Wednesday, August 16, 2006
A decent provision for the poor is the true test of
— Boswell, Life of Johnson
The poor are such a nuisance. Just when Congress tries to bring sense to its self-created chaos, the poor get in the way. The most recent example is the collision between the very poor who are paid the minimum wage and the very rich that happen to die.
The minimum wage is a concept with which the rich have little familiarity and one they never expected to have an adverse effect on their well-being. The minimum wage provides that those who work for a living should be paid no less than a certain amount. The amount since 1997 has been $5.15 an hour or $10,712 a year if the worker foregoes any vacation. (Since 1997 Congress has increased its members’ wages by $31,600 which coincidentally is slightly less than 3 times more the annual income of a minimum wage recipient.) Adjusted for inflation the minimum wage is at its lowest level in 50 years.
Members of Congress who were concerned about the sad plight of those earning the minimum wage introduced legislation to increase the minimum wage. It was not to be a sudden increase that would startle the recipients. It was to take place slowly over the next three years so the poor could grow accustomed to their new found wealth and carefully consider how to dispose of it. When fully implemented the poor would be paid $7.25 an hour or $15,080 a year. A sad thing happened to the minimum wage as it was being pulled through the legislative process. Some members of Congress decided if Congress was going to do something for the poor, it should offset that by doing something for the rich. It came up with idea of linking the minimum wage increase to eliminating the estate tax.
The estate tax is a tax imposed on the estates of those who have the good fortune to die rich. According to the Center on Budget and Policy Priorities, in 2000 more than 50,000 estates were subject to the estate tax. Those were estates of people who died with more than $675,000 or, in the case of married couples, $1.35 million. As generous as that seemed, among those who remained affected by the estate tax were all of Mr. Bush’s friends and that didn’t seem fair, especially since they not only helped him get rich by giving him part of a baseball team but helped him become president by giving him lots of money.
As soon as Mr. Bush became president he persuaded Congress to change the tax imposed on decedents estates. Thanks to his efforts today Mr. Bush’s friends (and the rest of us who are married) can die with $4 million and pay no tax. In 2009 that amount increases to $7 million. As a result of those changes the Center estimates that in 2006 the number of taxable estates will drop to 13,000 and in 2009 to 7000. After 2009, however, two funny things happen that could only be contrived by a whimsical Congress.
The first happens on January 1, 2010. On that date and for 364 days thereafter no tax will be imposed on the estates of those who are lucky enough to die during that period. There will be some tax consequences but they are much too complicated to describe in a column such as this. (Parents who have been estranged from their children for many years, should, for obvious reasons, resist the temptation of joining their offspring for a conciliatory meal proffered by the formerly estranged during that year unless accompanied by a food taster.) The second whimsical thing Congress did occurs 365 days later.
On January 1, 2011 the estate tax returns and the only people whose estates will pay no taxes are those with estate valued at less than $1 million (or $2 million in the case of married couples). This is, of course, an absurd result that only Congress could have contrived. Recognizing this, it has repeatedly attempted to correct its earlier folly by repealing the federal estate tax.
Messrs. Hastert and Frist are no fools, appearances to the contrary notwithstanding. They knew that attempting to eliminate the estate tax on the wealthy would not be appealing to some of their colleagues unless linked to something having social value. Accordingly they hitched the wagon loaded with gifts for the rich to the wagon filled with money for the poor. The Congressional mules refused to pull the hitched-together wagons. The wagons were left unattended in the halls of Congress while the mules went home for well-deserved summer vacations.
The poor will continue to receive $10,712 a year. The estate of the dead rich will continue to pay taxes. One of those consequences is worse than the others. Readers can decide for themselves which that is.