Nationally, government is basking in all sorts of surpluses as a result of a booming economy.
The result is that all this money has sent federal lawmakers to the well to either spend the riches or give it back in politically well-intended tax reductions and tax breaks and in some cases, help to pay down the national debt. Although the national economy is beginning to show signs of slowing as a result of the federal effort to increase interest rates, congressional officials continue to make noises about cutting taxes.
The latest proposal would eliminate the federal estate tax in a few years. The purported rationale is that the estate tax merely takes away what people have spent a lifetime earning. In particular, the focus is on small businesses or family-owned businesses such as farms. While the proposal has snared approval in the House of Representatives, it will also have to gain approval in the Senate before reaching the White House where the President has vowed to veto any repeal of the tax.
Given that prospect, federal lawmakers may want to rethink their strategy and reasons for repealing the estate tax. If indeed Congress is concerned about small businesses and farms, then a determination should be made as to what constitutes a small business or a family owned farm that needs protection from the estate tax bite — is it the number of employees or the size of the payroll? This exercise could at least move the discussion forward.
If the idea is to alleviate the death tax bite on “middle income” families, then one needs to define what sort of estate would or should be exempt. Here in Hawai’i and places like California where the cost of housing has gone out of sight, should the estate tax not apply to a principal residence? No one likes the thought of paying taxes, especially just because you happen to die. On the other hand, it does not appear likely that the President is going to back off his promise to veto any repeal of the tax.
Thus, instead of losing the whole ball of wax, federal policy makers should think about moving ahead in providing some sort of relief in the interim rather than no relief at all. Raising the estate tax exemption, and defining a threshold for small business owners or farmers might be an acceptable alternative to the White House.
In another area, the budget surplus created by hearty income tax collections has presented a variety of alternatives for lawmakers. While the first thought has been to cut income tax rates, others believe that the national debt should be paid down while still others believe it should be used to shore up the Social Security and Medicare systems.
Both arguments are valid, but too much of a good thing can also be bad for the nation and the economy as a whole. In the case of paying down all of the debt, there is something to be said about spreading the cost of certain public projects over a couple of generations of taxpayers. If today’s taxpayers pay the total cost of public infrastructure with cash, then that burden on today’s taxpayers will relieve future taxpayers of the responsibility of paying for infrastructure that they will also use.
In the case of bailing out the Social Security and Medicare systems, it should be remembered that both system were to be self-financed, paid for out of the paychecks of those who would benefit. If the system is forecasted to be financially in trouble in a few years, then the solution is not to merely throw money at it to bail it out.
Instead lawmakers need to examine where the bleeding is occurring and to fix the patient. If benefits are too generous they need to be cut back or the tax is insufficient to fund the program then it should be raised. While that may sound like heresy, it is merely making sure people understand what they are paying for and to be able to choose whether or not this is what they want. This is accountability.
Finally, there are those who would like to cut income tax rates as a way to give back the surplus. To some tax cuts are merely an election year ploy. On the other hand, why should taxpayers give the federal government more than what it needs to provide the basic essential services.
Instead of merely cutting tax rates, federal lawmaker may want to take another pass at trying to simplify the income tax law. Ridding the Tax Code unintelligible provisions and special interest exemptions would be a marked step forward toward a fairer income tax for all.