Atax of the Killer Wage
This is more of E-Dub's territory, but now the Repubs want to tie the minimum wage increase to a repeal of the estate tax and extension (permanent) of Bush's tax cut provisions. Granted it's a bit painful to see all those deductions from my paychecks this summer, but I can't swallow a hike in the minimum wage if it comes with those tax cuts. The problem, of course, is how can Democrats oppose this but yet come out looking good?
posted by Armen Adzhemyan at 10:57 AM
24 Comments:
FYI, the Republicans are already effecting a de fact repeal of the estate tax by axing half of the IRS lawyers whose job it is to enforce the estate tax. These attorneys find, on average, $2,200 in unpaid taxes for each hour they work. On a positive note (for Boalties going to firms with big tax practices), this should lead to a lot more legal business for lawyers who set up elaborate tax-avoidance devices.
http://www.nytimes.com/2006/07/23/business/23tax.html?_r=1&ei=5094&en=20c19e0a3c8df21c&hp=&ex=1153627200&adxnnl=1&oref=slogin&partner=homepage&adxnnlx=1154113211-ZRqqhmb/Z2GFHkV6HJtqcg
Regarding the issue of the proposed trade-off, perhaps the Republicans should go ahead and agree to the minimum wage increase since this development means the estate tax is already pretty much gone.
Looks like blogger doesn't like the link. Here's the story (it's pretty short):
The New York Times
July 23, 2006
I.R.S. to Cut Tax Auditors
By DAVID CAY JOHNSTON
The federal government is moving to eliminate the jobs of nearly half of the lawyers at the Internal Revenue Service who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer parts of their fortunes to their children and others.
The administration plans to cut the jobs of 157 of the agency’s 345 estate tax lawyers, plus 17 support personnel, in less than 70 days. Kevin Brown, an I.R.S. deputy commissioner, confirmed the cuts after The New York Times was given internal documents by people inside the I.R.S. who oppose them.
The Bush administration has passed measures that reduce the number of Americans who are subject to the estate tax — which opponents refer to as the “death tax” — but has failed in its efforts to eliminate the tax entirely. Mr. Brown said in a telephone interview Friday that he had ordered the staff cuts because far fewer people were obliged to pay estate taxes under President Bush’s legislation.
But six I.R.S. estate tax lawyers whose jobs are likely to be eliminated said in interviews that the cuts were just the latest moves behind the scenes at the I.R.S. to shield people with political connections and complex tax-avoidance devices from thorough audits.
Sharyn Phillips, a veteran I.R.S. estate tax lawyer in Manhattan, called the cuts a “back-door way for the Bush administration to achieve what it cannot get from Congress, which is repeal of the estate tax.”
Mr. Brown dismissed as preposterous any suggestion that the I.R.S. was soft on rich tax cheats. He said that the money saved by eliminating the estate tax lawyers would be used to hire revenue agents to audit income tax returns, especially those from people making over $1 million.
Mr. Brown said that civil service rules barred the estate tax lawyers from moving over to audit income taxes. An I.R.S. spokesman said that the agency had asked for permission to allow such transfers twice, but that the Office of Personnel Management had not responded.
Estate tax lawyers are the most productive tax law enforcement personnel at the I.R.S., according to Mr. Brown. For each hour they work, they find an average of $2,200 of taxes that people owe the government.
Mr. Brown said that careful analysis showed that the I.R.S. was auditing enough returns to catch cheats and that 10 percent of the estate audits brought in 80 percent of the additional taxes. He said that auditing a greater percentage of gift and estate tax returns would not be worthwhile because “the next case is not a lucrative case” and likely to be of relatively little value.
That is a change from six years ago, when the I.R.S. said that 85 percent of large taxable gifts it audited shortchanged the government. The I.R.S. said then that it would hire three more lawyers just to audit taxable gifts of $1 million or more.
Over the last five years, officials at both the I.R.S. and the Treasury have told Congress that cheating among the highest-income Americans is a major and growing problem.
The six I.R.S. tax lawyers, some of whom were willing to be named, all said that clear evidence of fraud was pursued vigorously by the agency, but that when audits showed the use of complicated schemes to understate the value of assets, the I.R.S. had become increasingly reluctant to pursue cases.
The lawyers said that the risk analysis system the I.R.S. used to evaluate whether to pursue such cases gave higher-level officials cover to not pursue tax cheats and, in the process, emboldened the most aggressive tax advisers to prepare gift and estate tax returns that shortchanged the government.
“This is not a game the poor will win, but the rich will,” said John Hruska, another I.R.S. estate tax lawyer in New York who, like Ms. Phillips, is active in the National Treasury Employees Union, which represents I.R.S. workers.
Colleen M. Kelley, the national union president, said: “If these lawyers are not there to audit the gift and estate tax returns, then a lot of taxes that should be paid will go uncollected, and that impacts every taxpayer who is paying their fair share.”
They could stop pushing a minimum wage increase...
...that way we'd have a somewhat more sensible labor market and solid ground for fighting back the selective tax decrease.
i think fletcher is referring to the basic microeconomic point that minimum wages creating oversupply of labor and undersupply of jobs; essentially minimum wages are like government impositions of minimum prices on goods. this is the idealized answer for the constant unemployment that exists in the US labor market.
however, there is also a leading alternative explanation for the undersupply of jobs - the "no shirking constraint curve." the idea is that if there were a perfectly competitive market for labor, each laborer would shirk and be lazy becuase he could find another job so easily. thus, the wage has to be set much higher than the competitive price in order to create a shortage of jobs; the threat of unemployment then functions as a real deterrent to shirking. thus, higher-than-market-clearing wages, and the concomitant chronic underemployment that goes with it are economically necessary.
the thing about the no-shirk constraint curve is that if the minimum wage is below the no-shirk constraint price, then the minimum wage will have no effect on the supply of jobs.
I think TF's "more sensible labor market" comment referred to the "Swift Hypothesis," which posits there are too many poor people and that it would be more sensible to get rid of the minimum wage so they would have to choices regarding which ones get to survive. Most economists agree the most likely outcome would be poor people eating their children to survive, which, in the long run, will lead to a decrease in the total number of poor people, ceteris paribus. While economists generally accept the Swift Hypothesis, evolutionary psychologists are still undecided because their heads are much further up there asses than those of economists.
Whatever happened to Republicans being fiscal conservatives who liked balancing the budget? No matter how much there is to resent about Republicans, we are now without a party that cares about the budget or national debt. How long until the US economy starts to feel the painful effect of a massive debt that the creditors no longer believe the US will repay?
Also, poor people wouldn't need as much income if we didn't subsidize agriculture so much.
Very wise Anonymouse 7:10. Agricultural subsidies sting us all, and the poorest the most. And to think of how much closer we'd be to ethanol cars - if only we could do away with ethanol subsidies/tariffs!
Fleshing out the labor market: it's pretty simple, but the higher you raise wages, the fewer jobs there will be. There's no magic - you cannot wave a wand and make everyone richer. It's also difficult to forcibly transfer wealth from the rich employers to the poor employees. Raise wages, they'll cut health benefits. My short time on this earth has convinced me that you have to persuade people to act correctly - you cannot coerce them. If we want the poor to be treated better, we have to make it beneficial for everyone.
( That, or send everyone back to church. After all, it's easier for a camel to pass through the eye of a needle than for a rich man to enter heaven. Ironically, "freeing" people from the chains of religion the last 100 years has only allowed people to act on their baser greedy instincts :( )
I'm less sure about this, but also - how many people actually make minimum wage? From what I recall reading, it's mostly high school students. The working poor make some prevailing market rate that tends to be slightly higher. I'm sorry to say I don't have the numbers at my fingertips, but I'd like to see how many people the mionimum wage increase would affect - and how much those people really need the help.
Talk about a boilerplate response!
TF: do you have ANY evidence that minimum wage laws increase unemployment? Regarding the argument health benefits will get cut if the minimum wage is raised, what percentage of employees making minimum wage do you think get health benefits? I suspect it's about zero.
If health care is your concern, we should take the approach of the new Chicago big box retailer minimum wage. It's going to be $10/hr. + $3/hr. of benefits for employers with more than $1 billion in annual sales.
A hike in the minimum wage will likely have little effect on most workers. This is because 18 states (including major population centers: e.g. CA, NY, FL, WA, and IL) have minimum wages higher than the Federal floor, and several others (AZ, CO, MO, MT, NV, OH) have ballot initiatives on the matter this fall. Also, as another commenter pointed out, not many people earn minimum wage. Thus it's really about politics, not economics, and presents an opportunity for grandstanding (see E.W.'s response above).
Tying it in with the estate tax is also pure politics, and as a moderate conservative, I agree that it's a stupid ploy. Not only does it look devious, but it encourages us to see the two matters as closely linked. Yes, they're broadly about wealth re-distribution, but they have distinct policy justifications.
On the estate tax, it's simply wrong that this tax prevents or significantly ameliorates dynastic accumulations of wealth. Anyone with a half-decent estate planner can create a trust that dodges most of the estate tax's harshest effects. And Paris Hilton aside, some very wealthy individuals have committed to giving away almost all of their wealth (Gates, Buffett).
I find it odd that EW cites allowing individuals to keep most of their wealth as an example of the GOP abandoning free market principles. Isn't a free market about doing what you want with your money, even if it means keeping it in your matress?
Moreover, I think that the wealthy generally invest their money, and they aren't sitting around like Scrooge McDuck counting it in their vault. The money is often in equities, real estate, business ventures, whatever. It's a pretty basic principle of capitalism that this is a use of money, and that it's efficient because the individual has an incentive to maximize his returns.
In fact, EW, you entirely misread Weber. His thesis of the Protestant work ethic was about individuals' decisions to re-invest accumulated wealth, and about NOT spending it right away, allowing the government to seize it, or forcing "creative destruction," whatever that might mean. This is actually closer to what Weber contrasted as the "Catholic" ethic: live for today.
plenty of people make close to the minimum wage, although many are only a little north of it.
That most of us do not actually earn the minimum wage is a good thing, and underscores its real importance: as a symbol. In a society full of such opportunity such that marginally qualified law students can earn $2500 per week during the summer persons who work at a lower paid (but similarly menial) jobs should make more than roughly $13000 per year working full time and for 52 weeks a year. I think dignity--and reality--demand that if you work full time in the united states you should make more than $13000 a year(I note that at this level, a person would be eligible for the earned income tax credit, but any help they get from this credit only effectively goes to cancel out SS and medicare payroll taxes).
I think it is an awful statement about our country that we allow people to work full time for only $13000--or $14000 or $15000--per year.
As for the economic arguments noted in earlier posts re: the "jobs effect" of an increase in the minimum wage, I think they rely on a faulty assumption: namely, that the efficiency point between the cost and utlity of labor lies somewhere near the present minimum wage.
At the margin represented by the minimum wage, if you increase the cost of labor it does not necessarily follow that jobs will be cut. Given our present economy, and the productivity of labor, with a modest increase in the minimum wage it is likely that most businesses paying such wages would still make more money even with elevated labor costs than with fewer employees and lower output.
I think it's kind of ridiculous to make a moral statement about the appropriate floor annual wage based entirely upon your subjective feeling about that number. $13,000 a year 200 years ago would have made you a wealth man. Even adjusting for PPP and CPI, $13,000/yr. US today is a lot of money compared to other countries or other points in time. One of the main problems isn't really how much money people have but how they spend it.
Obviously there is a glut of people with substandard wages in areas with exagerated rent prices. They should move. They should also spend there money on affordable food and invest the rest. But that's not what happens. You may say I can't comment on how "poor" people in this country spend their money, but I'm sure really poor people all over the world would have quite a bit to say about it.
6:27 pm--you're an idiot.
It's the articulate conservative here.
EW, that's a good point that working for your money gives you a greater moral entitlement to it. Very John Locke. However, receiving something as a gift or bequest is not wicked or wrong, either.
It's worth pointing out that since most people don't have a problem with taxing earnings or gifts, taxing estates is likewise not such a big deal. The debate is really about how much. The Sentate's proposal would generally lower the tax (to a level akin to a capital gain) and make it progressive: a higher rate for larger estates. Sounds reasonable.
I think I'd be more inclined to agree with you if you toned down the rhetoric. Your strident tone makes me think you want to make paupers of people who enjoy certain benefits by virtue of their birth. Certainly, inherited privilege clashes with the American notion that we're all born equal, but hey, life's not fair. Forced downward social mobility, which seems to be your aim by hitting the "trust fund brats" with all of the state's fury, is not a valid aim of a liberal democratic society.
I applaud the debate happening here; you all sound very smart. Except for the guy/gal who says poor people should move. That's the dumbest thing I've heard today.
I don't feel the need to weigh in, since I'm not much of an economist, and others likely have said it better than I could. I do want to share a little slice of life. I had lunch today in a private club with the partner who is mentoring me. He and a junior associate were talking about the repeal being tied to the wage increase...excitedly. These guys are estate planners. Their eyes gleamed as they said things such as "do you think they'll get it down to a flat fifteen?" and the like. I couldn't believe what I was hearing. Actually I guess I could. Personally, I think it's both morally bankrupt and politically underhanded to tie these proposals together. Instead of weighing in with that, I bit my tongue. After all, I'm trying to get an offer here.
So I'm sitting there in a room so exclusive that you basically have to hope someone dies in order for you to move up the waiting list, and I'm telling myself I don't have to be politically aligned with people whose primary concern is the bottom line in order to do my job. I can do my best to help my client manage his money and still secretly think his kid should get a job, right?
Right?
My problem with the estate tax is that I just don't think it is fair. My parents aren't rich and they aren't going to leave me much, but I still think there is something unfair about thinking we should be allowed to take as much as we can from rich people simply because they are rich. I would be OK with 100% estate taxation on everyone (or even just middle-class and above), but I don't find the "rich people can afford it" logic to be very persuasive on a moral fairness level. A lot of people don't need inherited wealth, e.g. all of us in law school. Why should we get our equally unnecessary inheritances tax free just because they are smaller? Don't get me wrong, I'm not about to volunteer to give up x% of my meager inheritance, but I would appreciate it if someone could give me a good justification that I can espouse in the future rather than just admitting I am greedy and like the government to take other peoples' money.
8:19--
You display two remarkable qualities about the "new" Berkeley. Your passionate defense of other (super-rich) people's money shows Berkeley is still a place full of idealists but that many of the idealists these days for some reason care more about protecting the super-rich than social justice. I guess the phenomenon you embody underscores that Berkeley is becoming more and more like every other top university in the US. I think it's kind of sad, but keep in mind that I'm one of those retro people who understands and cares about her class interest.
7:41:
Your comment implies that (1) you didn't really read what 8:19 wrote, (2) you're willing to classify someone based upon their thoughts, rather than engage the person, and (3) you don't understand Berkeley very well.
8:19 wasn't talking about the "super-rich," but about your average middle-class family. Almost anyone who owns real estate in the Bay Area is a paper millionaire; are they super-rich? Is it in the interests of social justice to take away half of what they leave to their children? Additionally, I wouldn't classify 8:19's thoughts as "passionate," but rather equivocal. This person is looking for pros and cons, not trying to persuade you.
Regarding the "new" Berkeley: this place has always had a mix of people, some idealists of various political persuasions, others more pragmatic. If any one thread runs in this university over time, it's this diversity of viewpoints coupled with the willingness to engage in debate and frank discussion.
You're mistaken if you think that the leftist ethos you espouse has always pervaded everything. What were most students, undergrad and graduate, doing during the Free Speech Movement of the 60's, the Ethnic Studies sit-ins of the late 90's, or the Prop 209 strikes? That's right: going to class and ignoring the circus.
You have pigeon-holed the previous commenter, showing that it is you who are running counter to the values of the university.
You know, in May 1968 in Paris there were two factions of students: one faction was at the barricades, the other tried to ignore the circus and focus on exams. I can't remember which was larger.
What's the minimum taxable estate for federal estate tax purposes? Isn't it now somewhere around $5 million? If that's the case, it doesn't even touch paper millionaires. You have to be more like a paper multi-millionaire! Also, didn't someone do a big study that failed to find even a single instance of a "family farm" being lost due to the estate tax?
Currently the minimum is in the $2m region; it will increase over the next few years until 2010, when it will disappear entirely, before returning to $1m in 2011. Currently the tax rate is around 40 or 50%.
The most recent Senate proposal is to begin taxing at $5m, which will then be indexed to inflation. Estates of $5-$25m will be taxed at 20%, and amounts in excess of $25m will be taxed at 30%.
Senator Baucus of Montana's nephew was just killed in Iraq. He is the ranking Democrat on the Senate Finance Committee and one of only four Democrats who support the repeal of the estate tax. Word is he is going to be in Montana the rest of the week so this makes it even less likely the bill is going to pass. It looks like the Republicans--and the Boalties who are advocates of the filthy rich--will have to be satisfied with the de facto estate tax repeal through the firing of the IRS estate tax lawyers. Maybe next time guys!
12:24, i do like history, but i don't get the point of your post. was that supposed to be a threat?
What about the 12:24 post could have been a threat? It's more of a whimsical musing about how the account of Berkeley having had a solid conservative or egoistic contingent during the Free Speech Movement days could also be told about Paris students during May '68. This all reminds me of what has become my favorite slogan since starting law school,
Lisez moins, vivez plus!
Dude, the proper nominclature is "Rs" or "Repubs." Your use of "Reps" makes it sound like you're taking about the representatives in general when you're referring to only the Republicans.
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