters on tax prof. I particularly like an anonymous posting, where he notes (again substituting the correct term and providing only part of his comment) that

1) lack of [estate] taxes encourages investment lock-in and inhibits efficient allocation of investments

2) lack of [estate] taxes inhibits job creation (see 1)

3) lack of [estate] taxes discourages the real central promise of American life--that hard work and smarts, and not being born lucky, are to be rewarded

4) lack of [estate] taxes discourages the 19th century view that wealth comes from holding huge tracts of under-utilized land.....

And there's Chet Hardy's statement (an excerpt only here):

Its just amazing that the same people who decry deficit spending (Sen. Jon Kyl) turn on a dime and advocate repealing the estate tax. That's $20 billion per year folks. To put that in perspective, that's enough to provide health care to every child who doesn't have it. Its enough to build a new High Speed Rail line every single year.

VITA-a vital service

LindaMBeale — Tue, 10 Nov 2009 12:11:12 -0800

The IRS provides about $8 million to assist programs that provide free tax preparation services to low-income taxpayers. This year, the IRS announced that it had applications from 360 organizations seeking $30 million in matching funds--obviously much more than was available. The funds are intended to enable the programs to provide services in both urban and rural areas, to help them file electronically, to improve quality controls/accuracy of returns, and to enhance training. The IRS release IR-2009-104, includes a list of the recipients of the VITA funding throughout the US.

I know that students that I have taught volunteer through the Accounting Aid Society that receives VITA funding in Detroit. I hope I taught them well...