Friday, November 16, 2007

Winners and Loser : Farm Bill, Death Tax, Politicians versus Me, the taxpayer

Gil Gutknecht aptly called the US Senate “the graveyard of all good ideas” and this week the Senate applied a lethal Double Dose to two good pieces of legislation. Gutknecht was part of the 109th Do-Nothing Congress and the Senate seems to be acting to ensure that the 110th does no better.

Senate Agriculture Committee Chairman Tom Harkin said Thursday that "If we can't get a farm bill through the Senate that came out of the committee without one dissenting vote ... If we can't do that then what's the use trying to do it next year with the same Senate?" and effectively postponing the legislation until after the 2008 election And Republican House members seem to be in agreement. So lobbyists will continue to make contributions until the legislation is resolved. And that’s why there will not be any legislation this term … the politicians win.

We may – or may not – like the Farm Bill, but to pass it along to the next Congress and President is not only shameful but woefully irresponsible.

On Wednesday, the Senate held hearings entitled “The Federal Estate Tax: Uncertainty in Planning Under the Current Law.” What is at stake is potentially $24 Billion in revenues, but the statements by Senators Max Baucus and Chuck Grassley indicate a strong opinion that this tax loophole be continued. Ironically, Warren Buffet appeared at the hearing and spoke of continuing the tax. The argument is full of dramatic misinformation that these taxes are largely unfair inheritance taxes paid by hard-working owners of small and medium companies. In reality most estates don't owe any estate tax at all. Gutknecht like to talk how people like Buffett would create trusts and nonprofit groups to avoid paying inheritance taxes. That’s true and a separate argument … (why isn’t the same argument made when nonprofit groups are created to avoid paying ordinary income which is commonplace with sports stars? Yes, those monies can support a number of great charities (for example, the Pohlad Family Foundation)
and we thank them … but we helped created their wealth by our support) There are a number of tax planning strategies (generation skipping trusts, etc.) and a number of significant exemptions that apply such that the number of estates that actually are taxed are relatively small in number. The tax only applies to the amount over the exemption (for example in 2009, the provision is for a $3.5 million exemption).
The people who potentially may pay it are the super-rich. For example, here is a list of 24 individuals from anti-estate-tax families on the Forbes 400 list, 20 owe their good fortune to their forbearers, since only four represent the first generation of family wealth. In fact, since they inherited their wealth, they received step-up tax cost basis thereby reducing the capital gains tax (talk about double-dipping on the taxpayers !) These people are lobbying Congress hard (i.e. making contributions to their "favorite" candidates ... fyi - Mitt Romney's first TV commercial was about the unfair death tax.) And that’s why there will not be any legislation this term … the politicians win.

So this week, the politicians have won twice … by doing nothing … delaying and denying good legislation. So who lost … that would be the taxpayers. As long as the politicians don’t act, the unfair tax system remains in effect and working Americans pay while good programs are not enacted. The national debt rises and the US dollars loses value.

The House has done a good job getting a Farm Bill passed as well as the Temporary Tax Relief Act of 2007 (H R 3996) that would do a number of things including revising the Alternative Minimum Tax (AMT) that impacts working middle class families. But that Senate's inaction proves the axiom is correct : “the graveyard of all good ideas”.
How will Norm Coleman explain how he sat on the Agriculture Committee that passed the Farm Bill, yet he could not get it passed by the entire Senate ?


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