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Taxes Are Not Handouts

2 min readBy: Alan Cole

At times I really struggle to understand the way taxes are covered on Wonkblog, but a post yesterday, listing government handouts for the rich, reached a new level.

Some of the items listed seem like poor examples. (Do rich people really take lots of deductions for their gambling losses?) But the one that really threw me for a loop was the estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. , a taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. levied on only the most valuable estates. It is literally the opposite of a handout for the rich.

The authors justify its inclusion like this:

“The Estate Tax is a tax on your right to transfer property at your death,” according to the IRS. Without the estate tax, super-wealthy families would be able to hoard that wealth in perpetuity, becoming ever more powerful in the process. The tax, as it currently exists, only kicks in on estates worth $5.4 million or more, affecting about the top 0.2 percent of households. For everyone else in the top 1 percent, congratulations! You can pass on your riches to your heirs tax-free.

The estate tax is actually a pretty simple tax in some ways: it is an ad valorem tax with an exemption up to a certain amount, for progressivity. The authors prefer a different exemption amount, such that the tax would be levied on the top 1% of estates rather than the top 0.2% of estates. In other words, they apparently would like the same basic structure, but with slightly different parameters. Fine. But the absence of one’s preferred tax policy isn’t a handout.

On a purely mathematical level, the problem with this argument is that anyone can make it at any time. To say that a tax should hit Y% of people, not X%, and that this is a “handout” for the (Y-X)% of people that go untaxed, is an argument with no limiting principle. It could just as easily be applied to an estate tax on the top 1 percent of estates, as Wonkblog apparently proposes, or a tax on the top 5 percent of estates, or a tax on any other number of estates. Ironically, the only tax structure that could avoid this argument would be one that does away with progressive exemptions altogether.

The word choice, though, is the more striking problem. A progressive taxA progressive tax is one where the average tax burden increases with income. High-income families pay a disproportionate share of the tax burden, while low- and middle-income taxpayers shoulder a relatively small tax burden. is a handout for the rich? Wonkblog takes us deep into Through the Looking Glass territory, where words have no meaning and paradoxes abound. Taxes are handouts, progressivity is a benefit for the rich, dogs and cats live together, and so forth.

There are two reasons an article can have perplexing language. Sometimes it comes from rushed writing or poor editing. At other times – such as in this blog post – confusing language just clearly reflects the confused nature of the thought behind it.