Archive for the ‘Death Tax’ Category

As part of her collection of class-warfare tax proposals, Hillary Clinton wants a big increase in the death tax.

This is very bad tax policy. In a good system, there shouldn’t be any double taxation of income that is saved and invested, especially since that approach means a smaller capital stock (i.e., less machinery, technology, equipment, tools, etc). And every single economic school of thought – even Marxism and socialism – agrees that this means lower productivity for workers and therefore lower wages.

In a must-read column for the Wall Street Journal, Steven Entin of the Tax Foundation elaborates on why the death tax is pointlessly destructive. He starts by explaining that the tax is unfair.

…estate taxes are always double taxation. Estates are built with savings that have already been taxed as income, or soon will be. …The superrich can afford to give away assets during their lives or hire estate planners to help minimize the tax. …The main victims of the death tax are middle-income savers and small-business owners who die before transferring ownership to their children.

And because the tax reduces investment and wages, the revenue gained from imposing the tax is largely offset by lower income tax and payroll tax receipts.

The estate tax…produces so little revenue, only $19 billion last year. But because the tax has recoil effects, even this revenue is illusory. Because the tax reduces the stock of capital, it lowers the productivity of labor and reduces wages and employment. Much of the burden of the tax is shifted to working people. Research suggests that the estate tax depresses wages and employment enough to actually lower total federal revenue over time.

He then reports on some of the Tax Foundation’s analysis of the good things that happen if the tax is repealed.

…to eliminate the estate tax…would raise GDP by 0.7% over 10 years and create 142,000 full-time equivalent jobs. After-tax incomes for the bottom four-fifths of Americans would rise by 0.6% to 0.7%, mainly due to wage growth. …Revenue losses in the first six years would be almost entirely offset by gains later in the decade, with more gains thereafter. Both the public and the government would be net winners.

But he also warns of the bad things that will happen if Hillary’s class-warfare scheme is enacted.

Mrs. Clinton plans to lower the exempt amount to $3.5 million for estates and $1 million for gifts. She would raise the top rate to 45% for assets over $3.5 million, with further increases up to 65% for individual estates above $500 million. …Mrs. Clinton’s plan would lower GDP by 1% over 10 years and cost 194,000 full-time equivalent jobs. After-tax incomes for the bottom four-fifths of Americans would fall by 0.9% to 1%, due to slower wage growth. …the public and the government would be net losers.

So what’s the bottom line?

The revenue numbers cited here also do not take into account increased efforts to avoid the tax. If these imaginative and highly productive people plan ahead to direct their assets to causes they deem worthy, rather than cede their wealth by default to the government, Washington will not see a dime from an estate-tax increase. …Mrs. Clinton’s plan would not so much redistribute wealth as destroy it. Everyone would lose except estate lawyers and life insurers.

Over the years, I’ve shared other research on the death tax, including a recent column on Hillary’s grave-robber plan, as well as my own modest efforts to impact the overall debate in print and on TV.

But my favorite bit of research on the death tax comes from Australia, where repeal of the tax created a natural experiment and scholars found that death rates were affected as successful people lived longer so they could protect family money from the tax collector.

Now there’s research from another natural experiment.

An economist from the University of Chicago produced a study examining a policy change in Greece to determine what happens when taxes are reduced on the transfer of assets. Here’s a bit about her methodology.

I exploit a 2002 tax reform in Greece that reduced succession tax rates for transfers of limited liability companies to family members from 20% to less than 2.4%. …In the quasi-experimental setting made possible by the tax policy change, I employ two different methodologies to measure the effect of this policy change on investment. …by comparing the two groups before and after the tax reform, the analysis disentangles the effect of the identity of the new owner (family or unrelated) from the effect of the succession tax.

And here are her results. As you can see, there’s a notable negative impact on investment.

…estimates reveal a negative effect of transfer taxes on post-succession investment for firms that are transferred within the family. In the presence of higher succession taxes, investment drops from 17.6% of property, plant, and equipment (PPE) the three years before succession to 9.7% of PPE the two years after. This impact of succession taxes on investment is economically large: the implied fall in the investment ratio (0.079) is approximately 40% of the pre-transition level of investment. For those firms, successions are also associated with a depletion of cash reserves, a decline in profitability, and slow sales growth. Note that to the extent that entrepreneurs can plan ahead for the succession and the related tax liability, the estimates I report in the paper provide an underestimate of the true effect of succession taxes.

Even academics who seem to support the death tax for ideological reasons admit that it undermines economic performance, as seen in this study published by the National Bureau of Economic Research.

…aggregate capital and income go up as the estate tax is lowered. When the labor income tax is used to balance the government budget constraints, for given prices, reducing estate taxation does not reduce the rate of return to savings for anyone in the population and still increases the return to leaving a bequest… As a result, aggregate capital goes up a bit more…and so does aggregate output.

By the way, the economists who produced this study constrained their analysis by assuming other taxes would have to be increased to compensate for any reduction in the death tax. To my knowledge, there’s not a single lawmaker who wants to raise other taxes while reducing or eliminating the tax. As such, the results in the above study almost certainly understate the economic benefits of reform.

If you don’t like reading academic studies and dealing with equations and jargon, here’s what you really need to know.

  • Rich people aren’t idiots, or at least the tax advisors they have aren’t idiots.
  • Those upper-income taxpayers have tremendous ability to manage their finance.
  • Rich people (and their smart advisors) figure out how to protect themselves from tax.
  • The death tax is a voluntary tax it can be avoided by people with substantial assets.
  • But the various means of avoidance all tend to result in a less dynamic economy.

In other words, when politicians shoot at rich taxpayers, the rich taxpayers manage to dodge much of the incoming fire, but ordinary people like you and me suffer collateral damage.

Let’s close by shifting from economics to morality.

The death tax is odious in part because it is a pure (in a bad sense) form of double taxation, but it also is bad because the government shouldn’t be imposing double taxation simply because someone dies.

Actually, let’s add one more wrinkle to the discussion. If it’s immoral to impose tax simply because of a death, then it’s doubly immoral to impose such taxes while simultaneously (and hypocritically) taking steps to dodge the tax.

Which is a good description of Hillary’s behavior, as reported by the Washington Examiner.

Bill and Hillary, like most millionaires whose wealth is mostly in housing and liquid assets, have engaged in sophisticated estate planning to avoid the death tax. …the Clintons placed their Chappaqua home — the one that housed the secret servers Hillary used to evade transparency laws — into two separate trusts. For complex reasons, this protects Chelsea from having to pay the estate tax when she inherits the house. …The Clintons also hold five life insurance policies, worth somewhere around $2 million. This is “designed to transfer assets outside of the estate,” one estate planner told Time. Life insurance payouts are generally exempt from death taxes.

Oh, and you probably won’t be surprised to learn that Hillary has close ties to the special interest cronyists who profit from the death tax.

The death tax brings in a paltry sum for Uncle Sam, but it provides a windfall for a couple of tiny segments of the economy: estate planners, and well-funded investors who buy out the family businesses threatened by the death tax. Jeff Ricchetti is a longtime Clinton confidant, a revolving-door corporate lobbyist on K Street, and a donor to all of Hillary Clinton’s campaigns. …Jeff has spent two decades lobbying to preserve and expand the death tax. In 1999, When Jeff cashed out of the Clinton administration, he joined the Podesta Group, co-founded by Clinton’s current campaign manager John Podesta. One client there: the American Council of Life Insurers, where Ricchetti lobbied in favor of taxing inheritances. …Life insurers, such as the members of ACLI and AALU, sell estate-planning products that could become worthless — or at least worth less — if parents were simply able to hand the fruits of their life’s work to their children. That’s why in April, TheTrustAdvisor.com ran a piece headlined “Estate Tax Repeal: Has Hillary Become the Estate Planner’s Best Friend?”

I’m shocked, shocked.

By the way, one of the main practitioners of cronyism is Hillary’s political ally, Warren Buffett.

Buffett advocates the death tax because it has been so very good to him over the years. To fully understand the depth of Buffett’s cynicism and self-interest, let’s take a look at how one might avoid paying the death tax. If you’re a wealthy person and want to steer clear of this tax, you have three options: Set up complicated trust arrangements, which mostly serve to enrich lawyers and merely delay and shift a tax that must eventually be paid; arrange for your estate to make tax-deductible contributions to charitable organizations; or plow your wealth into life insurance before you die. By law, when your heirs are paid the life-insurance disbursement, it’s tax-free. It doesn’t take a genius to see how certain industries could make a tidy profit off these death-tax escape hatches. In fact, some of the most ardent opponents of permanent death-tax repeal are (surprise, surprise) estate lawyers (who set up the trusts), charities (who fear their spigots of money turning off), and the life-insurance lobby (which does all it can to preserve its tax loopholes). Buffett has major investments in companies that sell life insurance. The death tax has helped make him rich while it has made other families poor. What’s sad and ironic is that it takes families with the resources of the Buffetts (and the Hiltons and the Kardashians) to set up the trusts and life-insurance schemes that are necessary to avoid paying the death tax.

Once again, I’m shocked, shocked.

P.S. Our death tax is even more punitive that the ones imposed by left-wing hell-holes such as Greece and Venezuela.

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What’s the worst possible tax hike, the one that would do the most economic damage?

Raising income tax rates is never a good idea, and there’s powerful evidence from the 1980s about how upper-income taxpayers have considerable ability to change their behavior in response to changes in incentives.

But if you want to know the tax hikes that do the most damage, on a per-dollar raised basis, it’s probably best to focus on levies that boost double taxation of saving and investment.

The Tax Foundation ran some estimates on five different tax increases, for instance, and found that worsening depreciation rules (an arcane part of the tax code dealing with the degree to which new investment is taxed) would do the most damage, followed by a higher corporate tax rate, and then higher individual income tax rates.

But I wonder what they would have found if they also modeled the impact of a higher death tax. That levy is particularly destructive because it directly requires the liquidation of capital. The assets of investors, entrepreneurs, farmers, small business owners, and other victims take a big hit as politicians grab as much as 40 percent of what they’ve worked for during their lives.

This is bad for the economy because it directly reduces the capital stock. Sort of like harvesting apples by cutting down 40 percent of the trees in an orchard. The net result is that the economy’s ability to generate future income is undermined.

But it’s also bad for the economy because it reduces incentives for successful taxpayers to both earn and invest while they’re alive. Why bust your rear end when the government immediately will take at least 39.6 percent (actually more when you consider Medicare taxes, state taxes, and double taxation of interest, dividends, and capital gains) of your income, and then another 40 percent of what you’ve saved and invested when you kick the bucket?

Unfortunately, Hillary Clinton doesn’t seem to care about such matters. She actually just decided to double down on her destructive tax agenda by endorsing an even bigger increase in the death tax.

I’m not joking.

The editorial page of the Wall Street Journal is not exactly impressed by Hillary’s class-warfare poison.

On Thursday she decided that her proposal to raise the death tax to 45% from 40% isn’t enough and endorsed even higher levies that would apply to thousands of estates. Though she defeated Bernie Sanders in the primary, she is adopting the socialist’s death-tax rate structure. She’d tax all estates over $10 million at 50%, apply a 55% rate on estates over $50 million, and go to 65% on assets above $500 million. The 65% rate would be the highest since 1981 and is another example of how she is repudiating the more moderate policies of her husband and the Democrats of the 1990s. …the Sanders plan that Mrs. Clinton is copying did not index exemption levels for inflation. …Mrs. Clinton would also end the “step-up in basis” on stock valuations for many filers, triggering big capital gains taxes for a much broader population.

Wow, this is class warfare on steroids. And the part about this being more like Bernie Sanders than Bill Clinton hits the mark. Economic freedom actually increased in America between 1992 and 2000.

Hillary, by contrast, is a doctrinaire and reflexive statist. I’m not aware of a single position she’s taken that would reduce the burden of government.

By the way, here’s a bit of information that won’t shock anyone familiar with the greed and hypocrisy of the political class.

Hillary and her friends will largely dodge the tax, which mostly will fall on small business owners who lack the ability to create clever structures.

…most of her rich friends will set up foundations, as she and Bill Clinton have, to shelter most of their riches from the estate tax. …In any case, Mrs. Clinton is now promising total tax hikes of $1.5 trillion over a decade if elected President.

Gee, knock me over with a feather.

The Tax Foundation may not have included the death tax when it compared the harm of different tax hikes, but it has looked at how the death tax hurts the economy by discouraging capital formation and capital accumulation.

…an estate tax increase would cause economic production to be allocated away from business equipment, reducing the quantity of business equipment in the economy. …Many of the assets that fall under the estate tax, such as residential structures, commercial structures, and business equipment, enhance productivity, or gross domestic product (GDP) per hour worked. …The relationship between these assets and productivity is the focus of one of the most common models in economics, an equation called the Cobb-Douglas production function, which describes how workers and capital goods together produce economic output. Under this model, more capital increases output or income, even as the number of workers is held constant. It therefore increases GDP per hour worked, making people richer. Under such a model, reallocating economic production away from the capital goods that enhance output would reduce GDP in the long run. This is an effect that one might expect to see in a macroeconomic analysis of the estate tax.

Amen. If you want more output and higher living standards, you need to boost worker pay by increasing the quality and quantity of capital in the economy.

But politicians like Hillary

Here are the estimates of what happens to the economy with a 65 percent death tax.

So what would happen if lawmakers instead did the right thing and abolished this wretched example of double taxation?

The Tax Foundation has crunched the numbers. Here’s the impact on the overall economy.

And here’s what happens to federal revenue over the same period.

By the way, the Wall Street Journal editorial cited above did contain a bit of good news.

Congress is starting to push back against President Obama’s stealth death tax increase. Rep. Warren Davidson (R., Ohio) read our recent editorial about Treasury plans to raise taxes on minority stakes in family businesses by artificially inflating their value, and he’s drafted a bill to stop Treasury’s tax grab as a violation of the separation of powers. …A former owner of several businesses, Mr. Davidson says the U.S. economy needs owners focused on “growing assets, not structuring them for life events.” He explains that many farms in particular may carry high values but hold little cash, and so the death tax triggers land sales to pay the IRS. “The whole concept of a death tax is immoral,” Mr. Davidson says, and he’s right. The tax confiscates assets that have already been taxed once or more when first earned, and it punishes a lifetime of investment and thrift.

I wrote about this issue the other day, so I’m glad to see that there’s pushback against this Obama Administration scheme to unilaterally boost the burden of the death tax.

P.S. Politicians are not the only beneficiaries of the death tax.


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I’m in Geneva, Switzerland, where I just gave a speech about how international bureaucracies such as the OECD are seeking to undermine tax competition in hopes that the welfare state can be propped up for a few more years with ever-higher taxes.

But regular readers already know my views on these issues, so instead I want to focus today on a referendum that just took place a couple of days ago in this Alpine nation.

That referendum has convinced me that I was wrong when I wrote a few years ago that there were five reasons (government-constraining federalism, pro-gun culture, etc) to put Switzerland above the United States.

I’m not convinced there’s a 6th reason. Simply stated, the Swiss have to be the most sensible people in the world.

Here are some excerpts from an English-language report published by Swiss Info.

An attempt to federalise Switzerland’s inheritance tax system and redistribute wealth by taxing legacies worth more than CHF2 million ($2.15 million) has been rejected by Swiss voters… On Sunday, 71% of voters and all 26 Swiss cantons rejected the proposal. …Two-thirds of the revenue from this new tax, projected at CHF3 billion a year, would have been credited to the nation’s old age pension fund.

Yes, you read correctly. The Swiss left thought they could lure voters into supporting a tax hike based on a discriminatory tax on a tiny segment of the population.

But an overwhelming share of Swiss voters rejected this class-warfare scheme. Here’s a map of the results. But instead of liberal blue states and conservative red states that are found in the United States, Switzerland has nothing but conservative brown cantons.

The German-speaking cantons voted no. The French-speaking cantons voted no. And the Italian-speaking canton voted no.

It’s almost enough to make one feel sorry for Swiss statists.

…the political left has continued its losing streak at the ballot box. In the past two years voters have rejected pay caps within companies, the introduction of a nationwide minimum wage and a plan to scrap lump sum taxation for rich foreigners. …Supporters of the plan countered that the overall tax burden in Switzerland is still one of the lowest in Europe.

Though I have to wonder if Swiss leftists are extraordinarily stupid.

Did they really think that complaining about low taxes was the way to win an election?!?

I can just imagine what went through the minds of ordinary Swiss voters: “hmm…we’re richer than our high-tax neighbors and we’re growing faster than our high-tax neighbors…should we copy them or maintain the policies that have worked?”

Opponents had a more compelling argument.

Several politicians and media described the tax as a “KMU Killer”, referring to the German abbreviation for small and medium-sized businesses, which employ more than three-quarters of the Swiss workforce. Businesses said it would have been an effective double tax on income since firms already pay tax on earnings. …Switzerland’s cabinet, both houses of parliament and all 26 cantons had recommended voters reject the proposal, as did the main business lobbies.

Needless to say, I appreciate the argument about double taxation. That’s the obvious economic argument against the death tax.

But what makes Switzerland remarkable is the last part of the excerpt. It appears that the entire Swiss political establishment, as well as the entire business community, understand that it would be crazy to kill the low-tax goose that lays the golden economic eggs.

But ultimately, you have to give credit to the Swiss people. As mentioned in the article, they keep rejected statist proposals.

Here are a few I’ve written about.

Needless to say, my favorite Swiss referendum took place back in 2001, when 85 percent of voters imposed a spending cap on the central government. As explained in this video, this system has been remarkably effective at limiting the growth of government.

P.S. Oregon voters and California voters, by contrast, are far less discerning than their Swiss counterparts.

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Who benefits most from the death tax?

There are two obvious answers.

First, politicians presumably benefit since they get more money to spend. Yes, it’s true that the tax discourages capital formation and may actually lose revenue in the long run, but politicians aren’t exactly famous for thinking past the next election cycle.

Second, there are some statists who are motivated by envy and resentment. These are the folks who make class-warfare arguments about the death tax being necessary to prevent the “rich” from accumulating more wealth, even though evidence shows large family fortunes dissipate over time.

Both of those answers are correct, but they don’t fully explain why this pernicious levy still exists.

Tim Carney of the Washington Examiner has a must-read piece for the American Enterprise Institute. He reveals the groups that actually are spending time and money to defend this odious version of double taxation.

…about two-thirds of Americans tell pollsters that they oppose the death tax. …But some segments of the population feel differently — most notably, the estate-planning industry. A survey by an industry magazine in 2011 found that 63 percent of estate-planning attorneys opposed repeal of the estate tax. That’s fitting. The death tax forces people to engage in complex and expensive estate planning. Lobbying disclosure forms show that the insurance industry is lobbying on the issue these days. The Association for Advanced Life Underwriting, which represents companies that sell estate-planning products, lobbied on the issue last year, as it has for years. Last decade, AALU funded a group called the Coalition for America’s Priorities, which attacked estate tax repeal as a tax break for Paris Hilton. …When the estate tax was last before Congress, the life insurance industry revved up the troops, spending $10 million a month on lobbying in the first half of 2010. In that stretch, only three industries spent more, according to data from the Center for Responsive Politics.

I concur with Tim.

Indeed, I remember giving a speech back in the 1990s to a group of estate-planning professionals. In my youthful naiveté, I expected that these folks would very much appreciate my arguments against the death tax.

Instead, the reception was somewhat frosty.

Though not nearly as hostile, I must confess, as the treatment I got when speaking about the flat tax to a group of tax lobbyists for big corporations.

In both cases, I was surprised because I mistakenly assumed that my audiences actually cared about the best interests of their clients or employers.

In reality, they cared about what made them rich instead (economists and other social scientists call this the principal-agent problem).

But I’m digressing. Let’s look at more of Tim’s article. He cites the Clintons to make a key point about rich people being able to avoid the tax so long as they cough up enough money to the estate-planning industry.

Those same techniques, however, often are not available to farmers, small business owners, and others who are victimized by the levy.

The Clintons may be stupid-rich, but they aren’t stupid — they’re using estate-planning techniques to avoid the estate tax. Bloomberg News reported in 2014 that the Clinton family home has been divided, for tax purposes, into two shares, and those shares have been placed in a special trust that will shield Chelsea from having to pay the estate tax on the full value of the home when she inherits it. Also, the Clintons have created a life insurance trust — a common tool wealthy people use to provide liquidity for heirs to pay the estate tax. The Clintons’ games, and the estate-planning industry’s interest in the tax, highlights how the tax fails at its stated aims of preventing the inheritance of wealth and privilege. Instead, the estate tax forces the wealthy to play games in order to pass on their wealth. These games don’t add anything to the economy, they just enrich the estate-planning industry. Those whose wealth is tied up in a small or medium-sized business, on the other hand, aren’t always capable of playing the estate planning games. They’re the victims.

The bottom line is that the tax should be abolished for reasons of growth.

But it also should be repealed because it’s unfair to newly successful entrepreneurs, investors, and business owners, all of whom generally lack access to the clever tax-planning tools of those with established wealth.

And it should be repealed simply because it would be morally satisfying to reduce the income of those who benefit from – and lobby for – bad government policy.

P.S. The U.S. death tax is more punitive than the ones imposed by even France and Venezuela.

P.P.S. It’s particularly hypocritical for the Clintons to support the death tax on others while taking steps to make sure it doesn’t apply to them.

P.P.P.S. In a truly repugnant development, there are efforts in the U.K. to apply the death tax while people are still alive.

P.P.P.P.S. On a more positive note, a gay “adoption” in Pennsylvania helped one couple reduce exposure to that state’s death tax.

P.P.P.P.P.S. If you live in New Jersey, by contrast, the best choice is to move before you die.

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The President today released his budget for fiscal year 2016, a document that also shows what will happen to taxes, spending, and red ink over the next 10 years if the White House’s budget is adopted.

Here are the four things that deserve critical attention.

1. Obama proposes to have spending grow by an average of about 5.4 percent per year over the next five years and more than 5 percent annually over the next 10 years, well more than twice as fast as projected inflation.

Though it oftentimes doesn’t get sufficient attention, the change in government spending is the most important number (or set of numbers) in any budget. If the burden of spending is rising, regardless of whether that increase is financed by taxes or borrowing, more resources will be diverted from the economy’s productive sector.

In President Obama’s budget, he wants government spending in FY 2016 to be $3,999.5 billion, an astounding increase of 9.4 percent over the Congressional Budget Office’s estimate of $3,656 billion of spending in the current fiscal year (the President is proposing additional spending for FY 2015, so the annual increase between 2015-2016 in his budget is “only” 6.4 percent).

Even more troubling, he wants government spending to climb by more than twice as fast as inflation in future years. And most worrisome of all, he wants government to grow faster than the private sector, which means that the burden of government spending will climb as a share of GDP, both over the next five years and the next 10 years.

The challenge for the GOP: In part because spending rose so much in 2009, but also in part because Congress waged important fiscal battles over debt limits, shutdowns, and sequestration, there was a de facto spending freeze between 2009 and 2014. Unfortunately, spending is climbing by at least twice the rate of inflation in 2015, and Obama wants additional big increases in the future. It will be very revealing to see whether Republican control of both the House and Senate means policy moves back in the direction of spending restraint.

2. The President wants to renege on the 2011 debt limit agreement by busting the spending caps.

With great fanfare in 2011, the White House and Congress agreed to boost the debt limit, but only because both parties agreed on some modest caps to control the growth rate of discretionary spending.

But these spending caps don’t allow outlays to rise as fast as the President would prefer, so he is explicitly seeking to eviscerate the caps and allow bigger increases. These spending hikes would enable for defense spending and more domestic spending.

The challenge for the GOP: The spending caps and sequestration represent President Obama’s most stinging defeat on fiscal policy, so it’s hardly a surprise that he wants to gut any restraint on his ability to spend. This presumably should be a slam-dunk victory for Republicans since they can simply refuse to change the law. But there are some GOPers who want more defense spending, and even some who want more domestic spending. Indeed, the pro-spending caucus in the Republican Party was one of the reasons why the spending caps were already weakened two years ago.

3. The White House’s new budget wants a new tax on American companies competing in world markets.

The good news is that the President no longer is proposing to get rid of “deferral,” a policy from past budgets that would have resulted in a 35 percent tax on profits earned by American multinationals in other nations (and already subject to tax by the governments of those other nations). The bad news is that he instead wants to tax all previously accumulated foreign-source income at 14 percent and then tax all future foreign-source income at 19 percent.

To make matters worse, he wants to use this new pot of money to finance expanded federal involvement and interference in transportation and infrastructure.

The challenge for the GOP: Some Republicans favor more transportation spending from Washington and some companies may be tempted to acquiesce to some sort of deal, particularly if it only applies to accumulations of prior-year foreign-source income. Advocates of good policy in Congress should not enable a bigger federal role in transportation. Indeed, the only good policy is to phase out federal involvement and eliminate the federal gas tax.

4. President Obama wants class-warfare based increases in the death tax and the capital gains tax.

In addition to many other tax hikes in his budget, the President wants to boost the capital gains tax rate to 28 percent and he also wants to expand the impact of the death tax by eliminating a policy that acknowledges the actual value of assets when they are received by children and other heirs.

Since there shouldn’t be any double taxation of income that is saved and invested, both the death tax and capital gains tax should be abolished. Needless to say, increasing either tax would have a negative impact on the American economy.

The challenge for the GOP: Hopefully this policy will be deemed “dead on arrival.” Republicans presumably should be united in their opposition to class-warfare tax increases.

P.S. This Steve Breen cartoon is a pretty apt summary of the Obama budget (and one that will be added to my bloated government collection).

Particularly when augmented by this Jerry Holbert gem.

P.P.S. Here’s the fiscal policy we should emulate.

P.P.P.S. Here’s the fiscal policy mistake we should avoid.

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The polling data I shared last month about confused young people was a bit of a downer, so let’s look at three different polls that are a bit more encouraging.

First, I’m glad to see that many Americans feel that government and politicians are their leading cause of daily stress.

Here’s some of what the Washington Post reported on this poll.

…much of that emotional response is completely justified. As if it weren’t enough that our politicians are actively working to harm the global economy and otherwise failing to do their jobs or even show up for work in general, they’re also stressing everyone out with the astonishing breadth and depth of their incompetence. And since high stress is linked to shorter life expectancy, they are also literally killing us with their incompetence. In other words, thanks, Obama (and everyone in Congress too).

My job is to connect the dots so that people understand that the only way to reduce stress is to make government smaller.

And, for what it’s worth, that’s the best way to make government at least semi-competent.

Our second batch of polling numbers come from Rasmussen. I’ve shared research and data on the negative impact of redistribution spending (as illustrated by this powerful chart), but I figured most Americans didn’t understand that such programs trap people in dependency.

I’m glad to read that I’m wrong. In an article entitled, “49% Believe Government Programs Increase Poverty in America,” Rasmussen reports the following.

Most Americans still believe current government anti-poverty programs have no impact on poverty in this country or actually increase it. A new Rasmussen Reports national telephone survey finds that a plurality (44%) of American Adults still think the government spends too much on poverty programs.

The Rasmussen folks also have this encouraging bit of public opinion research.

A new Rasmussen Reports national telephone survey finds that 67% of American Adults think there are too many in this country who are dependent on the government for financial aid, up slightly from 64% in September of last year.

Our third set of polling numbers come from the periodic Reason-Rupe poll.

I’ll share several pieces of data, but here are the numbers I find most encouraging. Apparently most people realize that pro-growth policy is the right approach, not class warfare and redistribution.

In terms of economic policies, 74 percent of Americans would like Congress to focus on policies to promote economic growth, while 20 percent favor policies to reduce income inequality.

I guess I’m also happy about these results, though I can’t help but think that there are some very confused folks in the Tea Party.

Fifty-five percent of Americans tell Reason-Rupe they have a favorable opinion of capitalism. Meanwhile, 36 percent of those surveyed, including 33 percent of independents and 26 percent of self-described Tea Party supporters, have a favorable opinion of socialism.

I don’t even think Obama’s a socialist, so these ostensibly anti-Obama folks apparently favor even more government than our statist President. Go figure.

Last but not least, I should like this result, but I’m actually disturbed since the margin is much smaller than it should be.

When asked about the size of government, 54 percent of Americans favor a smaller government providing fewer services. Forty-two percent favor a larger government providing more services.

P.S. Remember when I warned that the one downside to personal retirement accounts is that future politicians might steal the money?

Well, it’s happened again according to Reuters, this time in Russia.

Russia’s government has approved a plan to use contributions to employees’ privately-managed pension funds to plug budget holes for a second year running. The move was confirmed by Labour Minister Maxim Topilin on Tuesday in comments published on the ministry’s website. It has been heavily criticised by some officials and analysts, who say it will hurt the pensions industry and financial markets.

P.P.S. I was beginning to feel a bit more positive about the Tory-led government in the United Kingdom, particularly after reading about some well-designed welfare reform, significant corporate tax cuts, and postal service privatization.

Then I read something awful. And what could be worse than imposing a death tax on people who are still alive.

Savers could be forced to pay inheritance tax while they are still alive, under a new drive against tax avoidance planned by the Government. …Under plans put out for consultation, HM Revenue & Customs would have powers to subject people minimising inheritance tax to “accelerated payment” laws, meaning they would be forced to pay up front if officials suspect them of using new schemes to avoid tax. Experts have warned that under the rules, taxpayers will be treated as “guilty until proven innocent”. …there will be concerns that innocent people could be investigated and made to pay large sums before they are able to defend themselves. …Economists, tax experts and Tory MPs have called for reform of the tax, warning that it predominantly hits middle-class families.

Shame on David Cameron for allowing this to happen. But I’m not surprised given the government’s track record.

And what else would you expect from a government that brainwashes children to rat out their parents and also puts despicable Orwellian ads on subways and trains?

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As a fiscal policy economist, one of my responsibilities is to educate policy makers about the impact of taxation.

Simply stated, I try to help them understand that taxes alter behavior. If you tax something at a higher rate, you get less of whatever is being taxed.

Politicians actually understand this basic lesson when it suits their purposes. Many of them will pontificate that we need higher tobacco taxes to discourage smoking.

I don’t think it’s government’s job to dictate our private lives, so I don’t agree with the policy, but I give them an A+ for economics. Higher taxes on tobacco will lead to less tobacco consumption.

My frustration is that politicians conveniently forget this elementary analysis when the discussion shifts to taxes on productive activities such as work, saving, investment, and entrepreneurship.

And they also fail to realize that the higher taxes on tobacco will lead to more illegal smuggling and other actions that result in far less revenue than politicians think they’ll collect.

But let’s set that aside and look at some truly remarkable examples of how taxes influence things that – at first glance – seem completely impervious to fiscal policy.

Would anyone think, for instance, that taxes could impact the day people are born? Well, here’s some new research, as summarized by Dylan Matthews at the Washington Post.

…where there are humans making choices, there are public finance economists asking how tax incentives influence them. …Williams’s Sara LaLumia, the University of Chicago’s James Sallee and the Treasury Department’s Nicholas Turner took it upon themselves to figure out if policies like the Child Tax Credit (CTC), the dependent exemption and the Earned Income Tax Credit (EITC, which is more generous for families with more children) are pushing mothers with due dates in January to move their children’s births forward, so as to reap another year of tax benefits. …What they find is that, after controlling for other factors that could affect birth timing, an additional $1,000 in per-child tax benefits is associated with a 1 percent increase in the probability of a birth occurring in December rather than January.

This study isn’t an outlier. Other research has reached similar conclusions. Indeed, in some case the impact of taxation is found to be much larger.

They actually aren’t the first ones to tackle this question. They cite at least four previous studies that found that parents alter birth timing to maximize tax and other public benefits. …Syracuse’s Stacy Dickert-Conlin and Harvard’s Amitabh Chandra found a 29.6 percent increase in December births resulting from a $500 increase in tax benefits.

Notice, by the way, that the research is also saying that government handout influence behavior, a point that I’ve repeatedly made when analyzing the harmful impact of redistribution programs on work incentives.

Let’s close by recycling some research that shows how taxes even influence when people die.

When Australia repealed the death tax back in the 1970s, researchers found that people lived longer in order to protect family assets.

And don’t forget that the U.S. death tax was repealed for one year back in 2010. I imagine we’ll see some fascinating and illuminating research on this period once economists have a chance to collect and crunch the data.

Though there’s already strong anecdotal evidence that death rates may have been impacted.

At least the statists can be happy that the death tax is now back in place – and that it’s even more onerous than the death tax policies in places such as France, Venezuela, and Greece.

But the main lesson of this post isn’t to complain that we have some very bad features to our tax code.

Instead, the goal is to simply get more people to realize that government policies have real-world effects and specifically that higher taxes will influence behavior.

In the grand scheme of things, it presumably doesn’t make much difference what days people are born and when they die. But when we apply these lessons to the broader economy, it turns out that taxation has a huge impact on economic opportunity and prosperity.

P.S. Heck, taxes even cause gay people to adopt their partners.

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