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July 2011 Archives

Where is the line between success and greed?

What do you call someone who has worked hard and been successful to a level that they can afford the luxuries of life? They own nice cars, one or more houses, various "play toys", and take a lot of lavish trips? Add to it the fact that they properly pay all of their taxes, donate to charities and really don't flaunt their wealth. Are they successful or are they greedy? The debate in Washington DC and on the cable channels and blogs seems to brand this sort of person differently, depending upon the critic's political philosophy. Most conservative-leaning pundits call this person successful. Most liberal-leaning ones call the same person greedy. Why the difference and, more importantly, where is the line that defines these two traits?

Not in my backyard!

Have you ever heard the acronym NIMBY? As the title suggests, that stands for Not In My Backyard. In any civilized society, people want to live comfortably. They want electricity, water, gas and other forms of utility service in their home. To receive that, power has to be generated somewhere. Nuclear power, for example. However, most civilized people do not want the nuclear power plant that will generate the electric power in their backyard or visible from it. They want the BENEFIT of the nuclear power. But, if you are going to build the nuclear power plant with all its radiation and other dangers within view of their home.... not so much. As another example, everyone in a civilized society wants regular trash pickup. However, if you're going to build the landfill to contain all of that trash within plain sight (and smell) of my house, I'm not that interested in it. The moral behind the acronym is that I'm in favor of something... as long as it does not affect me.
The current estate tax exemption equivalent amount is $5 million. The truth of the matter is that a majority of the general population does not have an estate that exceeds $5 million. For them, the estate tax is a "good idea." Why? Because it doesn't affect them! They don't have to pay it. However, what if the estate tax and its current 35% maximum rate was applicable to all estates? What if, regardless of whether you are worth $10 or $10 million, you had to give 35% of your estate to the federal government? What if you had to give ALL of your estate to the federal government? Do you think people would favor the tax?
A few years ago after giving a talk on the status of the estate tax system at which I said, "Congress MUST continue to increase the estate tax exemption," an attendee accosted me outside the auditorium. "What do you MEAN Congress HAS to increase the estate tax exemption?" he queried. "As far as I'm concerned, you RICH people shouldn't be able to leave ANYTHING to your children! They should have to earn it on their OWN!" First of all, I was honored that he would think me to be one of the "RICH people." I don't consider myself one of them. Second, I related to him that when I started practicing law in 1980, the federal estate tax exemption was just $175,000. I asked him if he thought people might be a little upset today if the exemption was just $175,000, when most people have a house and a retirement plan worth at least that. He didn't have an answer, but stated that he was perfectly fine with having to leave his entire estate to the government. Then I hit him with the coup de grace: I told him, "Well, if you don't think you or I should be able to leave anything to my children, then neither should anyone else... including the poor" Could you just imagine the uproar if someone considered "poor" or "underprivileged" also had to leave a portion of their entire estate or, as this gentleman suggested, their ENTIRE estate to the federal government? Why is it that no one seems to have a hard time "sticking it" to Bill Gates or Warren Buffett and other multi-millionaires? However, if you even THINK about taxing the struggling John Doe, who is barely getting by, that is wrong? If its good for the goose, shouldn't it be good for the gander too? Unless... you believe in class envy. Isn't that what it's really all about? Bill Gates and others can AFFORD to pay a 35% estate tax, because they have LOTS of money! However, how did they get that money? Was it just given to them or their families, or did they earn it? If they earned it, shouldn't they be entitled to keep it? If it was inherited wealth, are we that jealous that we want to take it from them? And if we take it from them, what is the rationale behind giving it to people who won't try to be productive and don't have to be productive, because the government will take care of them. In the Christian Bible, Jesus Christ said, "You will always have the poor," and that is true. There are and always will be people who just cannot make it. They aren't lazy. They just can't make a productive living. They are either victims of circumstances, injured, invalid, uneducated or just otherwise poor. These casualties of society need our help and deserve our help. However, in what form should this help be? Should it be a financial handout or should it be skills training? Anyone and everyone should have a productive place in our society. I am sure all of you are familiar with programs that train mentally challenged individuals to work. It gives them such a sense of self-worth and allows them to participate in our society to the level of their abilities. Isn't that a better use of government funds than giving someone money and restricting how much they can earn before they lose that money (HINT: I can assure you, those individuals will earn just a dollar less than they are allowed to earn so they don't lose those benefits!)
In a December 7, 2010 Fox News blog, William LaJeunesse wrote, "Some economists argue that extending these [unemployment] benefits is a disincentive for people to find work and that it's time to get the long-term unemployed off the 'government dole' and find a job, even if it's not perfect. 'A lot of folks put off looking for a job if they have 99 weeks of unemployment, and that's bad for them because after about six months or so it becomes much tougher to get a job,' said University of Maryland economist Peter Morici. 'Employers start to become very shy about hiring people who have been out of a job for a long period of time.'"
The point I wish to make is that many in Congress believe we have to throw money at the unemployed to "assist" them as they try to find work. However, as I have tried to point out and as Mr. LaJeunesse writes in his blog, giving them the money may be a disincentive and actually prevent them from finding a job. Has anyone thought that imposing an estate tax might also be a disincentive for the wealthy? If I know that if I have more than "x" amount of dollars of net worth, I will be taxed on it, doesn't it make sense that I will either stop being productive when I reach that level of worth or that I will find other legal ways to not have ownership of the additional wealth? Doesn't it make sense to assume that, if I must do something with the additional wealth, I will find a legal way to get it to my family, instead of giving it to the government, who will very likely turn it around and distribute it to the people who don't want to go out and work? This isn't economics or law or accounting being discussed. This is just plain old common sense!
The media,the Democratic Party operatives and others are using the current economic crisis to argue that supply side economics and less government does not work because it is not generating new jobs that can be taken by the unemployed. On the other hand, the Republican Party and conservatives argue that the economy is stagnated due to the threat of further government regulation (in particular, the health care legislation passed in 2010) and concerns over other such interference that will cost businesses more money. Who is right? I can assure you that neither side will ever convince the other! However, the practical matter is that if you raise taxes on businesses or take away their tax breaks, they will need to increase their prices to cover what they are being required to pay. Similarly, if Congress increases the estate tax or lowers the exemption amount, individuals above the exemption amount will work to find ways to keep their wealth below the tax level or, sadly, cease being as productive as they were so they won't have to pay more to the government. Finally -- and maybe most importantly -- the estate tax in its present form affects very few people. Probably less than three percent of all estates are subject to the estate tax and the estate tax generates less than one to two percent of all federal revenue.
In dealing with a very wealthy client recently, he came up with a very simple solution to his tax problem. He decided to leave to his family the most the law allowed. The rest.... he instructed be given to charity. He and many others have discovered that charities can distribute money and other benefits to the poor and needy much more efficiently than the federal government can!
Since the estate tax does not generate much revenue, works as a disincentive for individuals to be more successful and clearly reflects a mentality of class envy, why is it still being considered? Not only do I not want it in my backyard, I don't want it anywhere!

Don't Wait Any Longer

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