Sunday, June 11, 2006
I'm Calling BS
Within the recent debate about the repeal of the estate tax, a number of liberal bloggers and editorialists have taken to calling the move the "Paris Hilton taxcut". This accusation makes clear to me, though, that the bloggers and editorialists in question are either morons or liars.
Pretty heated rhetoric. Yes, I'll admit that it is. To see why I say this, you have to consider how the estate tax works. The reality is that neither Paris Hilton nor any of the "superrich" are likely to ever pay the estate tax. To see why this is so, consider this hypothetical discussion between Paris' father and his attorney:
Attorney: Mr. Hilton, I've got the results you asked me for about your legacy to the kids.
Mr. Hilton: Well, how does it look?
Attorney: Well, I've assumed you're leaving roughly $50 million to each of them. Luckily, the first $2 million on the estate tax, under the revised rules, isn't taxable. After that, they'll have to pay 45%. So, they'll pay roughly $21.6 million.
Mr. Hilton: WHAT?!?!?!?! Listen, there's no way I'm going to let the the government take that much. Get to work on this.
(2 days later)
Attorney: Mr. Hilton, we're in luck. I've just spoken with a college buddy of mine over at Goldman. He says we can get around this no problem. All we have to do is set up a trust for each of the kids. Their inheretance will be held in the trust, and the fund can pay them out the investement returns. In fact, although they'll have to pay income taxes on it, they won't have to pay any Social Security taxes on that income. They'll still have control of all of the money in the inheretance, but if they take it out for spending, there's some tax issues. But, if they want to use the fund for business purposes, well, the fund can just call that an investment.
Mr. Hilton: Hmm...that might even keep a lid on Paris' spending habits. Good work. I knew there was a reason I was paying your exorbidant fees.
So, if Paris and Nicki aren't paying the estate tax, who is? Well, generally people who don't do a lot of estate planning - people who don't think of themselves as rich. Generally, their wealth comes from illiquid, hard-to-value, assets. The most common examples are farms and small business owners. Lets say you own a good-sized farm, a successful restaurant, or a small factory. These are all businesses that can easily be worth $4-5 million. Of course, you're not really looking into selling them, they're your livelihood. Whatsmore, the labor you and your family put into them is what makes them worth what they're worth, so its tough to get a good read on what is the business and what is what you're putting into it. You're making good money off of them, too. Last year, you pulled in almost $200,000. But that's only on paper. You've plowed a lot of it back into the business. Are you rich? No, that's someone like Paris Hilton. You work for a living. Your whole family does. Junior just came on board a couple of years ago. And he's doing well, too. Your proud of him. Hell, you've just written up your will to leave the business to him. You know you can trust him to carry on the family tradition and look after his mom. What you don't know is that when you go, the IRS is going to come around to Junior and tell him that he owes a tax bill of $900,000 - $1,350,000. Then, he's got to make a decision. He could go into hock for the bill and keep the business, assuming the banks trust him to run the business as well as you do. Of course, that's going to make it awfully hard for him to take care of your wife, and make a living, and pay off the debt. On the other hand, he could say "screw it" and sell the business off. Sure, he'd be betraying your legacy, but even if he splits it 50/50 with your wife, he walks away $1,550,000 - $1,825,000 richer.
Of course, all of this is done by the "Paris Hilton" tax.
Within the recent debate about the repeal of the estate tax, a number of liberal bloggers and editorialists have taken to calling the move the "Paris Hilton taxcut". This accusation makes clear to me, though, that the bloggers and editorialists in question are either morons or liars.
Pretty heated rhetoric. Yes, I'll admit that it is. To see why I say this, you have to consider how the estate tax works. The reality is that neither Paris Hilton nor any of the "superrich" are likely to ever pay the estate tax. To see why this is so, consider this hypothetical discussion between Paris' father and his attorney:
Attorney: Mr. Hilton, I've got the results you asked me for about your legacy to the kids.
Mr. Hilton: Well, how does it look?
Attorney: Well, I've assumed you're leaving roughly $50 million to each of them. Luckily, the first $2 million on the estate tax, under the revised rules, isn't taxable. After that, they'll have to pay 45%. So, they'll pay roughly $21.6 million.
Mr. Hilton: WHAT?!?!?!?! Listen, there's no way I'm going to let the the government take that much. Get to work on this.
(2 days later)
Attorney: Mr. Hilton, we're in luck. I've just spoken with a college buddy of mine over at Goldman. He says we can get around this no problem. All we have to do is set up a trust for each of the kids. Their inheretance will be held in the trust, and the fund can pay them out the investement returns. In fact, although they'll have to pay income taxes on it, they won't have to pay any Social Security taxes on that income. They'll still have control of all of the money in the inheretance, but if they take it out for spending, there's some tax issues. But, if they want to use the fund for business purposes, well, the fund can just call that an investment.
Mr. Hilton: Hmm...that might even keep a lid on Paris' spending habits. Good work. I knew there was a reason I was paying your exorbidant fees.
So, if Paris and Nicki aren't paying the estate tax, who is? Well, generally people who don't do a lot of estate planning - people who don't think of themselves as rich. Generally, their wealth comes from illiquid, hard-to-value, assets. The most common examples are farms and small business owners. Lets say you own a good-sized farm, a successful restaurant, or a small factory. These are all businesses that can easily be worth $4-5 million. Of course, you're not really looking into selling them, they're your livelihood. Whatsmore, the labor you and your family put into them is what makes them worth what they're worth, so its tough to get a good read on what is the business and what is what you're putting into it. You're making good money off of them, too. Last year, you pulled in almost $200,000. But that's only on paper. You've plowed a lot of it back into the business. Are you rich? No, that's someone like Paris Hilton. You work for a living. Your whole family does. Junior just came on board a couple of years ago. And he's doing well, too. Your proud of him. Hell, you've just written up your will to leave the business to him. You know you can trust him to carry on the family tradition and look after his mom. What you don't know is that when you go, the IRS is going to come around to Junior and tell him that he owes a tax bill of $900,000 - $1,350,000. Then, he's got to make a decision. He could go into hock for the bill and keep the business, assuming the banks trust him to run the business as well as you do. Of course, that's going to make it awfully hard for him to take care of your wife, and make a living, and pay off the debt. On the other hand, he could say "screw it" and sell the business off. Sure, he'd be betraying your legacy, but even if he splits it 50/50 with your wife, he walks away $1,550,000 - $1,825,000 richer.
Of course, all of this is done by the "Paris Hilton" tax.
Thursday, June 01, 2006
Why Democrats Keep Me in the Republican Camp
After going over some comments from Peter Beinart's The Good Fight concerning liberal support for the War on Terror, Kevin Drum opines
After going over some comments from Peter Beinart's The Good Fight concerning liberal support for the War on Terror, Kevin Drum opines
Now, maybe he's right about this. I don't think the evidence is quite as damning as Beinart makes it out to be, but poll after poll makes it clear that at the very least the war on terror doesn't rank very high on the list of things liberals care about these days.This is genuinely stunning. There are people out there who would like nothing more than to see most of us dead, our economy in ruins, and our nation broken. Liberals just really don't care, though. Straight from the horse's mouth.
