Coverage of the federal tax-rate deal in the latest TIME (in a print version of this story) exposes several fallacies associated with the recent debate:
[T]he tax cuts for the richest 2% of Americans would also be extended for two years and the tax on inheritances would be lowered from the Obama goal of 45% to 35%, with the first $5 million tax-free. The cost of these measures: about $100 billion more than Obama wanted to spend.
Fallacy No. 1: While almost every commentator has discussed ?tax cuts? or ?Bush tax cuts,? the issue actually involves tax rates. The Republican position focuses on maintaining existing tax rates. There is no tax cut. What the deal would do is prevent a tax hike.
Fallacy No. 2: TIME?s Michael Scherer buys into the notion that the debate revolves around the ?richest 2% of Americans.? Actually, the debate involves those in the top 2 percent for annual taxable income. Some of these taxpayers are rich. Many are not. Some are small business owners who file individual ? rather than corporate ? tax returns. Others are taxpayers with one-year windfalls who will never approach that top 2 percent again. Calling these taxpayers the ?richest 2%? is a shameless appeal to class envy.
Fallacy No. 3: It would be hard to lower a tax that has a current rate of zero, but that?s the implication of the line that ?the tax on inheritances would be lowered.? There is no estate tax at this point. It?s true that a 35 percent estate tax rate would be lower than ?the Obama goal,? and lower than the 55 percent rate set to kick in for 2011 with no congressional action. But that doesn?t mean the existing tax would be lowered.
Fallacy No. 4: The idea that these measures ?cost? anything assumes that the money is the government?s to spend in the first place. But government spends the money only after taking it by force from those who earned it. Lower tax rates ? income, estate, corporate, sales ? mean that people who earn money keep more of what they earn, rather than surrendering it to the government. It would be more accurate to talk about the cost to the economy of pursuing overly high tax rates.
Regarding the future of the estate tax, Adam Nicholson of the American Family Business Institute discussed its harmful impact earlier this year in an interview with Carolina Journal Radio:
