Prague Twin

Sunday, July 30, 2006

Minimum Wage, Estate Tax Link

The discussion has been pretty good so far so I am going to stick with the issue.

I could not find a marked-up version of H.R. 5787 to get the details of the proposed estate tax reduction. Leave it to the financial news networks to actually report information.

This Bloomberg piece is worth reading if you like details. Here are a couple of gems...

The estate tax legislation approved today was modified from last month's version. It would now gradually increase the threshold for triggering the tax to $5 million from $3.5 million between 2011 and 2015 and impose a top rate of 30 percent. It also would allow those who pay the tax to first deduct any estate-tax payments to state governments, a savings that was disallowed by the June measure.

I think that increasing the trigger to $5 million is not so bad. Then, anyone who considers themselves even remotely middle class is not affected by the estate tax. A large issue to be tackled is the 30% top rate. That is nearly a 50% cut in the top rate (down from 55%).

President George W. Bush's 2001 tax cut began phasing out the estate tax through 2010, when it will be repealed for one year. It currently assesses rates of up to 46 percent on estates valued at more than $2 million. Unless Congress acts, the tax is scheduled to return in 2011, with rates as high as 55 percent on estates valued at more than $1 million.

First of all, GWB has annointed 2010 with the title of the best year to die.....ever! But more importantly, look at how this phase-out was structrued. No one would pass a law that permanently removed the estate tax. This alternative is extremely clever because the return of the tax in 2011 will represent a huge tax increase that will effect many people whose estate is largely composed of their family house. Anything less than a total repeal of the estate tax at that time will then be spun as a tax increase.

This line of reasoning has already been used in relation to the temporary cut on capital gains taxes. Even though they were to be temporary, anyone voting against the continuation of this tax relief will be branded as a favoring higher taxes.

Tying this type of legislation to a minimum wage increase shows how twisted and perverted out legislative system really is. A small biscut goes to the poor. A huge givaway to the rich. And what do all of us in the middle get? Inflation and debt.

Thanks.

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