Category Archives: estate tax

>NJPP Monday Minute 12/20/10: Deficit be Damned: Everyone Gets a Tax Cut Next Year

This Christmas, we’ll all be getting a gift from Congress – two more years of Bush-era tax cuts. Never mind that Congress is paying for them with a credit card; they’ll square up the $860 billion bill with the Obama Administration down the road.

The thing is, the biggest gifts went to the wealthiest taxpayers.

A recent analysis by Citizens for Tax Justice, a Washington-based public interest research and advocacy organization, estimates that the compromise plan agreed to between President Obama and Republicans in Congress would give 25 percent of the total value of the tax cuts to the wealthiest 1 percent of all Americans. The President had originally proposed not extending the tax cuts for those with income of more than $250,000 a year.

The CTJ analysis also estimates the impact of the compromise on a state-by-state basis. In New Jersey, that’s an average benefit of $443 for the poorest 20 percent of earners and an average benefit of $93,350 for the wealthiest 1 percent.

The compromise plan extends to everyone the current federal income tax rates for two years, cuts the estate tax to below the 2009 level and cuts Social Security payroll tax deductions for all workers by 2 percent.

Income Taxes
Federal income tax rates were lowered twice during the Bush administration, in 2001 and again in 2003. Although each act had its own legislative history and impact, the two are generally lumped together in terms of their effect on taxpayers and the economy. The two acts significantly lowered federal marginal income tax rates for nearly all taxpayers. Both were set to expire at the end of 2010.

The debate in Washington has centered on whether the tax cuts should be extended and who should benefit. The president’s plan favored lower and middle income families and allowed rates to rise on the wealthiest taxpayers. Congressional Republicans wanted the current tax rates made permanent for all.

Congressional Republicans prevailed-but only temporarily. The tax cuts were extended two more years, at which time they will be subject to another debate.

Estate Taxes
The debate on the estate tax centered on Obama’s effort to maintain estate taxes at the 2009 level, which exempts the first $3.5 million of an estate and taxes the remainder at a rate of 45 percent. The compromise exempts the first $5 million and taxes the remainder at 35 percent.

Payroll Taxes
The compromise includes a 2 percent payroll tax cut (from 6.2% to 4.2%) for all workers. That is significantly less than the president’s “Making Work Pay” proposal, which would have eliminated the 6.2 percent payroll tax on the first $6,450 ($12,900 for couples) in earnings. The impact of this 2 percent cut is greater on lower income earners because only the first $107,000 of income is subject to payroll taxes.

According to CTJ’s analysis, the top 1 percent of taxpayers in New Jersey with incomes averaging $1.8 million will receive over 30 percent of these benefits from the income tax and estate tax provisions. When payroll taxes are taken into consideration, lower and middle income earners fare better. While some of the tax cuts have boosted take-home pay for middle class families, the tax cuts for the wealthiest are poorly designed short-term stimulus and, more important, ineffective long-term economic policy. Increasing the take-home pay of low- and moderate-income families will lead to more spending and a boost in demand for necessary goods and services, which in turn creates more jobs. By contrast, tax cuts for the wealthy are more likely to be tucked away as savings, which is a relatively ineffective boost to the economy.

Many have argued that tax cuts for the wealthy increase the incentive to invest or create small business jobs, and that these benefits eventually trickle down to average families. But the economic record tells a different story. Of the 10 economic expansions since 1949, the expansion between 2001 and 2009 ranks last in terms of economic growth, national investment, employment and employee pay.

Economist Mark Zandi of Moody’s Analytics estimates (see Table 4 in the report) that every dollar spent making the Bush tax cuts permanent generates only 35 cents of economic activity (permanent corporate tax rate cuts yield only 32 cents). Comparatively speaking, a dollar spent on infrastructure (investing in a transit tunnel under the Hudson River, for example) yields $1.57 return on investment; a dollar spent to prevent layoffs of teachers or police or firefighters yields $1.41; and a dollar to temporarily increase food stamps yields $1.72.

It’s too bad the Obama compromise will only boost paychecks, instead of lifting the entire economy.

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Filed under Bush Tax Cuts, estate tax, income taxes, Monday Minute, Moody's, New Jersey Policy Perspective, payroll tax, President Obama, Social Security

NJPP Monday Minute 7/26/10: What do BEIP, estate taxes and a candy company have in common?

The Mars family.

Mars North America’s sales in 2008 were $30 billion and Jacqueline Mars is the richest person in New Jersey, according to Her net worth is estimated at $11 billion. According to the Center for Responsive Politics, the Mars family has poured millions into lobbying on taxes as well as other issues.

In June, the New Jersey Economic Development Authority approved a Business Employment Incentive Program (BEIP) grant of nearly $500,000 to a subsidiary of Mars North America – the major candy company. This was a reward for bringing 36 jobs paying an average of $80,000 per job from Nevada to New Jersey. These new jobs would be located in Mount Olive, New Jersey, just north of Bedminster where Jacqueline Mars, co-owner of the company, lives.

The Mars family also wants to be rewarded for their wealth by having the federal estate tax eliminated. Jacqueline Mars and her brothers, Forrest Jr. and John, have been part of an effort by super-rich families to gut the federal estate tax for at least eight of the last 12 years, according to United for a Fair Economy (UFE) and Public Citizen’s 2006 report on these families, Spending Millions to Save Billions. Other like-minded individuals include the families who own Wal-Mart, Nordstrom’s and Gallo Wines.

The fight over the shape of the federal estate tax has been raging for years. And if you are very wealthy, this is a good year to die because heirs get every cent of the family wealth instead of sharing it with the government. By dying this year, George Steinbrenner’s heirs will inherit an additional $450 million (assuming 2009 rules).

In 2001, President Bush championed a 10 year phase-out of the tax that culminated in the elimination of the federal estate tax in 2010, then the return of the tax to pre-2001 levels in 2011.

Only the wealthy pay this tax. Under the Bush estate tax phase-out, in 2009, the first $7 million for a couple ($3.5 million for an individual) is exempt from the tax. An individual with between $3 million and $7 million in assets is wealthy – not middle class. That’s just common sense, but those who want to kill the tax cloud the debate with claims that it hurts the middle class, family farms and small businesses.

According to United Fair Economy, only two in a thousand people paid the estate tax in 2009. Lee Farris of UFE further explained in a point-counterpoint with the conservative Heritage Foundation that, “in 2009, two children of a wealthy couple could each inherit more, tax free, than the average American earns in two lifetimes. But unlike the lucky heirs who won the genetic lottery, these Main Street workers will be paying taxes on all of their earnings.” Also, the Tax Policy Center, a joint project of the Urban Institute and Brookings Institution, found that under 2009 rules, only 110 small businesses and farms in the whole country would have to pay the estate tax. And almost all would have enough cash assets to pay the tax.

What is the connection with the states? Prior to the 2001 federal estate tax cut, every state levied an estate tax tied to the federal estate tax. In addition, some states levy a separate state inheritance tax. The state-level taxes that were tied to the federal tax code are called “pick-up taxes” because these allow the states to pick up part of the tax revenue that would have been paid to the feds through an estate tax credit. The Center on Budget and Policy Priorities explains that these state estate taxes did not increase total estate tax liability because estates received this dollar-for-dollar credit that reduced federal taxes owed by the amount paid to the state.

In 2006, Jacqueline’s brothers who live in McLean, Virginia, spent $180,000 lobbying the Virginia legislature to eliminate the state’s estate tax, according to a September 27, 2007 article in The Roanoke Times. They were successful and each brother saved an estimated $1.6 billion in estate taxes they would have paid to Virginia upon their death.

Unlike Virginia, New Jersey and 21 other states continue to tax inheritances. Many of these states, including New Jersey, made the financially sensible move to decouple from the 2001 tax cut changes and continue their pick-up tax, rather than cutting essential services for residents.

In the fall, Congress will continue to debate what shape the estate tax will take after this year where no federal estate tax exists. It is the least well off in New Jersey and around the country who need help – not the wealthiest corporations and individuals.


Filed under estate tax, George Steinbrenner, Mars Candy, New Jersey Economic Development Authority, New Jersey Policy Perspective, The Center on Budget and Policy Priorities, The Mars family