Most people working for a paycheck assume that whenever money changes hands, it’s taxed. Each dollar of wages is taxed at least three times before we even get it – once for payroll tax, once for federal income tax, once for state income tax. Businesses pay tax after expenses are deducted. Workers pay tax before expenses. Most expenses a worker has are not deductible, and those that are deductible are computed at a lower rate than business expenses. For example, farmworkers are not allowed to deduct work related travel expenses to follow the crops, while corporate directors and executives can deduct lavish expenses for meetings in exotic settings. That’s downright mean policy.
Capital gains is income that is taxed when real estate (other than your home) or corporation stock is sold for a profit (after the cost, expenses, deductions and exemptions are subtracted). This unearned income is taxed at a lower rate than are wages and there is no shortage of wrong-wing talk show jocks and politicians who will tell you with a straight face that this is the way it should be, or that capital gains shouldn’t be taxed at all.
The estate tax law applied when money changed hands because someone died. But there was a standard deduction of a million dollars, and additional exemptions were available. So under the old estate tax law, a very wealthy person could leave way more than just a million dollars tax free in an estate, as long as they were not ignorant of how to do it and they set it up in advance. But greed and lust for wealth and power and special privilege seems to know no bounds.
Easily, a hundred U.S. citizens go without adequate health insurance for each rich heir who ever has to pay any estate tax. But big money buys politicians and media time and the shills started complaining about what they called the “death tax” and “double taxation”. After telling and retelling their lies, the estate tax was repealed. Let’s look at how it actually works.
First realize that the growth of wealth in the established super-rich is not based on paychecks and merit raises or how much they’re paid for a bushel of wheat or a piece of furniture they produced. It is based on capital gains which are not taxed annually. They are only taxed when an asset is sold (minus deductions and exemptions and loopholes) for a profit. But there is a little clause in the fine print that exempts anyone from ever having to pay any capital gains tax on the increase in value of the assets up to the time of inheritance when someone dies without selling capital assets. If you’re fortunate enough to have investment real estate or stock certificates, but you have to sell it to pay for retirement or medical expenses, you will have to pay capital gains tax when you sell. But if you don’t sell these investments during your life, your heir can sell them, and neither he nor you will have to pay any tax on the profits. If the heir doesn’t sell it in a non-exempted transaction, this can go on indefinitely, building more and more wealth (making more and more money) for an extremely rich family that is entirely untaxed.
Let me say that again. Entirely untaxed income.
The estate tax law had put a million dollar cap on that method of acquiring completely untaxed growth of wealth and assets. But eliminating the estate tax, coupled with the exemption of capital gains tax on assets transferred in an estate, means that super-rich families can accumulate and cash in unlimited amounts of wealth and income that never gets federally taxed at all. Remember this when you hear a politician or talking head claim that the estate tax was bad because it’s “double taxation”. They speak with forked tongue. Nurses, mechanics, operators, engineers, farmers, all know about double taxation. We get taxed coming and going. But what’s fair about exempting the super-rich from any tax whatsoever on a major source of their growth of wealth and power?
The tax law changes passed by the Congress and signed by the first President of the 21st century reinforce the bloated and growing power of a North American inherited aristocracy. They jerk our federal budget from surpluses to record deficits. They weaken the bulwarks of the middle class raised in the mid-twentieth century. They force drastic cuts in basic services. They drive more families into poverty and keep them there. They undermine the foundations of democracy.