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Political Definition Of The Death Tax
One of major political changes that marks the Obama rule is with regard to tax policy -- the decision whether to keep death tax or not. At present, gifts and bequests attract a tax of 45 percent on all wealth above $3.5 million per individual or $7 million for a married couple. |
This stiff tax structure gets more complex by additional rules that address transfers made prior to death between married couples and into intergenerational trusts.
President Obama and the Democrats want to make the 2009 transfer tax permanent while they should do better by abolishing the tax entirely. Using the transfer tax shows that the Obama rule has not gone soft on wealthy people.
This decision is strongly resisted by those who think transfer tax is another attack on the capacity of small businesses to create jobs in a harsh economy.
A sound taxation system is one that imposes fewer distortions on the operation of market institutions consistent with the need to raise government revenues. A flat consumption tax as the sole revenue source would be the best which eliminates all incentives of the taxpayers to either redirect some portion of their income to less affluent members of the family, or to shift income and expenses across the years. This avoids the protracted and pointless struggles to find an optimal level of progressivity or low enough not to drive the creative entrepreneurs from the market.
The focus should be on consumption. The current stress on taxable income creates a massive distortion between private saving. People tend to either consume wealth or invest it. The flat consumption tax removes the incentive for excessive consumption by assuring individuals that their savings will not be taxed.
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Political Definition Of The Death Tax
