Mike Kueber's Blog

January 8, 2013

The Fiscal Cliff compromise includes a fix to the estate tax

Filed under: Fitness,Issues,Politics — Mike Kueber @ 2:29 am
Tags: , ,

Today’s local paper included an article on America’s estate tax, as revised by the Fiscal Cliff compromise.  The article’s writer tried to humanize the issue by describing a 91-year-old farmer who has been concerned with how the tax would affect the 5,000-acre farm that he has been building since WWII.  Unfortunately, however, she failed to say how the new law, which increased the exemption from $1 million to $5 million while increasing the rate from 35% to 40%, will affect the farm. 

If I guessed that the land was worth $5,000 an acre, the farm would be worth $25,000,000.  And that doesn’t include buildings and equipment, which I’ll guess at $5,000,000.  Based on my calculations, the estate would have paid $10.15 million under the old law and will pay $10 million under the new law.  Now that’s change you can believe in.

The farmer’s daughter probably didn’t create a lot of sympathy in the article by saying, “You don’t really inherit the farm, you inherit a bunch of taxes. … The heirs lose the farm to pay the taxes. And that’s one more family farm that goes out of business.”

In fact, the estate will first pay the taxes and then transfer to her whatever is left.  The farm will still be worth many millions of dollars, even though it will be diminished by the estate tax.  That is a problem millions of heirs would love to have.

No taxes are painless, but they are a necessary evil.  And I can’t imagine a tax that is less painful than that assessed against a rich person’s estate before passing the remainder onto the heirs.

June 25, 2011

Immigration and the State Bar of Texas

Earlier this week, I attended the two-day annual meeting of the State Bar of Texas.  One of the more promising sessions was titled, “A Civil Conversation about Immigration Reform,” and it did not disappoint.  The 90-minute session was the longest that I attended during the meeting,  but it seemed like the shortest.

The topic of immigration was touched on in an earlier session called, “Overview of the 82nd Legislative Session,” presented by State Representative Joaquin Castro.  Although Castro has the demeanor of a rational, dispassionate analyst, his words belie that.  He described the pending sanctuary-city bill (S.B. 9) as enabling a citizen to sue his local police department if it fails to enforce the federal immigration laws.  Arizona’s notorious H.B. 1070 doesn’t even go that far.  In fact, Texas’s S.B. 6 merely prohibits local government entities from adopting sanctuary policies – i.e., instructing their law enforcement officers to not ask anyone about their immigration status.  Because Castro did not take questions, his misstatement of the law went uncorrected.  Before leaving the session, Castro reported that two prominent Texas businessmen (liberal San Antonio grocer HE Butt and conservative Houston construction magnate Bob Perry) recently came out in opposition to S.B. 6 and this development might result in the bill being significantly watered-down.

Joaquin’s identical twin Julian, the mayor of San Antonio, was a part of the six-member panel for “A Civil Conversation about Immigration Reform.”  Unfortunately, there was not much conversation with Julian because he was the last of the panel to give 10 minute presentation, and then he left, leaving the other panel members to engage in a conversation with the audience.

Two things of note presented by Julian:

  1. People who opposed illegal immigration tended to treat these immigrants “more like animals than people.”
  2. We should start thinking of a path to citizenship as not some sort of amnesty, but rather as analogous to the legal concept of deferred adjudication.  Application of this concept would involve the imposition of some terms, and once those terms were satisfied, the immigrant’s  unauthorized entry would be forgiven.  Personally, I think this is a distinction without a difference, but I have to admit that I initially felt the same way when the New York Times recommended that we re-characterize the Death Tax from being a tax on an estate (double taxation) to being a tax on the income of a recipient.  Eventually I came to agree with the Times recommendation.

Julian’s suggestion for deferred adjudication has the same weakness as amnesty – i.e., it rewards an individual for breaking the law; it allows a lawbreaker to stay in America although millions of potential immigrants are patiently waiting in line to be legally permitted into America.

Julian would be better served if he were to apply the legal concept of adverse possession (squatter’s rights) – i.e., title to real property can be obtained without compensation by holding the property in a manner that conflicts with the true owner’s rights for a specified period.  Thus, America can be held to have waived its right to deport an undocumented immigrant who has lived in America and set down roots for a specified period (e.g., five to ten years).

In contrast to Julian, the other members of the panel provided substantive information on the illegal-immigration issue.  Dr. Steven Murdock from Rice University provided a plethora of statistical information suggesting that immigrants were critical to the economic future of Texas and America.  As is the wont of most immigration proponents, Dr. Murdock sometimes failed to distinguish between legal immigration and illegal immigration, but generally he provided cogent information.  The most interesting was his report that illegal immigrants are a slight financial positive to the federal government (they send more money in than they take out), a break-even factor for state government, and a huge negative for local government because of their drain for education and medical expenses.

Kathleen Walker is an immigration lawyer, and the dominant theme of her talk was to complain that illegal immigration is a civil matter, not a criminal matter, and these people should not be treated like criminals.  Toward the end of her talk, Kathleen confused this distinction by telling us that it was incorrect to say the people were here illegally, but it was proper to say that their presence was unlawful.

An anti-terrorist government lawyer followed Kathleen.  He was the only panelist who was opposed to amnesty for illegal immigrants, and he chided the panel for all of their semantical variations in describing – illegal immigrants, undocumented aliens, unauthorized immigrants, unlawful presence, and about four other similar terms.  He also asserted that it is impossible for the federal government to physically close our borders, but that a pending bi-partisan bill for a national ID card might be effective.  From an anti-terrorist perspective, he said that the Canadian border was much more problematic than the Mexican border.

The government lawyer was followed by an AFL-CIO person from Houston.  He contributed little to the discussion other than noting that businesses were taking advantage of illegal immigrants and that “theft of salary” charges were seldom prosecuted.

According to the program, one member of the panel was a DREAM candidate, but it turned out she was a mother of three DREAM  candidates.  She could barely speak English and broke down shortly after beginning her talk.

The moderator for the panel was federal judge Xavier Rodriguez.  At the conclusion of the presentation, he revealed that he hadn’t been listening by asking the panel a long question regarding whether illegal immigrants were a net financial benefit or expense to various governmental entities.  Everyone who was listening knew that Dr. Murdock had definitively provided this information in his presentation, and to humor the judge he regurgitated it.

During the Q&A part of the session, the first comment came from a quintessential bleeding heart.  She started by saying that she was not a  lawyer (her squirming husband was alongside her), but she felt compelled to describe the shame she felt as a person who was taking advantage of illegal immigrants by living in a house that was likely build by those immigrants who received substandard pay and eating in restaurants that likely employed illegal immigrants for substandard pay.  After two long minutes of her confession, Judge Rodriguez cut her off and tried to  assuage her guilt by saying that these immigrants were making five times as much as they would make back in Mexico, so she shouldn’t feel so bad.  She refused to be assuaged.

In response to another question, Dr. Murdock got on a soapbox about America’s shameful immigration record.  According to him, America’s immigration policy was horribly racist until the Voting Rights Act of the mid-60s, and he said that it had never been welcoming to immigrants, such as the Chinese or even Irish or Italians.  At this point, I asked him why an “unwelcoming” America, throughout its history, has a record of receiving more immigrants than any other country and whether the “huddled masses” invitation on the Statue of Liberty was a cruel hoax.  Murdock responded by backing off his accusations and shifting toward a position that America has made mistakes and can improve.  Agreed.

What was the result of the “civil conversation”?  I learned some information, but there wasn’t enough discussion – either within the panel or with the audience – to evaluate the information.  I pointed out during the Q&A part of the session that it wasn’t fair to give amnesty to illegal  immigrants while I have a friend in the Philippines with a graduate education who has been on a waiting list for ten years, and a lady responded that we shouldn’t complicate the issues by tying them together.  As a practical matter, that may be right.

December 10, 2010

Obama’s Great Compromise and the Death Tax

As you probably have heard, the Great Compromise achieved by Obama and Congressional Republicans is being threatened by Congressional Democrats who rightfully resent being left out of the negotiations.  

Initially, it was reported that the Democrats were upset that the Bush tax cuts would be continued for everyone, including those making more than $250,000 a year.  Today, however, the Democratic ire has shifted to the reduction of the so-called Death tax. 

To understand the Democratic ire, a little history might be helpful on the wildly fluctuating Death Tax rate.  Because of a congressional snafu in a law passed in 2001, the Death Tax was set as follows:

Year                $ threshold                  Rate

2009                $3.5 million                 45%

2010                not applicable              0%

2011                $1 million                    55%

Most people assumed that Congress would adjust the 2010 rate before 2010 so that the estates of rich people who died that year would not escape taxation.  But as we were taught in college, when you “assume,” you make an ass of you and me.  

Although Democrats love the Death Tax, Republicans hate it, so the Republicans predictably sat on their hands in 2010 and allowed rich estates (including that of a prominent multi-billionaire from Houston) to pass to heirs without any taxation.  Then, just as the Congressional Democrats were expecting a reinstated draconian Death Tax, Obama bargained it away for a significantly reduced rate (35%) and a much higher threshold ($5 million).   

If I were a Congressional Democrat, I would be pissed, too.  According to the Tax Policy Center, the existing estate tax would apply to 44,000 estates in 2011 and generate $35 billion in revenue; whereas the Obama-compromise estate tax will apply to only 3,500 estates and generate $11 billion in revenue.  That means that $25 billion of revenue needs to be generated or added to the deficit, yet there will be no short-term stimulation to the economy.  Plus, the revised tax was not even made retroactive to 2010, as had been suggested by many Democrats. 

Substantively, the Obama/Republican compromise on this issue appears reasonable.  In response to the Democratic furor over the Obama compromise, conservatives have renewed their attack on the existence a Death Tax.  Just today on FOX News, anchor Megyn Kelly re-asserted that the tax was unfair double taxation.

I have previously gone on record supporting an estate tax in America.  See https://mkueber001.wordpress.com/2010/05/20/why-i-like-the-death-tax/.  During Megyn’s moderation of a debate between two experts, I learned another reason to support the Death Tax:

  • Most of the wealth of the super-wealthy is in capital assets, such as stock ownership and real estate.  People don’t pay income taxes on the appreciation of capital assets until they dispose of them.  Capital gains that pass upon death, not only aren’t subjected to an income tax, but also are received by the heirs at their current value instead of their beginning value.  Thus, capital assets that are transferred through inheritance have significantly, permanently evaded taxation.

Of course, Megyn and her conservative expert responded to this argument by throwing out a canard about small businesses and farms being sold to pay the estate tax.  Megyn even wrongfully suggested that farmer-type estates are subjected to the estate tax if their total assets trigger the dollar threshold, without consideration of associated liabilities.  Where she got that wild idea, I have no idea, but because of the way debates are conducted on FOX News, the pro-Death Tax expert never had an opportunity to rebut the canard.  The next day, Megyn was talking to Bill O’Reilly about this debate, and Bill made up a new canard about the multi-million-dollar estates being mostly houses and farm land.  While it’s true the normal people have most of their net worth in a house, I can’t believe that O’Reilly thinks the same about a lot of multi-millionaires.  In fact, I remember the book titled “The Millionaire Next Door” advising that millionaires rarely have a large percentage of their wealth in nonproductive assets like a house or car.

To read an interesting article on the history of the estate tax and a discussion on the asset-composition of taxable estates, see http://www.irs.gov/pub/irs-soi/ninetyestate.pdf.