Let me guess – you already knew that, right? Because you can feel it in your pocketbook. From the New York Times:
Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that they had to make ends meet with less money than at the peak of the last economic expansion, new government data shows.
Of course, there were some folks that made out like bandits over the last five years: those making more than $1 million:
The number of such taxpayers grew by more than 26 percent, to 303,817 in 2005, from 239,685 in 2000.
These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005, compared with 2000.
And what about the masses? Well:
Nearly half of Americans reported incomes of less than $30,000, and two-thirds make less than $50,000.
I have never understood how so many people argue in favor of eliminating the estate tax, when it affects so few. I have never understood how so many people argue in favor of a favored tax rate on capital gains and dividends, when it affects so few. Two thirds of Americans make less than $50,000! By nearly any measure out there, that is far from rich.
Years ago, I asked an economist how it was that the American public bought into the idea that if they aren’t rich now, someday they would be, and, therefore, they wanted favorable tax treatments for the rich. He said he had no idea.
I don’t, either.
VIVIAN J. PAIGE | All Politics is Local 
“I say if you want to eliminate the estate tax, the tradeoff has to be that when the stuff passes to the heirs, let the basis pass to them, too, just like it does when they make a gift. At least that way, we have a chance of them (sic) paying taxes on the gains.”
Agreed, if you are willing to index the gains for inflation! The proposal also has the merit that the heirs are not forced to sell to pay the taxes.
Now, since capital gains are an accounting nightmare, and the labor of the accountants adds nothing to the national wealth, why don’t we just eliminate the capital gains tax altogether?
Why are folks falling behind?
Who’s falling behind? Falling behind whom?
First of all, as the article indicates, the average income dropped between 2000 and 2002. It was, after all, a recession. The average income has been going up, adjusted for inflation, since then. Furthermore, the IRS data are not tracking individuals. While the average may have gone down, the people have changed. The older ones (who tend to be in their peak earning years) have retired, and young workers and “unlawful aliens” have come in.
If the average height of the trees in a forest has not changed for five years, do you conclude that the individual trees are not growing?
Anon: “The older ones (who tend to be in their peak earning years) have retired, and young workers and “unlawful aliens” have come in.”
This happens every year. By your logic average incomes would drop each and every year.
From your earlier post: “Also, we are not talking about “giving,” but about taking. It is not even taking BACK, because the rich did not get their money from the government in the first place.”
Really? Rich people don’t receive money from the government? I guess we’re not including any corporate welfare policies.
I’ll be radical: why should the government necessarily have any claim on one’s income?
Brian, therein lies the fallacy of Vivian’s argument. Why wouldn’t anyone want to take other people’s money? – As if it’s wrong for the family to keep money that was left to them. The right thing to do would be for government to take it, especially if it’s an asset that has to be sold simply to pay the tax.
It makes me like doing away with income taxes altogether.
AEM – I didn’t say capital gains were a nightmare, I said the recordkeeping is a nightmare. And I certainly hope you were joking about the labor of accountants. That means the labor of ANYONE doesn’t add anything to the national wealth.
You already have your indexing of gains for inflation: it’s called the preferred tax rate for capital gains.
Brian and Brian – tell me how you are going to pay for government services? Or would you just prefer we not have any of them – no roads, no schools, no police or fire?
And don’t give me the sales tax argument. Because sales taxes are the same thing. Where do you think the money comes from if not from income?
“By your logic average incomes would drop each and every year.”
No, because individual incomes are rising, just as the trees in the forest grow, but the average height of the trees does not increase.
Vivian, as far as their labor in the calculation of taxes goes, that labor of absolutely nothing to our national wealth, and is, in fact, a drain upon it, because that labor could be used profitably elsewhere.
Also, Vivian, please explain how the preferred tax rate makes the cost basis indexed for inflation. I do not understand.
What recordkeeping nightmares accompany a sales tax? What intrusive questions must be answered? What ridiculous rules, regulations, forms, and instructions are needed for a citizen to comply? With a sales tax, can a citizen be penalized for following directions given to him by an IRS employee, if that employee gives him bad directions?
I think it you piled up all the sales tax laws from all the States in the Union, the pile would be smaller than the federal income tax law.
AEM – I think you need a course in economics. How do you think wealth is created, but for labor? Perhaps TB can explain it to you.
The capital gains rate is a maximum of 15% (in most cases), while the personal income tax rate is 35% (in most cases). So essentially by the rate being significantly lower, it has taken into account the effect of inflation, among other things.
Vivian, apparently you are fighting a losing battle with a couple people on this blog. They are clouding the big issue of who actually benefits from our corporate style democracy. The rich do have access to better lawyers, the rich do have access to the politicians through lobbying, the rich do have the ability to send their kid to what they consider high end schools, the rich do have a better ability to meet their daily needs, and of course the rich definitely have access to better health care. Now I don’t know exactly what determines rich because these benefits become apparent the higher up the food chain one goes. I mgiht have access to a couple of these things that those on the scale do not have so it varies. The higher you go up the food chain the higher your taxes should be becuse you are benefitting more from the type of democracy we live in today. Anyway I do not see many of the multi-millionaires ever arguing they are taxed to much( a.k.a. Bill Gates and Warren Buffet) because they know taxes will not determine if their business succeeds. If they have an item that sells they will become rich and prosper. To one of your bloggers earlier I have to add that the rich might finance the product thereby adding jobs, but they do not build the product. the middle class (small as it is these days and shrinking) and lower class build the product. So be careful how you treat the workers in the field.
Oh and about the sales tax- do you think that there is no accounting associated with it? Tell that to the companies that program the registers, or the accounts who prepare the sales tax returns.
Heck yeah there is accounting associated with it. Just because you don’t see it on your end doesn’t mean it doesn’t occur.
Besides, I noticed that you didn’t answer the question: how does the sales tax not come from your income?
BTW, you may wish to change the title of your post. 2005 incomes were HIGHER than 2001.
Nope. They were lower. Do you ever bother to read the links, AEM?
Nope, Anon is right. 2005 incomes were lower than 2000, but higher than 2001. All your quotes are about 2000, but your headline says 2001.
Vivian, all I was saying is that if all your interested is taxing estates because of fairness, why not make it revenue neutral by lowering other taxes? Otherwise it looks like an insatiable grab for more money.
It was a typo – I changed it.
Tell me a tax that could be lowered, especially when the capital gains rate is already 20 points below the income tax, taxed at the lowest it has ever been. And they certainly didn’t make the elimination of the estate tax revenue neutral, now did they?
GEM said it above: the crazy rich, like Gates & Buffet, are the ones who would be affected by this and they are saying that the estate tax should not be eliminated. Why are poor folks, who won’t have an estate problem, anyway, worried about this and in favor of doing away with it?
I don’t get it.
And you didn’t answer the question, either.
Vivian-
Thanks for an interesting take on this, it’s good to hear a CPA’s perspective on the Estate tax.