The Bogus "Birth Tax"

There's a lot of talk in the liberal/progressive blogosphere about the outrage of the "Republican Birth Tax".  This is an effort by the left to "frame" the issue of the estate tax (a.k.a. "death tax") specifically, and budget issues generally, in terms of shifting tax burdens from the ultra-wealthy to the poor and middle class.  The Republicans want to stop taxing the wealthy, and stick everybody else with a (pick your number from $27K - $50K) bill instead.  So the story goes.

It's a load of bunk.

Oh, there are kernels of truth hidden within it, valuable issues that deserve discussion.  But it's a dramatic oversimplification to the point of being terribly, terribly misleading as to who really "owes" this money (here's a hint:  it's NOT the poor or the working class).

Here's the deal -- those who oppose repeal of the estate tax argue that the Republicans (who generally favor repealing the estate tax) want to stop taxing the wealthiest citizens, and instead would effectively present every new baby born in America with a bill (the "birth tax") representing their portion of the national debt.  Makes a great story, right?  Stop taking any money from the people who have tons of it, and instead take it from people who have hardly any. 

Ooooh, those evil Republicans!!!  Hissssssss.....

Trouble is, they're talking apples and oranges here.  Or rather, peas and watermelons.

Just for starters, let's look at the numbers that are being tossed around.  As I've discussed before, assuming that the estate tax is fully restored, by 2014 the amount of estate taxes collected for the year is estimated to be not quite $50 billion.  Population by then will be somewhere North of 300 million, but as a conservative estimate let's use that number. 

This means that the amount of estate tax collected in one year, if divided equally among all citizens, would work out to about $166.  That's how much they'd be taking away from the federal budget.  Doesn't have quite the same impact as that $30,000 baby bill, does it?

But then, those who crow about the "birth tax" know full well that they're talking about two different things -- one is an annual tax that contributes about 1% to the federal budget, the other is a per capita rating of the total accumulated national debt for the last 230 years.  The two things are almost entirely unrelated. 

But who cares?  Sticking a poor, defenseless little baby with a $30,000 debt right out of the womb is a great image to generate outrage.  And it's just like those nasty Republicans, isn't it, to run up debts and stick it to the little guy?

Now, the national debt is a perfectly valid concern, no question about it.  For a number of reasons, it's perhaps the most serious threat to our collective long-term well-being that this country faces today.  But laying the whole mess at the feet of the Republicans is more than a little disingenuous. 

Oh, the current administration has done more than any other to increase the debt in absolute terms, running up from about $5.7 trillion to the current level of nearly $8.4 trillion -- a little less than 50% increase in the past 5 years.  That's not good.  That's really not good.

But that also means that about 67% of the current national debt was already here when the current administration took office.

Anyhow, by far the worst offense in this whole "birth tax" charade is the utter disregard for who actually pays the government's bills.  By expressing the national debt on a strictly per capita basis, the "birth tax" crowd implies that every single person is expected to pay that $30K extra to cover the country's tab.

In fact, due to the progressive taxation system we have in this country, you know who's really getting hosed by the national debt?

The rich.

I took the most recent data available from the IRS, for 2003, and calculated out at the various income levels reported how much personal income tax was paid per return that year.  The numbers won't be exactly right to the penny, but they'll at least be roughly proportionate.

The numbers are staggering.

Based on almost 90 million tax returns filed in 2003, the average of national debt per tax return works out to a little over $95,000.  Yikes, much worse than $30K!  But, that's about right since there are roughly 3 times as many people in the country as tax returns filed.

But how does that $95K per tax return break down, if allocated in the same proportion as taxes are actually paid?

The bottom 33% of tax returns, with incomes under $30K, would owe an average of $10,850 per return.  That's still a huge number, granted, especially for somebody making less than $30K.  As I said, the national debt is a major burden on the country and needs to be addressed.  But it's less than the $30,000 claimed by the birth taxers.

But what about people at the top end of the scale?  How much of the national debt burden do they carry?

The topmost category reported by the IRS is all returns with $200,000 or more in income (hardly the "super-rich", but it'll have to do).  That represents just under 3% of all tax returns filed that year.  And how much per tax return would those people owe towards the national debt, on average?

$1.4 MILLION and change.  Each.

Doesn't make $10K per look quite so bad, does it?

So argue over the estate tax all you want.  Decry the mortgaging of our country's future with $8.5 trillion in national debt, for sure.  Even lambaste the Republicans for adding 50% to the problem rather than working to reduce it, I'm ready to lead the charge on that one.

But don't try to play the class warfare angle by confusing the estate tax issue with the national debt.  For all the hoopla about how most children in America are stuck with a "birth tax" instead of inheriting tons of money just for being born to the right parents, remember this:  that birth tax is a whole hell of a lot bigger for the rich kids than it is for the middle class or poor kids. 

We may all be in this together, but we ain't all in it equally, not by a long shot.

Comments

[phriedom]

Assigning the national debt proportionally according to tax burden is interesting, but it isn't any more accurate than assigning it equally. The taxes don't changes as the debt goes up, so the same burden is falling on those exploited, overburdened rich people who don't have any politicians looking out for them regardless of the growing debt.

What the debt DOES do to us as a country is NOT proportional to tax burden. As an example: As foreign countries lose faith in the unassailable fortitude of the US economy, the dollar weakens, making imports more expensive. Oil goes up in price for US companies who buy with US dollars, which translates into higher consumer gasoline prices.

Higher fuel costs hammer the entire US economy. And now that I think about it, are a pretty good formula for inflation. Unless The Fed puts us into a recession to avoid inflation. There is a comforting thought for you.

Sure I'll concede that "Birth Tax" is a misnomer, and a cute response to the "Death Tax." But it did the job it was designed to do, in that it got us talking about the National Debt.

[David B. Wright]

True enough -- taxes don't change as the debt goes up. So nobody is directly paying for the debt now.

And, as you point out, everybody is indirectly "paying for" the debt now in terms of its practical economic impact.

But the point of this piece was to highlight the fallacy of the "Birth Tax", not to defend massive deficit spending (which I emphatically do not).

And I disagree that the whole idea of the "Birth Tax" was designed to get us talking about the National Debt. It was designed to get us talking about how terrible the Republicans are, and it was designed to imply that Democrats would be better. Show me any mention of "Birth Tax" anywhere that really talks about the National Debt and the true economic impact of it on our country's future, as opposed to a rant against Republicans and/or tax cuts in general. I haven't seen any such discussion.

Taken at face value, the very idea of the "Birth Tax" is that to entirely pay off the debt (never mind the extraordinary economic impact of having a large debt which is virtually never mentioned) would require everybody to kick in $30K. And that's obviously just not how it works.

In fact, you're right that assigning the payoff of the debt by tax burden is also inaccurate, since as you said the taxes to pay off the debt have not been raised. And, assuming those who complain the loudest about the "Birth Tax" were elected to office and running the show, how exactly would they not only balance the budget but pay down the debt?

By raising taxes, of course. Not by cutting federal spending (except, perhaps, for the military budget). Certainly not by taxing the poor (for whom they'd like to increase spending), and perhaps only marginally taxing the middle class (you know, anybody -- like myself -- who's not in the crosshairs of one of their "targeted tax cuts"). So the burden of actually paying off the debt, if that ever happens at all, would really fall almost entirely on the wealthy.

And perhaps -- perhaps -- that's as it should be. But it's not as if the rich are getting a "free ride" here. And that's been the context of the most recent mentions of the "Birth Tax". That somehow, the rich don't have to pay any taxes, while everybody else is stuck with the bill. And that's just far, far away from the truth.

[Eddie]

I just discovered this. Incredible, but I suggest the author immediately remove King George's and Cheney's hands from his pants.

[David B. Wright]

Splendid, Eddie. Did you have any information in particular that would refute the point of my article? Or is it simply that "King George" and Cheney are so very evil that spurious attacks on them for things they are not entirely responsible for must be warranted anyway 'cause they have it coming?

Seriously, I'm no fan of the Bush administration for a number of reasons. That's no excuse for letting the pure bullshit of a "Birth Tax" slide, however.