Chapter 4 Blog

Link: http://online.wsj.com/article/SB123180759988175649.html

Summary



This article on the Wall Street Journal reported on the first tax increase of Obama's reign as president. The estate tax(or death tax) which is a transfer tax( a tax imposed the passing of property from one person to another) was scheduled to expire in 2010, but Obama's democratic party has decided to maintain it and set the rate at 45%. This will have an impact on the creation of new jobs because it effects small, medium sized family businesses which is the backbone of America's new jobs. Not all family businesses can afford to pay the hefty tax rate when the owner dies. The purpose of the tax rate is to collect revenue from the wealthy property owners e.g: Bill Gates; but it should be mentioned that they have ways to avoid much of this tax. This eliminates the fairness of the tax considering the less wealthy firms will have to carry the burden of the tax.



Connection to Chapter 4

Much of the concepts covered in chapter 4 are about government imposed taxes, relating directly to the situation presented in the article. Governments place taxes for revenue, the same purpose of the estate taxes. Everyday Economics 4.2 mentions flat taxes and the estate tax could be considered a flat tax since the rate is constant for all incomes. This raises concerns about tax equity because not all families can afford to pay off the tax rate. The government should approach the situation with vertical equity, since not all family businesses have the same level of income and the estate tax will have a larger impact on the smaller businesses because they do not generate as much of an income.



Reflection

The estate tax seems to oppose many of the US government's goals to stimulate the job market in times of economic recession. If family run businesses close or cannot continue after the owner's death then more jobs will be lost. This tax is profitable for the government to make a revenue, but they should approach it to ensure vertical equity, the businesses that are worth more should be taxed with a higher rate than the ones that are lower in value. The tax rate of 45% is also a bit steep in my opinion and it also seems like a disincentive for entrepreneurs or business owners to operate in the United States. Overall, I think the estate tax should not of been put into effect at the first place. With the economy facing uncertain conditions, a growth in jobs is definitely required, and this estate tax is not helping the situation.