Trump and the Death Tax
A New York Times report reveals President Donald Trump may have committed tax fraud in the 1990's.
The political impact will be near zero. Democrats can’t hate him any more than they do, and his supporters will either say it’s a baseless attack piece, or that if they were rich they’d minimize their taxes, too.
I don’t believe Trump felt he was taking legal risks. His sister, Maryanne Trump Barry, was a federal judge at the time and involved in the schemes. Would she have done anything to risk impeachment?
Also, Trump was too well-connected. This was during Bill Clinton’s presidency, and Trump was a generous supporter of Democrats at the time. If a President could use the I.R.S. to go after his enemies, couldn’t he also tell the I.R.S. to back off from his friends?
What I found interesting in the report, however, has nothing to do with the Trump name. It is about the absurdity of the Estate Tax (also called the Death Tax)
Trump’s schemes involved creating shell companies to avoid his father Fred paying taxes on gifts to his children, and under-assessing Fred’s real estate holdings to lower death tax payments.
Why go to such lengths? One reason is, at the time, the top tax rate for both gifts and estates taxes was 55%. They’ve since been reduced to 40%, still the fourth-highest in the world. Whether or not tax evasion is immoral, at such rates it’s inevitable. That’s what high taxes do; they create incentives to break the law.
For example, if cigarette taxes are 30 cents per pack in Virginia, and $5.85 in New York City, you can expect smuggling. The potential profits are too great..
And if the estate tax rate is exorbitant, families will go to great lengths to minimize them, and some will find themselves in legal grey areas. The savings are too great.
And don’t say they’d do so only out of greed. If you are rich, would you want a large chunk of what you’ve earned all your life going into the hands of politicians? Do you think they’d do more good with with your money than your preferred philanthropic foundations would?
Of course not. To minimize tax payments by any legal means is ethically responsible for anyone with family or causes they care about.
So what should the estate tax rate be?
We can look at what other countries are doing. What about those progressive northern European countries with generous safety nets? Finland: 19%. Denmark: 15%. Sweden: 7%. Norway: 0%.
But what about countries most similar to the United States, English-speaking with wide-open spaces? Australia: 0%. Canada: 0%. New Zealand: 0%. They’re doing fine without the estate tax.
And so would we. Its share of federal revenue is well short of 1%, and it hinders investment and job growth.
It’s only useful as a political wedge, where Democrats demand the “rich should pay their fair share” and Republicans responding that Democrats are engaging in class warfare.
The pragmatic thing to do is just get rid of the Estate Tax. But this is America. Pragmatism and politics don’t mix anymore.