Grave Thoughts About The Estate Tax

Today President Obama signed the tax deal into law.  Among its provisions are revisions to the federal estate tax, which applies to the assets of the dead.  The law provides that wealthy couples with vast estates may pass the first $10 million to their heirs without any tax, with amounts over $10 million then being taxed at a 35 percent rate.

The estate tax is controversial.  Many Democrats love it because it clearly taxes the rich.  Those Democrats were appalled at estate tax deal because they believe that a $10 million exemption is too high and a 35 percent tax rate is too low.  Many Republicans hate the estate tax.  They feel it punishes farm families, small business owners, and productive Americans who already have paid taxes on the income that was used to accumulate their estates.  Still others point out that arguing about the estate tax doesn’t make much sense, because it produces only a very small fraction of federal government revenue.

Notably, the estate tax gives wealthy people incentives to engage in abnormal economic activity.  Most wealthy people who are subject to the estate tax don’t want the federal government taking a 35 or 45 percent chunk of any of their money — even if it is only the part above $10 million — away from their kids and grandkids, so they hire lawyers to devise methods of evading the taxes.  Maybe they will establish a trust or two that will hold parts of their assets until they die while still paying them a comfortable stipend.  Maybe they will move parts of their money offshore.  Maybe they will establish a foundation with a goal of sponsoring NPR programming and bringing about a more humane and agreeable world, and then make sure that their kids and grandkids are paid to run it.  The methods are limited only by the imagination and creativity of wily lawyers.  Whatever approach the lawyers devise, it will be different from what the individual would have done with the money otherwise — which might have included investing the money in the United States and producing still more assets eventual estate.

What’s the ultimate lesson in all of this?  Tinkering with the federal estate tax is good for lawyers, regardless of their political persuasions.



A Missed Opportunity

There are two ways to get to the playoffs in the NFL.  First, you can build a core of talented players and coaches, establish a system, and maintain the system notwithstanding the ravages of free agency and personnel changes.  The Patriots, Colts, and Steelers all fall into this category.  The second option is for a less talented team to take advantage of opportunity — a soft schedule, the unexpected emergence of a previously unheralded player, and a favorable bounce or two — and come from nowhere to win enough games to make the playoffs.  Once you are in the playoffs, anything can happen.

The Browns are a long way, talent-wise and system-wise, from falling into the first category, although I believe that is where Mike Holmgren and, if he is retained, Eric Mangini are aiming.  Therefore, the Browns’ only hope of making the playoffs this year was to fall into the second category — and it is there that the Browns have, I think, missed an opportunity.  They had a chance to come roaring out of the gate with some easy initial games.  They built upon the run-oriented success they had at the end of last year by finding a big back, Peyton Hillis, whose tough running style put them in a position to compete against the better teams in the league.  And the Browns’ defense played much better than expected.  With some grit and determination, and a lucky bounce or two, at this point in the season the Browns could be in the thick of the playoff fight.

It hasn’t happened that way.  The easy initial wins did not materialize, and after last week’s very disappointing loss to Buffalo the Browns stand at 5-8 and are on the outside looking in.  The game against the Bills neatly captured the Browns’ shortcomings this year.  After a good opening drive, the Browns stalled on the one-yard line and kicked a field goal instead of going for it on fourth down.  After the defense forced a turnover, the offense gave the ball right back through a Peyton Hillis fumble.  And when the game turned into a defensive struggle, the Browns offense stuck with a predictable run, run, pass on third down offensive style that Buffalo easily defended.  The fact that Jake Delhomme is really no longer an NFL-caliber quarterback and the Browns’ wide receiver corps is lackluster isn’t helping, either.

If you are one of the less talented teams in the NFL, you have to be willing to take some chances.  You need to gamble on fourth down, run a few trick plays, and maximize your scoring opportunities.  The Browns’ defensive coordinator, Rob Ryan, understands this.  His defensive takes risks and looks for big plays and turnover opportunities.  The Browns’ offense also did this in some games, such as their signature wins against the Saints and the Patriots.  For some reason, however, they stopped taking risks in recent games, and their one-dimensional offense has not done the job.  And so, for yet another year, the Browns Backers of the world are disappointed, and thinking wistfully of what might have been.