Dishonest Tax Rhetoric, Part 3 of 3
In the last two days, I've created an admittedly arbitrary list of rhetorical claims that are often used in U.S. political discussions about taxes. Entirely unscientific in both origin and design, the list purports to rank the degrees of dishonesty that animate some of the more outrageous assertions by those who can broadly be described as "anti-tax," which in the current climate breaks down almost entirely on partisan lines. (Republicans eagerly assert their opposition to taxes as a categorical matter; Democrats too often agree that taxes are generally bad but defend taxes on the basis of a combination of fiscal discipline and targeted policy objectives.)
The two lucky winners so far: 3rd Place went to the claim that allowing the Bush tax cuts to expire would constitute the Biggest Tax Increase Ever, and 2nd Place went to the proponents of a national sales tax who insist on presenting the tax rate under their plan (which is artificially low for several reasons, not the least of which is that they assume that tax evasion will cease entirely, even after eliminating the IRS and dumping sales tax enforcement on the states) in a way that no normal person would expect.
The big winner will not surprise those who know me: The Death Tax. There are two separate arguments for calling the estate tax the death tax, one technical and one practical. Both are completely wrong.
The technical argument is that the estate tax cannot be assessed until a person dies. The tax, therefore, is a tax on death. "You don't die, you don't pay the tax." Notwithstanding the humorous notion that this is exactly the kind of incentive that we should want to build into the tax code (one more reason not to die), the fact is that we do not identify taxes on the basis of their triggering event. The income tax can be assessed annually (either on a calendar year or fiscal year basis) or at shorter or longer intervals. No matter the interval, it is still an income tax because it is a tax on income. If you are paying an income tax on a calendar year basis, you do not pay tax until Dec. 31 ends. Even so, it is an income tax and not a "New Year's Eve Tax."
Property taxes are not identified by the date that they are paid, either, but by what is being taxed (the value of property). Sales taxes are assessed on the dollar amount of certain purchases of goods, which at least means that the thing that's being taxed (consumption) and the date that it is being taxed (upon purchase) can coincide; but the term sales tax refers to the fact that we're computing the tax based on the amount of the sale, just as we assess income taxes on the amount of income.
The practical argument goes something like this: "Sure, technically this is not a tax on death itself. But come on, it's a tax on death! It just makes sense to call it a death tax." Leaving aside the lack of actual content to this argument, the point seems to be that we should ignore consistency or history and simply indulge our desire to focus on death as the triggering event.
If we're allowed to be practical in this sense, though, this opens up the field to all kinds of practical observations. That estate taxes are currently paid by fewer than 1% of all decedents' estates suggests that the current use of the term estate tax is quite accurate in the connotative sense -- only people with "estates" pay the estate tax. (I had a student who once argued that the term "estate tax" had been invented by "a bunch of liberal lawyers sitting in a room somewhere trying to make the tax sound like it would only apply to rich people." Sometimes being a professor means exercising incredible self-control.) While not everyone who earns an income pays income tax every year, yet we still call it an income tax, as a practical matter most people will earn income and pay income taxes at many points in their lives. Practically speaking, almost no one who dies will leave behind an estate tax liability.
"Death tax" thus wins the gold because it loses either way. Either it focuses on something that is irrelevant to the designation of all other taxes, or it highlights the least important (and most misleading) practical fact about the estate tax. It is a focus-group tested invention that too many politicians use to distort the debate. It takes the award for most dishonest tax rhetoric. Unfortunately, the competition is fierce, and the game is never over.
The two lucky winners so far: 3rd Place went to the claim that allowing the Bush tax cuts to expire would constitute the Biggest Tax Increase Ever, and 2nd Place went to the proponents of a national sales tax who insist on presenting the tax rate under their plan (which is artificially low for several reasons, not the least of which is that they assume that tax evasion will cease entirely, even after eliminating the IRS and dumping sales tax enforcement on the states) in a way that no normal person would expect.
The big winner will not surprise those who know me: The Death Tax. There are two separate arguments for calling the estate tax the death tax, one technical and one practical. Both are completely wrong.
The technical argument is that the estate tax cannot be assessed until a person dies. The tax, therefore, is a tax on death. "You don't die, you don't pay the tax." Notwithstanding the humorous notion that this is exactly the kind of incentive that we should want to build into the tax code (one more reason not to die), the fact is that we do not identify taxes on the basis of their triggering event. The income tax can be assessed annually (either on a calendar year or fiscal year basis) or at shorter or longer intervals. No matter the interval, it is still an income tax because it is a tax on income. If you are paying an income tax on a calendar year basis, you do not pay tax until Dec. 31 ends. Even so, it is an income tax and not a "New Year's Eve Tax."
Property taxes are not identified by the date that they are paid, either, but by what is being taxed (the value of property). Sales taxes are assessed on the dollar amount of certain purchases of goods, which at least means that the thing that's being taxed (consumption) and the date that it is being taxed (upon purchase) can coincide; but the term sales tax refers to the fact that we're computing the tax based on the amount of the sale, just as we assess income taxes on the amount of income.
The practical argument goes something like this: "Sure, technically this is not a tax on death itself. But come on, it's a tax on death! It just makes sense to call it a death tax." Leaving aside the lack of actual content to this argument, the point seems to be that we should ignore consistency or history and simply indulge our desire to focus on death as the triggering event.
If we're allowed to be practical in this sense, though, this opens up the field to all kinds of practical observations. That estate taxes are currently paid by fewer than 1% of all decedents' estates suggests that the current use of the term estate tax is quite accurate in the connotative sense -- only people with "estates" pay the estate tax. (I had a student who once argued that the term "estate tax" had been invented by "a bunch of liberal lawyers sitting in a room somewhere trying to make the tax sound like it would only apply to rich people." Sometimes being a professor means exercising incredible self-control.) While not everyone who earns an income pays income tax every year, yet we still call it an income tax, as a practical matter most people will earn income and pay income taxes at many points in their lives. Practically speaking, almost no one who dies will leave behind an estate tax liability.
"Death tax" thus wins the gold because it loses either way. Either it focuses on something that is irrelevant to the designation of all other taxes, or it highlights the least important (and most misleading) practical fact about the estate tax. It is a focus-group tested invention that too many politicians use to distort the debate. It takes the award for most dishonest tax rhetoric. Unfortunately, the competition is fierce, and the game is never over.