California Democratic state convention and Grover Norquist

My two activities this weekend were to listen to the podcast of Grover Norquist speaking to the Commonwealth Club and attending the annual California Democratic Party convention in Sacramento. Norquist played up the libertarian angle, probably a smart move when a conservative addresses a liberal crowd. He definitely threw the Bushies under the bus on Iraq and claimed to oppose occupying nations (something contrary to his position back when it counted). He also claimed the Democrats drive up the size of government to increase the number of people dependent on government and therefore supportive of Democratic positions, making opposition to government spending a partisan issue on purely partisan grounds. A lot of it was either disingenuous or vague, like supporting tort action as a substitute for environmental regulation, when torts are incredibly inefficient and often limited by the Republican Party.

The best part of the Democratic state convention was a panel on strengthening partnerships to communities of color. The really interesting thing these independent organizations are doing is targeting intermittent, low-frequency voters and get them to turn out on issues (not for specific candidates). I can attest from my own campaign that those voters are not campaign primary targets - when you have limited money, you put your effort into reaching someone who votes 80-100% of the time, not 20%. While California is majority-minority, the stats they showed had a majority of voters being white and disproportionately wealthy, and until the electorate reflects the population, they argued that governmental priorities won't reflect popular needs - quite the opposite of the problem Norquist sees of a too-big government.

For myself, I'm not sure whether growing inequality is caused by unfair governmental processes biased against the poor, or by the nature of our current economy, but either reason to me justifies countervailing action. I'm not buying Norquist's argument that we just need government to leave us alone. That doesn't mean he's always wrong though - finding the areas where government doesn't work well or should be less intrusive could be an area of agreement. A cap-and-trade or carbon tax is a good example, as opposed to typical regulation. Just waiting for the Republicans to pick that one up.

15% estate tax with $100,000 exclusion?

I often disagree with the conservative/libertarian/lukewarmist Tigerhawk blogger, but not always (and it's good that he doesn't take himself too seriously). He had this reaction to Romney's proposal to end the estate tax:

Sure. But also eliminate the step-up in basis at death. (My own view is that the best estate tax would be one with a very low exemption -- say, $100,000 -- but also a tax rate so low that people would not go to a lot of trouble to avoid it. I suspect that a 15% rate with a $100,000 exemption would both generate more revenue and redirect estate planners and lawyers to more productive work.)

I think he might be right, especially if you also include that elimination of step up in basis for purposes of calculating capital gains. I googled around and couldn't find stats on average estates at death, but I doubt it's $100,000 (especially including people with no net estate). Even someone with $200,000 would only be effectively taxed at 7.5%. The current rate is 35% and exempts the first $3.5 million. (UPDATE: actually the exemption is $5 million through 2012. It's then caught up in the Bush tax cut issue - unclear what will happen post 2012.)

Tigerhawk misses that his own proposal might even be more progressive than the current system, assuming it does bring in more money. Most of the money would come from people with estates well over $200k, maybe over $500k. These people are far wealthier than the average American. The obvious downside is while it may be more progressive overall, it catches the moderately wealthy at the expense of giving a huge windfall to the superwealthy.

So of course it's not the ideal estate tax system, which would exempt $50k, start at a rate of 15% and gradually ratchet up to 60-90% at $5m (depending on how effective evasion is), but maybe it's worth considering.

UPDATE: See L's comment below, that an on-paper capital loss from the immediate sale of estate capital items (and due to step up, there should always be a capital loss) can be set against an inheritor's capital gains. You get free money and a tax break on your own taxes. I'd like to get that verified, but it seems plausible and amazing.