35% for Death is Still Confiscation

John Kyl is proud of his compromise with Obama that has resulted in an agreement to extend all of the Bush tax cuts until the next election, except for the death tax.  Those who are content with the death tax compromise are remembering the time when 55% of anything over $1 million was taxed upon death.  They therefore are praising the new rate of 35% on assets above $5 million.  The problem with it is that a 35% tax for dying is immoral, unconstitutional, and confiscatory no matter how you slice it.

The reality is that most of these taxable assets from estates were already taxed at least once (if not several times) and there is simply no reason to tax them again upon the owners death.  Also, if we cut through much of the class warfare rhetoric we will see that $ 5 million is not that much.  Keep in mind that we are not referring to $5 million in annual income.  The death tax confiscates all land, equipment, and assets of businesses and farms that have accumulated during the lifetime of its owner.  It is not hard to understand that any successful entrepreneur would be able to accrue such assets during his lifetime without reaching the top 1%.  Why should his descendants pay a dime to inherit the fruits of his labor?  The death tax, in any shape or form, fundamentally violates the spirit of liberty and property rights that the country was founded upon.

Even some authentic conservatives are applauding the Obama deal, especially in light of his surprise tax holiday on payroll taxes.  They believe that we have achieved an unimaginable victory by securing the Bush tax cuts while the Democrats control all branches of government. However, the fact is that the Democrats have been backed into a corner on this issue for quite some time and were forced to pass the tax cuts.  This is not only a result of the midterm elections, but also a consequence of so many red state Democrats up for election in 2012 (including Obama himself).  Despite their bravado shown through their class warfare rhetoric, in private, they knew that they could not raise taxes on anyone in a recession.  This is why they waited until the last minute to agree to the deal.  They didn’t want to be perceived as giving into the Republicans until the last week of the session in which it would be do or die for the Democrats.

With this in mind, it is quite transparent that a temporary extension of all the tax cuts was a foregone conclusion.  The Democrats were compelled to approve at least a temporary extension of all the tax cuts.  It was the Republicans who gave in on everything else.  They didn’t push for a full extension.  Also, they agreed to extend unemployment benefits (which are nothing more than welfare at this point) for a whopping 13 more months!  This will bankrupt the nation while perpetuating and exacerbating unemployment.  The Republicans could have negotiated for spending offsets or for just a four month extension.  Instead, they agreed to everything on the spending side of the equation.

So the question begs, after all these concessions, did the Republicans really need to agree to reinstate the Death tax in any capacity?  Once they gave the Democrats everything they wanted on the spending and dependency side of the equation (which was more important to them in the first place), couldn’t they have forced a full extension of the DT repeal, especially considering that it is only for two years?

Another interesting dynamic of this tax deal is its effects on the politics of debt.  For many years, the Democrats have successfully tainted the Reagan administration with the explosion of the national debt as a result of his tax cuts.  We all know that the real reason for the debt is that although Reagan successfully cut taxes, he could not succeed in stemming the tide of the growing welfare state because of the Democrat congress.  This tax deal will do the same thing.  Any benefits of the Laffer curve will be mitigated by the insane 13 month subsidy of unemployment.  The payroll tax cut will also raise the debt because the liberals will not cut back on any of the FICA benefits despite the lost revenue in taxes.  Then, the left will get to blame the debt calamity on the tax cuts.

The bottom line is that whatever one feels about the necessity for the Republicans to cave on the welfare part of the deal, they could have gotten away with another two year extension of the death tax repeal.  Unfortunately, it appears that Senator Kyl has bought into some of the class warfare rhetoric, even in time of death.  He believes that if you accumulate more than $5 million worth of assets, your death should trigger a confiscatory tax.  He therefore felt there was no reason to negotiate for a “tax cut for the rich”.

Cross-posted to Red Meat Conservative