Yglesias Goes Kos on Small Business
Markos Zuniga famously said “screw them” in reference to American mercenaries killed in Iraq. Matthew Yglesias uses slightly harsher rhetoric in defending the death/estate tax:
Speaking of which, f— the small businessman. This is exactly the problem posed by obsessive focus on Paris Hilton. I might be an earnest, hardworking dude who works in the store. And somebody might die and give the store to me. The store may be worth millions and millions of dollars. If so, I ought to pay tax on it. Why? Because I’ve just inherited millions and millions of dollars, that’s why. That I’m earnest and hardworking, and that my riches came in the form of a valuable store rather than a heaping plate of gold matters not a whit. What about those sad folks forced to sell the family business? Don’t cry for them. Here you are, you inherit a store worth $X. You owe $Y in taxes, with Y being less than X. So you are “forced” to sell the store, and accept “only” $X-Y as your inheritance. Note that X is a figure in the millions, and Y a small proportion of X. This is a very good problem to have, abstracting away from the fact that someone you love has probably died and this is probably a bigger concern of yours that the tax bill. This is, in other words, a non-problem. The government ought, perhaps, to facilitate some kind of lending arrangement so that people who prefer to keep the store and pay the tax down over time out of operating revenues can do so.
The problems with this argument are manifold. Most obviously, a farm or other small business that’s operating at a small profit would, presumably, not be profitable if it maintained the same revenue stream and expenses plus having to essentially buy back half the business from the government. That would mean, presumably, having to sell the business anyway. Most likely, for less than it’s really worth because of the time pressures involved.
The reason that the “small business” argument is used by death tax opponents and the “Paris Hilton” counter is used by proponents is that the two have a different psychological impact. The idea that something will “only” effect the “rich” is an easy sell, especially if we’re talking about the idle rich. It’s much more difficult to argue that a Paris Hilton ought to get money that was earned generations ago by her relatives. On the other hand, most people are sympathetic to the son ‘s right to take over the business that his dad built up from scratch.
Our society values the family relationship more than the communal one. Most of us believe that spouses and children have more of a claim on a person’s property than does “society.” People work to build up a business at least partly because of the expectation of being able to pass it on to their children. If they’re not able to do that, their incentives are greatly reduced. Why a successful businessman would go on working if his wealth would simply be confiscated upon his death is unclear.
Further, if the argument is that it’s unfair for the sons and daughters of the rich to have it better than the sons and daughters of the poor, then why wait until the death of the parents to do something about it? It’s not immediately clear to me why it’s fine for Paris Hilton to get to live off her daddy’s millions while he’s alive but not after he’s gone. I mean, f— Paris Hilton. (I believe that’s already been done–I’ve seen the video. -ed.)
From now on, people who have a lot of money can only spend it on themselves. If the kids want to eat, beyond a federally mandated “normal diet,” then they have to get jobs. If they want to go to a school other than the governmentally approved “normal school,” then they should have to work for it. Ditto with their clothes, cars, and so forth. Everyone should get exactly the same thing unless they’ve personally earned the money.
Family? F— family.
Matthew’s take is shockingly simplistic and naive. He seems to assume that the value of a business is entirely made up of ready cash, when the truth is that the complexities of business and tax accounting compel just the result James articulates — the emergency, forced sale of a business purely due to the tax liability. Sophisticated businessmen who run family businesses understand this and devise legal (and proper) means to effectively transfer the business to family inter vivos. It is the smaller family owned businesses (the majority) and farms that get hurt the most.
And Matthew’s suggestion is that the government should loan money to the heirs to pay the taxes to the government? Wow.
Not too mention that a key component of his argument is that “Y [is] a small proportion of X.” Hardly – it can exceed 50%, “small” only in the minds of the sort of Democrat who looks upon (other people’s) wealth as belonging to the government first and (other) citizens only to the extent the government decides to let them keep some.
Dodd is exactly correct. The Y portion of X can easily be significantly large to make it a burden for the heir(s) to keep and attempt to maintain the profitability of the small business. As for the progeny of the mega rich. Big deal! What do they lose? I can’t believe Paris Hilton has any direct input in running the empire upon which her wealth has been built. The shares (and therefore “ownership”) are widely enough distributed that a single death probably makes only the smallest ripple in the fiscal affairs of the Hilton empire. Folks at this level of wealth are pretty much sheltered no matter what. Sorry to toss in a political statement here, but the Republicans are always demonized by the left as being the Party of the rich. Yet the Democrats never fail to take the opportunity to expound on their desire to bring the American Dream to the poor and disadvantaged. They just never mention that if you do show some initiative just don’t take your success TOO far.
Yglesias also ignores the fact that an inherited estate is made up of the remnant of income that has already been taxed.
Suppose I sell my blog to Paris Hilton for a million dollars. Right off the bat the gummint get about $350,000, leaving me with $650,000, which I put in a bank. The next day a runaway oxcart bowls me over and kills me. Now the gummint wants another 30% or so of the $650K for no other reason that I died.
I make a million bucks and the government takes more than 54 percent! And Yglesias thinks this is fair?!?!
What’s up with that?
The estate tax is literally a tax on dying.
(Yes, I know there is a floor exclusion subject to inheritance tax, but my point is the same for any amount.)
What about the employees of said business? This is not a turn-key sale from one owner to another, this is the government. It takes so long to do anything that the employees are long gone by the time the plant is up and running again.
Doesn’t Mat care about the little people?
Brilliant.
Speaking of which, f— the small businessman.
You think that will show up on any Democratic campaign posters in the next election?
Yglesias is showing an inability to grasp the nuances of business finance indicative of someone who works for a paycheck from someone else.
Of course Matt and his fellows care for the little guy! So much so that they advocate policies that create more of them and make them increasingly dependent upon government for their well-being. And who does a better job of taking care of people than the government, right?
Let’s see. I own a farm worth $100 million as it generates $10 million in operating profits per year. I give it to the kids and have some appraiser claim it’s worth only $40 million. Tax bill? About $20 million. So the kids have to borrow that and pay 5% interest or $1 million per year in interest expenses. Their income will only be $9 million a year. How will they survive? Simply put, this family farm argument does not hold water.
Poor Paris Hilton! Why shouldn’t the kids get a job? This is what you’d advocate for a welfare mom. Why the double standard?
Perhaps we should all start with roughly the same initial endowment. Economic Democracy!
Bryan:
Spoken like a person that is a bit full of himself. Did daddy get you your job as well?
Daniel,
No. Considering that none of my parents went to college. Daddy works construction through the IBEW union hall and mom works in a cardiology lab where she started 30 years ago when they didn’t require college degrees to do her job.
Of course, I’ve been working wages for long enough to know Matt’s little Ivy League education doesn’t mean a whole helluva lot in the way of common sense.
OTOH, I do own stock in a small newspaper, and I’ve worked on the “owner” end of things enough to know I’m not the entrepreneur.
Incidentally, James commented over at Angrybear under my post. James – please re-read my first sentence as well as my comment. The argument who put forth here is simply wrong. But you repeat the argument???
pgl-
It’s really amazing what you can “prove” when you pluck numbers out of your ass, and assume criminal behavior on the part of the actors.
A farm which is producing $10M/yr in profit is, at today’s prime rate, worth more than $100M, closer to $140M. Any appraiser who wants to stay out of jail won’l lowball it more than 10-15%. This sets the tax bill at over $60M. 5% interest? What dreamland are you living in? 7-7.5%, which makes the interest, let alone *ever* paying it off, ~$4.25M. A late frost one year, little rain the next and a big flood the third and the kids got bupkis. But the gubmint has $60M.
See, I can pick numbers out of my ass, too.
So what happens to a retail business like my dad’s that is worth (on paper) a little over $1 million but generates barely enough income for him to maintain a middle-class lifestyle? When he passes on, the ‘estate tax’ will essentially destroy it. His employees (several of whom are working there to help pay their way through college) will all be out of work, and my siblings and I will be, well, f–ked. That should make that prick Yglesias happy, as another small business built from scratch with real blood, sweat, and tears is obliterated by a gigantically stupid tax policy he favors.
Oh, and Yglesias’ “Paris Hilton” argument is bullshit too. So what if she was lucky enough to be born a Hilton? That’s how life goes. It is not the place of the government to enforce some twisted notion of “fairness” when it comes to who one’s daddy is.