Taxes

California Wants To Make Itself Even Less Competitive

Looking to set up a death tax if Trump repeals the federal one.

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Economists sometimes talk about a fictional $1 million tax on, say, beagles to illustrate the perverse effects of a poorly designed tax code. In theory, the tax could bring in $20 billion, given there are about 20,000 registered members of the breed. But in reality, the tax would yield little, because few people would claim to own such dogs, suddenly "discovering" that their beagles were really something else, maybe mixed breeds or schmeagles.

That idea is useful when discussing what's benignly referred to as the "estate tax." Critics refer to it by the ominous-sounding "death tax," given that it imposes a 40 percent hit on accumulated wealth after its owner heads to that great estate in the sky. It's really the "Tax on Your Dead Neighbor's Family," given it's all about grabbing others' inheritance.

In the United States, the tax is imposed on estates valued at $5.5 million or more, which sounds like a lot of money until one starts thinking about the value of businesses. A nice house in Newport Beach can be worth millions of dollars, and the value of land in a bustling Central Valley nut farm can be worth many times that amount.

It can be tough enough to keep a business going after the owner dies without giving Uncle Sam a big share of the operation. Just because a business operation has great value doesn't mean that it is operating on huge margins. It's therefore common for longtime family-owned businesses to be put to auction after the founder's death.

Supporters argue that few estates pay very much for reasons that go back to our tariff on beagles. Wealthy folks spend an enormous amount of money on accountants and tax lawyers to shield their assets from the tax man. But obviously, some people cough up the money, or else officials wouldn't be so eager to maintain the tax.

Liberals love the tax for ideological reasons. They are egalitarian, so they bristle at inherited wealth. "Our nation cannot survive morally or economically when so few have so much while so many have so little," said Democratic presidential candidate Sen. Bernie Sanders (Vt.), expressing the view of the class-warrior left. He and Hillary Clinton had both proposed dramatically increasing tax rates on people's estates.

But conservatives find the tax particularly unproductive and unfair. It's unproductive to be forced to spend so much time and money sheltering assets. And it's unfair to tax something multiple times. It also quashes business development, since killing businesses has a perverse effect on working-class jobs.

Fortunately, the Trump administration understands the problem. "No family will have to pay the death tax," Trump said on the campaign trail. "It's just plain wrong and most people agree with that. We will repeal it." It's an area where the new president has spoken with unusual clarity, and Republican members of Congress are moving bills that would do just that.

California's Legislature, however, remains a hotbed of progressivism. Sen. Scott Wiener, a San Francisco Democrat who ironically has a reputation as being pro-business, has introduced Senate Bill 726. If approved by the legislature and then voters, it would impose a California estate tax that's identical to the federal one, but only if the federal tax is repealed. His goal, according to a statement, is "recapturing the lost funds and investing them here at home in our schools, our health-care system, and our roads and public-transportation systems."

It's the latest example of Trump-spite in the state Capitol, but it sends a clear message that California isn't in any danger of becoming a business-friendly state any time soon.

And I chuckle at the idea of "investing" in the state's governmental operations. Pick any government agency or project and the waste is rampant. Infrastructure is crumbling, yet it's not from a lack of dollars, given that taxpayers spend far more on most things per-capita than other states. There is never any serious discussion about improving the delivery of services.

The estate tax is particularly pernicious in that it harshly penalizes those Californians who have been the most successful and entrepreneurial and rewards those who are bureaucratic. Sanders is right that this is a moral issue, although his concept of morality is completely backward.

Ironically, states with the most progressive tax systems not only have boom-and-bust cycles that wreak havoc on budgets, but they also have some of the worst inequality. California is dependent on capital-gains revenues, yet we have the highest poverty rates in the nation. If you punish success, you get less of it. That means fewer jobs and fewer entrepreneurs, as they head to states that welcome their efforts.

The beagle tax is too crazy, even for California's Legislature. But the estate-tax idea would be even more destructive to our competitiveness with other states. Maybe legislators should spend less time figuring out ways to spite the new president, and more time figuring out how to make this wonderful place more hospitable to growth.

NEXT: Why successful people should not feel guilty about voting with their feet, but should instead make it easier for others to do the same

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  1. I predict a massive move of inheritable assets out of the state in the event of this law passing. A lot of older wealthy people will start claiming residency in other states. A lot of expensive housing will be sold and then leased back. The proceed then moved into less taxable assets. Etc.

    On the other hand, this will be a massive boon for tax accountants and lawyers.

    1. so more government regulatory waste :/ The worst kind of waste.

    2. Yes, land parcels are very portable.

  2. You deserve the government that you vote for.

    1. What about the people who didn’t vote for it and get it anyway?

      1. They deserve it for not killing off all the ones who did vote.

      2. It almost makes me wonder if Australia’s vote-or-die law is the right way to go.

      3. They can always leave. By choosing to stay they agree to the rules of the social contract.

        Unless they’re “undocumented”, in which case it would be wrong to make them adhere to any kind of rules or leave.

        1. Good luck finding anybody’s signature on that “social contract.”

  3. Estate taxes are perhaps the least efficient type of tax for raising revenue. The cost of collecting can ourstrip money taken in. So the idea California is recovering “lost funds” is illogical, not to mention arrogant. As if the governments have a more legiti m ate claim to the deceased’s assets than the heirs do.

    Weiner deserves a horsewhipping.

    1. perhaps the least efficient type of tax for raising revenue

      Not to mention the most morally reprehensible.

      1. Yes, it really is only good for social engineering.

    2. Estate taxes are perhaps the least efficient type of tax for raising revenue. The cost of collecting can ourstrip money taken in.

      Feature, not a bug, according to lobbyists from the financial and legal industries.

    3. As if the governments have a more legiti m ate claim to the deceased’s assets than the heirs do.

      What are you talking about? “Governments,” as you put it, are The People. The deceased accumulated their assets at the expense of The People. Every dollar that they accumulated could have fed a starving child. The estate tax is simply The People taking back what was stolen from them by the capitalists. All reality-based people understand this. Only right-with ideologues disagree.

      1. Shorter version: “You didn’t build that.”

  4. It’s the latest example of Trump-spite in the state Capitol, but it sends a clear message that California isn’t in any danger of becoming a business-friendly state any time soon.

    It’s not called The Peoples Republic of Californistan for nothing.

    1. Is it, though? Called that?

      1. It’s how I and some others refer to it.

      2. I usually refer to it as the PRC

    2. Personally I prefer to call it “The Breakfast Cereal State.” Because it’s full of fruits, flakes, and nuts.

    3. Calizuela

  5. His goal, according to a statement, is “recapturing the lost funds and investing them here at home in our schools, our health-care system, and our roads and public-transportation systems.”

    Um… the Senator seems to have a very different definition of “lost” than i do.

    1. Basically a “steal from the “rich”” and give it to public union workers and “buddy” contract workers.

  6. The beagle tax is too crazy, even for California’s Legislature.

    You’re a hell of a lot more optimistic than I am. I think they’re quite crazy enough to do it.

    1. And beagle smuggling would definitely be a thing. Especially as black-market beagles have smallish droppings.

      1. I would just tell the state that my beagle self defines as a poodle, and that is what xer right is as an independent dog.

        1. I think it’s also the right of dead people to self define as living…

      2. And beagle smuggling would definitely be a thing.

        And then someone will be choked to death by a cop for selling “loose beagles.”

    2. Does the phrase “pet license” ring a bell? It is usually at the county level, but it sure as hell is a beagle tax if you own a beagle.

      1. I was being literal, referring to the $1 million tax the author was speaking of. But yes I’m sure they would A) call it a “license” and B) not restrict it to beagles.

    3. I support a $1,000,000 beagle tax.

  7. “Our nation cannot survive morally or economically when so few have so much while so many have so little,” said Democratic presidential candidate Sen. Bernie Sanders (Vt.), expressing the view of the class-warrior left.

    Which explains why he gives away all of his income to charities except for the amount representing after tax income to a minimum wage earner.

  8. Nuke’em from orbit. It’s the only way to be sure.

  9. I don’t get the point. It’s so easy to avoid the estate tax. Just spend it all before you die! Want to leave some to Junior? Invite him to the revels!

    p.s. Seriously, sell the estate to Junior, then mooch off him in your waning years.

  10. It’s just morally unacceptable that so few have so much and so many have so little.

    Much better if everyone had so little, then no one would feel like less than anybody else. That’s called egalitarianism.

    Reverend Ike was right about one thing: “The best thing you can do for the poor is not be one of them,” but I guess he didn’t foresee the time when the poor would vote everyone into their dubious club, to the benefit of unscrupulous politicians and the bureaucrats of the state welfare system.

  11. “Our nation cannot survive morally or economically when so few have so much while so many have so little”
    You’re right Bernie! Now how do we tax the government to “spread it around better”, again?

  12. In CA the libtards have no clue on what they created, how much it costs, and could care less of the ramifications. As long as they have their grubby hands on the purse strings everything is fair game. Hell moonbeam jr. want to raise gas and registration fees because it is easy money and the major group injured will be their voting base and these folks do not have the first clue of the damage their libtard party is doing to them. Amazing!!!

  13. “this wonderful place”

    Citation needed

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  15. At this rate, California will be even less competitive than Detroit.

  16. It’s really the “Tax on Your Dead Neighbor’s Family,” given it’s all about grabbing others’ inheritance.

    Or grabbing the land-grab of the neighbor’s inheritance.

  17. The inheritance tax is vital for preventing large fortunes from growing across many generations. We should make it larger.

  18. The inheritance tax is vital for preventing large fortunes from growing across many generations. We should make it larger.

    1. History says otherwise: from shirtsleeves to shirtsleeves in three generations.

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