Re: Unfogged Solves The World's Problems

1

There's a fair argument -- not one I'm committed to, but it's there -- that the charitable deduction is a bad idea. For one thing, it's available only to people who make enough money to itemize, which is maybe the top half or so of the income distribution (half may be too small -- I haven't looked at this lately). So charity from poorer people is unsubsidized.

The thing is, though, if you look at who gives what to what causes, rich people do things like the Helmsley dog thing, or in a more seemly way give to museums, or the opera. Or they set up these giant foundations that wield a whole lot of power compared to the good they do. Soup kitchens raise money from poorer people. Killing the charitable deduction would be a huge injury to the sort of culture rich people like, but might not do too much harm to the sort of thing that comes off as real charity.

(These are half-baked thoughts based on some research I did back in law school -- I'd have to look into the facts to see if there's actually support for this.)


Posted by: LizardBreath | Link to this comment | 07-10-08 5:56 AM
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But won't someone think of the puppies?

The article is as sloppy as hell.

I'm not sure what the right answer would be, but the article's solution of 'you can give as much to charity as you like, but at some point it's after tax' seems to misunderstand completely how a tax deduction/incentive works. (Not that the overall point isn't valid, but that's a bad argument. There's never been a law against giving to charity. That isn't the problem here.) It's also not a subsidy anymore than my standard deductions are. (I think a newspaperman thinks I'm an idiot.)

And I think the problem here isn't, contra the article, that the foundation is perpetual. It's that it's a stupid unworthy cause*, and only secondarily that a foundation doesn't actually have to spend any of its money on whatever it's promoting. But it uses the emotional wtf of $8 billion for dogs to try to argue that it would be better if Helmsley's foundation had to disburse the funds for other worthy causes, and that's not what its solution would yield. You'd just get the dogs getting their money faster.

The 2003 proposed law seemed to be a good idea.

As far as people leaving their money to dumb causes, I'd rather be allowed to hit people, but barring that, is there a way to structure taxes so that donating to the public good would give you a better tax break than leaving your money to dogs?


Posted by: Cala | Link to this comment | 07-10-08 6:12 AM
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I think it would be almost impossible to craft a law that would prevent things that we think are stupid from receiving the benefit of the deduction without harming charities we think are worthy. You could, of course, drop the deduction entirely, but that wasn't our goal.


Posted by: Bostoniangirl | Link to this comment | 07-10-08 6:29 AM
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It's also not a subsidy anymore than my standard deductions are.

I think the difference is that your standard deductions are limited, either by statute or practicality, but the estate tax charitable deduction isn't. I believe that difference is what is supposed to provoke your outrage.


Posted by: mrh | Link to this comment | 07-10-08 6:58 AM
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4: I think the difference is saying that 'we taxpayers subsidizing her goddamn Malteses' sounds worse than saying 'but for this deduction, we'd have an extra $3.2 billion to use for worthwhile causes.' (Put another way, it's not as though when rich zillionaires die, our institutions lose the money they already have due to suddenly needing to subsidize the zillionaire's cause. It's that they don't get as much money as they could.)


Posted by: Cala | Link to this comment | 07-10-08 7:12 AM
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I was under the impression, based on admittedly sparse knowledge, that the Code currently attempts, in its usual clumsy fashion, to do exactly what the piece proposes. First, it limits the meaning of "charitable" to exclude a lot of these kinds of gifts (which isn't to say, of course, that all dogs aren't priceless), notwithstanding the few decisions the article cites in which "charitable status has been recognized for organizations with purposes as idiosyncratic as promoting excellence in quilting and educating the public about Huey military aircraft."

Second, as the item suggests, private foundations don't get the same tax benefits as charities or charitable trusts and have more stringent spending requirements.

These definitions and requirements could well be tightened up for some improvement, but adding another bell or whistle to the already extraordinarily convoluted provisions may be less effective than simplifying them.

Of course, requisite governmental support for certain indisputably charitable efforts (eg, providing basic services for the poor) is a separate question. If the wealthy pay their fairly progressive share of taxes (during life and at death), I don't care what they do with the excess.



Posted by: babble | Link to this comment | 07-10-08 7:13 AM
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I think that all tax breaks should be regarded as subsidies. If A is taxed and B isn't, it's the same as if A and B were both taxed, but B's tax was returned to B.

The idea that tax breaks aren't subsidies comes from the schmibertarian argument that "The government is always taking MY MONEY". It basically assumes that taxation is illegitimate except in very special limited circumstances. Basically, tax breaks excuse certain interests from the common obligation to fund government. It amounts to saying that whatever these interests are doing in some way fulfills a government purpose.


Posted by: John Emerson | Link to this comment | 07-10-08 7:14 AM
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Helmsley was a horrible person, and I'm sure that she wrote her will as a way to stick her thumb in the government's eye and make sure that no human being benefited from her bequest. She wasn't quite horrible enough to give all her money to the a foundation dedicated to the development of super-rats, or the breeding of cockroaches immune to pesticides, but if I had had her ear in her declining years I bet I could have talked her into it.


Posted by: John Emerson | Link to this comment | 07-10-08 7:18 AM
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Second, as the item suggests, private foundations don't get the same tax benefits as charities or charitable trusts and have more stringent spending requirements.

Right. Doesn't a lot of this come down to how the recipient organization is classified? There are already several different classes of not-for-profit organizations, and among the differences between them is differences in whether/how donations to them are tax-deductable.


Posted by: redfoxtailshrub | Link to this comment | 07-10-08 7:19 AM
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It's also not a subsidy anymore than my standard deductions are. (I think a newspaperman thinks I'm an idiot.)

All how you look at it, innit? A tax break for, say, sugar growers might not be a subsidy in the sense of passing checks out, but it's still a decision that some money will remain in a particular group's hands, where according to universal rules it would go to the government.

I think it would be almost impossible to craft a law that would prevent things that we think are stupid from receiving the benefit of the deduction without harming charities we think are worthy.

Doesn't the IRS already have detailed standards for giving groups charitable-organization status? And I believe the standards are enumerative, not just a careful semantic definition. Meaning we could go through the list and say "this is fine, this is fine, this [i.e., causes for animals] will be limited to $10 million," etc.


Posted by: Minivet | Link to this comment | 07-10-08 7:25 AM
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Sorry, Becks, but this story didn't even measure a zero-point-five on my outrage meter.

What's the problem, really? That the tax code subsidizes charitable contributions, even for frivolous purposes? That the deduction is worth more to rich people? That perpetual foundations outlive the original visions of their founders? That foundations create a gravy train for employees in the non-profit sector?

[Yawn]

There are at least 30 abuses and distortions in the tax code I would tackle before spending one gram of political capital on this one.

It's also worth remembering that the recent agitation for stricter regulations of charitable foundations originated with Karl Rove's campaign to "defund the Left".

When the Wall Street Journal editorial page agrees with your position, it's advisable to look long and hard and the consequences. The WSJ editorial page (which never met a tax break for rich people it didn't like, and thinks the estate tax is the moral equivalent of genocide or something) hates the perpetual foundations precisely because the legacy of capitalists of long ago (Ford, Rockefeller, etc.) is now undermining capitalism from within (that charge is obviously bogus, but the big foundations do constitute a well-financed institutional counterweight to purely market-based interests).


Posted by: Knecht Ruprecht | Link to this comment | 07-10-08 7:26 AM
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On posting, Cala says much the same thing in 5. Anyway, I'm looking through irs.gov to try and find some list.


Posted by: Minivet | Link to this comment | 07-10-08 7:27 AM
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Minivet-- I'm not familiar with all of the details. I believe that they do and that they're pretty complicated. I think that my inchoate thought was that making them more complicated will only lead to litigation and unanticipated loopholes.


Posted by: Bostoniangirl | Link to this comment | 07-10-08 7:30 AM
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10.1: That only follows if you assume that a person's assets were already entirely belonging to the state, I think. That's one way to go (as Emerson points out), but that doesn't seem right to me.


Posted by: Cala | Link to this comment | 07-10-08 7:31 AM
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Any system is going to have room for abuses, either abuses by the government or by the governed. As a general rule I think it's better to structure things so that the abuses by the government are minimized, which the current system does. I'd prefer no deductions for anything at all, but that's not going to happen, in which case deductions for charitable giving are pretty much the least offensive kind (as opposed to idiocy like the second home mortgage interest deduction, f'rex).


Posted by: togolosh | Link to this comment | 07-10-08 7:31 AM
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14: No, it just assume that everyone is liable to tax and that tax obligations are legitimare obligations incumbent on everyone, rather than dastardly exactions by evil robber barons.

Helmsley evaded the inheritance tax, but the inheritance tax is not 100%.


Posted by: John Emerson | Link to this comment | 07-10-08 7:36 AM
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"assumes". "legitimate".


Posted by: John Emerson | Link to this comment | 07-10-08 7:36 AM
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Here's a start.

The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

Not really that bad a list in total, I'd say. I suspect Helmsley chose the "preventing cruelty to animals" one because it has the most leeway for the heirs, managers, and other cronies to have themselves a ball.


Posted by: Minivet | Link to this comment | 07-10-08 7:43 AM
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16: Look, the point is that no public institutions were made worse once she died because they had to 'subsidize' Helmsley's dogs. They're worse off than they would be if the laws were different, but that's not the same thing. And I thought the article was weaker for acting as if Helmsley dying meant taxpayers now had to pay a new burden for her dog foundation.


Posted by: Cala | Link to this comment | 07-10-08 7:46 AM
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You could drive a fleet of trucks through that list, though it isn't completely open-ended. A family educational foundation would be approved, whereas a family pastry foundation probably would be rejected.


Posted by: John Emerson | Link to this comment | 07-10-08 7:47 AM
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"Sorry, Becks, but this story didn't even measure a zero-point-five on my outrage meter. "

What Knecht said. I don't see where the "abuse" is at all. Are there better causes to spend $8bn on? Sure, in my opinion. But lots of people don't give a shit about, say, immunisation in the developing world. Indeed, some nutters think that immunisation is a conspiracy. The Royal Society for the Prevention of Cruelty to Animals is one of the most loved and well funded charities in the UK, raising £114m in 2007.

I'm not saying that charitable estates are never abused, but I really don't think it's worth it, or right, to draw the line here.


Posted by: Ginger Yellow | Link to this comment | 07-10-08 7:50 AM
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I didn't read the article, but was talking about the general question of tax exemptions as subsidies. The fact that there's no one-to-one match between the loss of the money and any particular public institution deprived of money is completely irrelevant.

Cumulatively tax breaks of various kinds have had a negative effect, especially at state and local levels, and tax breaks have often been part of the Republican war on government, which is basically founded on the idea that taxation is theft.


Posted by: John Emerson | Link to this comment | 07-10-08 7:51 AM
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But lots of people don't give a shit about, say, immunisation in the developing world. Indeed, some nutters think that immunisation is a conspiracy.

How does that contribute to your argument? Lots of people also think that the Elders of Zion invented AIDS. Some people just have to be written off.


Posted by: John Emerson | Link to this comment | 07-10-08 7:53 AM
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19: Distinction without a difference. We're still forgoing tax revenue in a way that benefits a certain group.

20: I'm sure there's lots of further definitions; I just think it's a fair statement of the things we are nationally OK with exempting. (I mean, I wouldn't mind tearing down the religious deduction myself, but it would never happen.)

11/21: C'mon, even the reporter doesn't argue this is vitally important, although he makes demagogic gestures. I see this thread as an exercise for our public-policy gray matter.


Posted by: Minivet | Link to this comment | 07-10-08 8:00 AM
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Knecht gets it exactly right.


Posted by: Bave Dee | Link to this comment | 07-10-08 8:01 AM
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OT:

Has anyone been listening to NPR's series on health care?

I've found the people remarkably unsympathetic and the piece poorly done.


Posted by: Will | Link to this comment | 07-10-08 8:01 AM
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There's some funny business that happens much more regularly with family land put in trust; just to give a couple examples I know about, a family donated their waterfront farmland in coastal Mass. to a charitable trust, with the proviso that it would never be developed, but could be operated as a golf course. Another family donated their massive waterfront estate to a charitable trust dedicated to maintaining it as publicly accessible open space -- publicly accessible 9-5, monday through friday, and open except for the family homes, which remain privately owned. Enough to get the property tax exemption, in both cases!


Posted by: Sifu Tweety | Link to this comment | 07-10-08 8:03 AM
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tax breaks have often been part of the Republican war on government, which is basically founded on the idea that taxation is theft.

It is a fundamental difference in mentality.

Is it your money or the government's?

Entitlements v. obligations


Posted by: Will | Link to this comment | 07-10-08 8:03 AM
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In other news, I pretty much agree with 6.last. If people are accumulating this month wealth in the course of a lifetime, we should make taxes more progressive.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 8:03 AM
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24: There is a difference, I think, because of the way the tax is collected (i.e., it's triggered by her dying.) I was mostly just annoyed by the language in the article. Taxpayers are only on the hook for $3.2 billion for her dog foundation only if you think about it weirdly. (Were we also subsidizing her for $3.2 billion during life? Because we didn't have that money then, either.)


Posted by: Cala | Link to this comment | 07-10-08 8:08 AM
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There was a long article about Sheldon Adelson in....the New Yorker, I think. Where else would I read a long article? Anyway, it turns out that he was a Democrat because he was a Jew until about age 40, when he noticed that he was being taxed more than he used to be just because he had become a billionaire. At which point he instantly converted and decided to try to destroy the Democratic party.


Posted by: CN | Link to this comment | 07-10-08 8:12 AM
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There's a fair argument -- not one I'm committed to, but it's there -- that the charitable deduction is a bad idea. For one thing, it's available only to people who make enough money to itemize, which is maybe the top half or so of the income distribution (half may be too small -- I haven't looked at this lately). So charity from poorer people is unsubsidized.

Yeah, really. I donated like $150 to the Red Cross after Katrina, figuring that I would get a bit of a tax rebate. Then I was not able to find any area on the 1040A to indicate charitable donations or non-standard deductions of any sort, and realized that whatever money I would get from the deduction would probably be less than I would have to pay for an actual accountant to do my taxes. Oh well.


Posted by: CN | Link to this comment | 07-10-08 8:15 AM
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I'm more or less on board with Knecht's 11. Although if I were ruler of the world, all private foundations would be required to sunset (go out of business) 30 years after their founder's death. Maybe even 20.

And yes, unintended consequences, and yes, wouldn't solve all the problems, and yes, it puts me on the same page as the WSJ. Still the right thing to do.


Posted by: Witt | Link to this comment | 07-10-08 8:18 AM
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Cala, it sounds like you've bought the "death tax" meme.

Knecht's remarks about Rove's war on foundations (and universities) are somewhat to the point. However, a lot of people recently have been pointing out that Harvard's enormous endowment isn't very well used. Yglesias and DeLong, both Harvard grads, have both (I think) asked whether anyone should ever give to Harvard at all any more. In general, I'm less admiring of non-profits, foundations, and universities than Knecht is, granted that most of them are not winger-dominated.


Posted by: John Emerson | Link to this comment | 07-10-08 8:22 AM
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No, JE, I haven't. I have much the same problem with people who complain about not getting money due to an inheritance tax: it isn't yet your money, and you're not being made worse off.


Posted by: Cala | Link to this comment | 07-10-08 8:29 AM
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This op-ed isn't about the charitable contribution deduction. It's about making the repeal of the estate and gift tax permanent.

One of the arguments in favor of keeping the estate tax is that it encourages charitable contributions. Without the estate tax we probably wouldn't have a lot of the names you see as underwriters when you watch PBS.

This is the counterargument, saying that those charitable contributions only go to dogs, anyway. Personally, I'd keep the tax, figuring that if some people want to give $1m for quilting education (a noble endeavor) to save $.45m in estate taxes, it's more than offset by those supporting causes I like, and is a lot better than people not giving anything to charities because there's no tax incentive.


Posted by: Michael H Schneider | Link to this comment | 07-10-08 8:37 AM
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There is a difference, I think, because of the way the tax is collected (i.e., it's triggered by her dying.)

I don't see how that isn't a version of the "death tax" argument.

In policy studies you don't have to point to an individual or specific institution which was made worse off, or a particular moment when the harm was done. You just say that a certain quantity of tax wasn't collected, to the advantage of the untaxed and the disadvantage of the tax-dependent.

The fact that it was Helmsley makes me strongly suspect that the outcome will be corrupt. I'm not absolutely opposed to bequests to benefit animals, though I think that bequests in general are widely abused.


Posted by: John Emerson | Link to this comment | 07-10-08 8:38 AM
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26: Yes, I have. I didn't like most of them, but the one on France this morning seemed pretty good. Obviously, it wasn't very thorough. (The Frontline special on different systems sucked.) I liked that they said that the French billing was clear and easy to figure out. I don't know why ours is so complicated and what we could do to make it simpler. (Not all French doctors charge the same rates, so I'm not sure that the explanation is entirely due to the big bad insurance companies.)


Posted by: Bostoniangirl | Link to this comment | 07-10-08 8:40 AM
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"Although if I were ruler of the world, all private foundations would be required to sunset ... 30 years after their founder's death."

This seems reasonable for private foundations (though I wonder if it too wouldn't catch up worthwhile endeavors in its attempt to stem abuse). Besides, the issue to me is more the subsidizing the wealthy aspect than the perpetual "tying up" of funds. Sure the WSJ doesn't like the investment restrictions, but a little ostensible prudence is probably a good thing.


Posted by: babble | Link to this comment | 07-10-08 8:41 AM
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||

The Medium Lobster is on fire today.

|>


Posted by: Minivet | Link to this comment | 07-10-08 8:46 AM
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I had a dream last night that Obama picked Dodd. It was a great dream.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 8:48 AM
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The obvious solution is to tax dogs.


Posted by: Spike | Link to this comment | 07-10-08 8:50 AM
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That would be great. 'Fifi is part of the family!' Sez you.


Posted by: Cala | Link to this comment | 07-10-08 8:51 AM
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42: Progressively, of course. Soak the doggy trust funds!


Posted by: Minivet | Link to this comment | 07-10-08 8:54 AM
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42: fascinating! I think we have a solution.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 8:55 AM
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Helmsley's will named her own dog, Trouble, as a beneficiary, while explicitly leaving out two of her grandchildren. But in April, a Manhattan judge reduced the trust fund for the 9-year-old Maltese from $12 million to $2 million. The grandkids got $6 million each.

Plus there's ready-made hotbuttons.


Posted by: Minivet | Link to this comment | 07-10-08 9:00 AM
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I don't know why ours [health care billing system] so complicated and what we could do to make it simpler.

Cost reduction by inconvenience. If insurance companies make it a pain in the ass for you to get health care, or to file a claim, you are less likely to do it.

They will go really far with this tactic, including things like insisting that blood tests be conducted at a different hospital than the one you are using, etc.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 9:09 AM
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Yeah, wait til the dog lobby gets whiff of this.


Posted by: babble | Link to this comment | 07-10-08 9:10 AM
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The dog lobby is actually pretty easy to bamboozle. You just keep throwing them sticks and eventually they get all distracted by sniffing each others butts.


Posted by: Spike | Link to this comment | 07-10-08 9:14 AM
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I can just imagine the dog lobby gathered in a circle around this, sniffing and sniffing, and maybe licking it a little, and then sniffing each other, and so on, just being so adorably doggy.


Posted by: John Emerson | Link to this comment | 07-10-08 9:15 AM
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It doesn't ranks that high on my abuse meter either but my point was more that there are ways to do this short of chucking out the entire tax code, which seems to be the point when crap like this is brought up.


Posted by: Becks | Link to this comment | 07-10-08 9:18 AM
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I can just imagine the dog lobby gathered in a circle around this, sniffing and sniffing, and maybe licking it a little, and then sniffing each other, and so on, just being so adorably doggy.

This is basically what regular lobbyists do, but they aren't nearly as cute when they do it.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 9:20 AM
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OT: How is one meant to pronounce the name of the band Wooden Shjips?


Posted by: strasmangelo jones | Link to this comment | 07-10-08 9:22 AM
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I don't see any real good reason for the charitable deduction (for estate taxes) to exist in the first place but given that it does I oppose attempts to limit it to charities that Becks approves of.


Posted by: James B. Shearer | Link to this comment | 07-10-08 9:26 AM
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Shearer, that was so desultory. Are you okay? Distracted by events in your real life? I hope circumstances improve!


Posted by: Sifu Tweety | Link to this comment | 07-10-08 9:28 AM
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54: I think the only good justification for it is that it perhaps somewhat discourages some attempts to avoid estate taxes through complex planning. (Of course, it probably facilitates others, so on balance...?). The other argument commonly put forward is that it encourages large charitable contributions, but that of course assumes that private charitable contributions do more public good than government spending. Given the sort of things LB mentions in 1, I'm not sure that's true.


Posted by: Brock Landers | Link to this comment | 07-10-08 9:37 AM
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So, in short... Shearer gets it exactly right.


Posted by: Brock Landers | Link to this comment | 07-10-08 9:37 AM
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55: You're desultory, you big poopy-face.


Posted by: strasmangelo jones | Link to this comment | 07-10-08 9:40 AM
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The obvious reason that charitable money does more good that money given to the government is that half of all the money given to the government (after interest payments on the debt) goes straight into the war machine.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 9:43 AM
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Yes, yes I am.


Posted by: Desultory Bigpoopy Face | Link to this comment | 07-10-08 9:44 AM
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53: The d is silent.


Posted by: Po-Mo Polymath | Link to this comment | 07-10-08 9:44 AM
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my point was more that there are ways to do this short of chucking out the entire tax code, which seems to be the point when crap like this is brought up.

I don't see that chucking out the entire tax code would be called for. Tweak in any number of ways: limit the sorts of charitable enterprises allowed (nanny state!), or go at least for something like the 2003 bill mentioned in the article.

None of that speaks to the larger, and to me, more interesting questions.

From the article:

the law should not encourage people to tie up their resources -- and ours -- for all time

As 28 says, there's a fundamental difference in perspective here over whether wealth should be considered a community (or state) resource, or something to be collected and held in private hands. Etc. blah blah. This nation will never give up capitalism, private property, and so on, so while it's a vastly interesting, and sobering, question, probably a non-starter. Tweaking is the most we can ever do.

The article's backdoor approach to raising it, citing abuses, is a bit disingenuous.


Posted by: parsimon | Link to this comment | 07-10-08 9:46 AM
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Is it possible that the people who run the helmsley dog foundation might wind up doing some good with the money? What if it went to promoting alternatives to animal experimentation (including experimentation on dogs)? You can get a lot of popular support if you stick with the slogan "reduce, refine, replace."

Also, 8 billion dollars can spay and neuter a lot of animals, shut down puppy mills. Stuff like that.

Actually, I rather like dogs.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 9:48 AM
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As 28 says, there's a fundamental difference in perspective here over whether wealth should be considered a community (or state) resource, or something to be collected and held in private hands.

This strikes me as a false dichotomy, based on a rather idiosyncratic definition of "wealth".


Posted by: Sifu Tweety | Link to this comment | 07-10-08 9:50 AM
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64: Does this have to do with an economist's distinction between wealth and ... whatever else? I almost included a disclaimer: IAMAE. I just mean financial resources. Money. (Which I realize is also a technical term, so I'm out of my depth.)

All I was after was the notion lifted from societies completely unlike ours in which resources are communal. You're born, you live, you die. You share while you live, and you and your stuff is dispersed, as it should be, when you die. Not held in private hands, withheld from others. I understand this is the (presumptive) ultimate intent of estate taxes.


Posted by: parsimon | Link to this comment | 07-10-08 9:57 AM
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"How does that contribute to your argument? Lots of people also think that the Elders of Zion invented AIDS. Some people just have to be written off. "

The point is that unless you get really specific and detail precisely what charitable ends are acceptable, which would inevitably exclude many worthy causes as well as unworthy ones, and would be subject to the political preferences of the majority that implements the change, then I don't see how you can prevent situations like this without harming lots of charities you consider worthwhile.

Moreover, I really don't see that this is so bad. Animal welfare charities exist, are popular and do good work. I'd prefer to see the money spent elsewhere, but that would be true for other people about my charitable donations as well. I'm not at all comfortable with dictating to people what is and is not acceptable charity outside of very broad definitions which would definitely include this case.


Posted by: ging | Link to this comment | 07-10-08 9:58 AM
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65: it's different because money isn't "stuff", per se. It's a medium of exchange.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 9:59 AM
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IAMAE

I am mad at economists?


Posted by: mrh | Link to this comment | 07-10-08 10:06 AM
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money isn't "stuff", per se. It's a medium of exchange.

FWIW, in the common economic definition of money, it plays the role of "store of wealth" in addition to being a medium of exchange. That attribute may be socially constructed (money is wealth because we all agree that it's worth something), but it's real nonetheless.



Posted by: Knecht Ruprecht | Link to this comment | 07-10-08 10:11 AM
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69: well, but the fact that it plays dual rules, and the fact that it can be used -- in its role as a medium of exchange of, in this case, capital -- to create wealth, make it fundamentally different than e.g. real estate.

IA also MAE, I should say.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 10:13 AM
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I'd love to see a serious philosophical treatment of the ontology of money, looking at it as a social construct and an abstract entity. Every time I ask about this, though, I get referred to some libertarian claim that money is really an epistemological device which gives us information about value.

I know D^2 has expressed sympathy for social constructivism precisely because he works in the financial sector. This is more the sort of thing I had in mind. If only because it is clear to me that you learn zero about value through the crude aggregation of preferences.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 10:18 AM
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Tweety is My Alter Ego?


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 10:19 AM
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72: as is parsimon.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 10:19 AM
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I don't see any real good reason for the charitable deduction (for estate taxes) to exist in the first place but given that it does I oppose attempts to limit it to charities that Becks approves of.

I find myself in the uncomfortable position of being more in agreement with Shearer than with LB, so I feel compelled to point out where my opinion diverges from Shearer's.

I'm somewhat ambivalent about charitable deductions from income, but I definitely favor them for the inheritance tax, because they create a large and powerful constituency (the nonprofit sector) for the inheritance tax (without which bequests to nonprofits would be much less attractive to the giver).

In essence, the NYT piece misses the point. The question is not whether it is better for government or charity to have the money. It's whether it is better for the Helmsley heirs or someone else to have it. As someone who believes that large-scale inherited wealth is mostly a pernicious influence on society, I am in favor of policies that serve to disinherit the scions of the wealthy.

Tangentially, given the typical trajectory of the large nonprofit foundations, I predict that within 75 years, the Helmsley Foundation will be subsidizing legal advocacy work in an attempt to win legal recognition for equal rights for dogs under the 14th Amendment.


Posted by: Knecht Ruprecht | Link to this comment | 07-10-08 10:25 AM
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I am mad at economists?

They're probably mad about this, mrh.


Posted by: Brock Landers | Link to this comment | 07-10-08 10:25 AM
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68: IAMAE

That would be me.

Economist motherfuckers.


Posted by: John Emerson | Link to this comment | 07-10-08 10:26 AM
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My fear in the particular Helmsley case is that her goal was specifically and primarily to keep the money from the government.

Disinheriting heirs might best be done by the estate tax.

Of course, everything I have said so far is annulled by the fact that the US government is primarily a military / police organization. I am speaking of an alternate universe.


Posted by: John Emerson | Link to this comment | 07-10-08 10:34 AM
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They're probably mad about this, mrh.

Actually, Brock, it's the economists who are mad at that.

When will those fuckers learn that the Republicans are just as bad or worse on economic orthodoxy compared to Democrats, and stop automatically hitching their wagons to a failing party even though they incessently claim pox-on-both-parties neutrality? Most annoying thing about some of the Friedman-school economists, I swear, they still seem to think they're fighting the era of Democrats supporting 91% marginal tax rates.


Posted by: Po-Mo Polymath | Link to this comment | 07-10-08 10:44 AM
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I'd love to see a serious philosophical treatment of the ontology of money, looking at it as a social construct and an abstract entity.

Oh yes, please!


Posted by: parsimon | Link to this comment | 07-10-08 10:47 AM
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71: rob, fictionalist treatments of money are probably the sort of thing you're looking for.


Posted by: Cala | Link to this comment | 07-10-08 10:50 AM
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Pe/ter Lud/low, actually, has a fun little paper discussing fictional monetary systems (like WoW) and the phenomenon of how some of them now appear to have an exchange rate. (i.e., I pay you $10US to buy an armor suit that is 900 crescents, or whatever.) I forget his position but remember thinking the paper was fun.


Posted by: Cala | Link to this comment | 07-10-08 10:52 AM
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The obvious reason that charitable money does more good that money given to the government is that half of all the money given to the government (after interest payments on the debt) goes straight into the war machine.

Is this obvious? Consider that the Heritage Foundation, Liberty University, Focus on the Family, The National Right to Life Committee, [this list could go on endlessly] are all non-profit organizations.


Posted by: Brock Landers | Link to this comment | 07-10-08 10:52 AM
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81: some of them explicitly do have an exchange rate (cf. Linden Dollars).


Posted by: Sifu Tweety | Link to this comment | 07-10-08 10:55 AM
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82: let's look at the top ten largest nonprofit organizations in the United States (as of, I think, 2005):

1. United Way
2. Salvation Army
3. Feed the Children
4. American Cancer Society
5. Gifts in Kind International
6. AmeriCares
7. YMCAs in the United States
8. American National Red Cross
9. Catholic Charities USA
10. America's Second Harvest

Seem pretty much okay to me, with some caveats here and there.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 10:57 AM
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66: First, I doubt the charitable deduction in the first place.

Second, there are already some limitations on what charities are acceptable, and people are suggesting that perhaps there should be more. No system is perfect, but perhaps an improved system is possible.

Third, in pretty much any argument about anything you have to bracket out the wackos and the weird hypotheticals. Any system can be abused by politicians or political movements, but I don't think that we should use the worst imaginable abuse to make up our minds.


Posted by: John Emerson | Link to this comment | 07-10-08 11:00 AM
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fictionalist treatments of money are probably the sort of thing you're looking for.

Sigh, if only had I time to actually read real philosophy.

Right now I am typing basic critical thinking exercises into poorly designed online testing software.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 11:01 AM
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I have an epistemological device in my pants which gives information about value.

When I heard about the Helmsley will, I became irritated because I knew somebody was going to use a slippery slope argument saying we couldn't regulate the formation of these trusts without banning them entirely. (I didn't think it would be here on Unfogged, though.) We have a procedure for making distinctions legal distinctions. This is perhaps not a widely known fact, but in this country, we have actual written laws. When you write down a law, you can make specific distinctions. For example, you can cap the amount of money a charitable trust can spend on a single dog. So we don't have to deduce the outcome of every law from broad philosophical first principles.


Posted by: Walt Someguy | Link to this comment | 07-10-08 11:03 AM
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Buck up, Rob. The pioneer in the analysis of the economies of online games was languishing as an AP at CSU Fullerton when he did his original work.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 11:04 AM
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84: a better list to look at would be top charitable recipients of large estate donations. I think you'll find them to be overwhelmingly already-rich universities, plus the sorts of things LB mentions in 1. (With data from recent years being swamped by Gates' and Buffet's massive donations to the Gates Foundation, which is actually a very good thing.

But this is a silly debate. The best reason is clearly that mentioned by KR in 74.


Posted by: Brock Landers | Link to this comment | 07-10-08 11:08 AM
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88: I don't really want to do groundbreaking research anymore. I just want better testing software for my courses.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 11:11 AM
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71:I'd love to see a serious philosophical treatment of the ontology of money, looking at it as a social construct and an abstract entity

Money ay MIA Glossary

Maybe I don't understand anything, but once money is understood as a commodity, all the studies of commodification apply. And in the twentieth century there are a lot of studies. And probably the Marxians are the best place to figure out wtf $545 in derivatives etc actually are, or what really happened to RE values. Capital is real, a real social construct like freedom, but not real like a rock.


Posted by: bob mcmanus | Link to this comment | 07-10-08 11:11 AM
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87: Walt, remember to convert to rat orgasms when reporting your observations. Your instrument is not scientifically recognized.


Posted by: John Emerson | Link to this comment | 07-10-08 11:15 AM
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The act of assigning a value to something is an act of abstraction, as it means singling out a single quality from the whole concrete thing. The concentration of value in a single substance, such as gold, is a further, material act of abstraction.

Initially, the commodity first singled out to act as a measure of value would be itself the most useful of local products; later, though still very much a product of labour, the money-commodity is of marginal use, apart that is, from its function as a measure, carrier and store of value. In the course of this development, the aspect of the money-commodity as an abstract symbol of value, and therefore as a social category, expressing the values of the community, predominates over the aspect of the money-commodity as a product of abstract labour.

For my opinion on the topic, I oppose the "death tax" but strongly favor high taxes on income. Wealth doesn't become income until it flows into somone's possession. IOW, it is not a death tax to tax the heirs, but the heirs should be taxed very heavily. I don't know that I care much about trusts, which aren't power, or about differentiating among deserving charities. I might prefer that Helmsley gave to the Salvation Army rather than puppies, but it isn't a strong preference. Rich Puppies = jobs.

I'm sure this has been covered already. Now I'll read the thread.


Posted by: bob mcmanus | Link to this comment | 07-10-08 11:25 AM
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MIA Glossary

That link contained no information whatsoever regarding Mathangi Arulpragasam.


Posted by: strasmangelo jones | Link to this comment | 07-10-08 11:46 AM
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Is money all that mysterious? I would think that the stock economists answer, that we value money for what we can buy with it, is most of it. The only mystery is what makes money maintain purchase power. Most of the mysteries that people attribute to money would be just as present with no money. (For example, if people didn't keep score using how much money they made, they'd keep score using something else. It's the keeping score that's the mystery.)


Posted by: Walt Someguy | Link to this comment | 07-10-08 11:53 AM
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That link contained no information whatsoever regarding Mathangi Arulpragasam.

But if it did, could finding all that information be called an Arulpragasm?

In charitable estate giving news, I named my alma mater as the secondary beneficiary of one of my retirement accounts, or something, so in the event I die having been predeceased by everyone I care about, they get some small pittance. This enters me into the "College Hill Society," honoring those who have the university in their will.

I find now that getting a birthday card from the Planned Giving office is darkly comic.


Posted by: mrh | Link to this comment | 07-10-08 12:00 PM
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The mystery isn't why we value money, but the way money seems to have some of the properties of an ordinary material object but not others.

Sometimes money has a physical location. There is twenty dollars in my wallet. Sometimes it doesn't though. If I deposit the 20 in the bank, the money that is in my account is no longer attached to that physical bill. Instead, the money consists entirely of a promise to give me back $20 with interest if I ask for it.

What are the criteria for the identity of money over time. In the bank, which money is my money?

These are all commonplace facts, but they make money as an object different from other kinds of objects. It isn't a physical object, like a chair. It isn't a purely conceptual object, like the number 2. It isn't a normative object like a rule or obligation. But it does have properties in common with all these sorts of objects.

I just find it very puzzling.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 12:06 PM
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Other things money resembles, but is not: a mental act of valuing, like your love of your partner; and an abstract measurement, like a meter or a gram.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 12:09 PM
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For example, if people didn't keep score using how much money they made, they'd keep score using something else.

Is this true?

Even if it's true, there are things to be said about the possibility that the ways in which we keep score via monetary exchange are horribly distorting to the human spirit. Yes, I said that.


Posted by: parsimon | Link to this comment | 07-10-08 12:09 PM
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Isn't that difference just a legal status? You give the bank 20 dollars, it has to promise to give you 20 dollars back, and they can be different dollars. We allow money to have this status because we don't really care about money for itself, but for its purchasing power.


Posted by: Walt Someguy | Link to this comment | 07-10-08 12:12 PM
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95:Walt, M1, M2, M3, M4 , Austrian-M. Nobody really knows what money is, so much so that the Fed no longer even bothers to measure money supply or velocity, let alone try to control it.

You certainly don't have to Marxian to get confused about money.

I nurture craziness on this. The General Theory of Employment, Interest, and Money. These are not only the only three variables you really need, they are equivalents, via a sophisticated version of labour-value theory and "animal spirits" expectations.

Declining employment = deflation = lower interest rates = less money.


Posted by: bob mcmanus | Link to this comment | 07-10-08 12:12 PM
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Money is a crude expedient. In a truly rational world people would just exchange rat orgasms.


Posted by: John Emerson | Link to this comment | 07-10-08 12:13 PM
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Forget my tease in 99, I like rob's thinking in 98.


Posted by: parsimon | Link to this comment | 07-10-08 12:13 PM
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Yes, I said that.

It saddens me to have to report you to the reeducation camp, but I must do my duty.


Posted by: Walt Someguy | Link to this comment | 07-10-08 12:13 PM
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rob--I suspect most of these deep philosophical issues are answered in a typical introductory course on macroeconomics. "Money" is whatever we define it to be. There are broader and narrower definitions that are more or less useful depending on the purpose at hand. If we define "money" only as bills printed by the government, then that $20 in your checking account actually isn't money. (Although the bill, now held either in the bank's vault or given out to another customer, still is money, of course.) For most purposes this definition is too narrow, and so checking and other higly liquid deposit accounts are included. This means that banks actually create money, not just the government. (They take your $20 and give you $20 credit to your account and give the $20 bill out to someone else, and viola, now there's $40 in "money" where before there was only $20. This si slightly simplified, but not much really.)


Posted by: Brock Landers | Link to this comment | 07-10-08 12:14 PM
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I don't disagree with 101. I tried to shovel all that under "The only mystery is what makes money maintain purchase power."


Posted by: Walt Someguy | Link to this comment | 07-10-08 12:14 PM
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so much so that the Fed no longer even bothers to measure money supply or velocity, let alone try to control it.

This is laughably false.


Posted by: Brock Landers | Link to this comment | 07-10-08 12:17 PM
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97:How 'bout...

Money is "like" political legitimacy?

How 'bout...

Capitalist Economics is "like" procedural liberalism?

Does that help?


Posted by: bob mcmanus | Link to this comment | 07-10-08 12:18 PM
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107:Aw jesus brock, M1 & M2 aren't measuring modern money supply in any useful way.


Posted by: bob mcmanus | Link to this comment | 07-10-08 12:19 PM
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104: Point of order. House rules, that is. Quote previous comments in italics. Quote only the original post or outside articles in blockquotes.


Posted by: parsimon | Link to this comment | 07-10-08 12:20 PM
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Are you trying to make me feel better for shipping you to the reeducation camp? 'Cause you are.


Posted by: Walt Someguy | Link to this comment | 07-10-08 12:22 PM
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111:

reeducation camp
Reëducation camp for you, too, diacritical scofflaw.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 12:25 PM
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Have you all turned into w-lfs-n? Is this like the end of Spartacus, where you all stand up and shout "I'm w-lfs-n!"


Posted by: Walt Someguy | Link to this comment | 07-10-08 12:28 PM
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walt: For example, if people didn't keep score using how much money they made, they'd keep score using something else.

Parsimon: Is this true?

No, it is clearly false. Prior to the rise of large scale agricultural empires, people didn't have a concept of number at all. Number and money (and writing!) are simultaneous inventions. No one counted anything or wrote anything down until the priests of big god-emperors needed to keep track of the taxes they collected.

The invention of money/number occurred independently in Mesopotamia, the Indus river valley, the yellow river valley and in ancient central America. Only the Mesopotamian invention is well documented, though, because they did their accounting on clay.

In any case, for most of human history, people were not keeping score with numbers.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 12:29 PM
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100:We allow money to have this status because we don't really care about money for itself, but for its purchasing power.

I disagree. The $545 trillion in derivatives or other dollar instruments were or are not important for what they buy, but as a "sign" (?) of confidence and optimistic expectations and "animal spirits" in the investing class. Deflation is a socio-psychological phenomenon.

And 1975-82, with double-digit inflation, interest rates, and unemployment should be re-examined more carefully. People, like me, were buying homes with 12% mortgages.


Posted by: bob mcmanus | Link to this comment | 07-10-08 12:32 PM
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Before civilization people only counted "one, two, three, heap", like Canadians.

Status hierarchies go along with complex society, however. Always already. The smallest, most loosely organized band societies are formally egalitarian, but there are still differences of status based on individual traits.


Posted by: John Emerson | Link to this comment | 07-10-08 12:34 PM
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102: In carefully set-up orgies, one rat orgasm creates a cascade of others, meaning they can not only hold their value but also accrue interest. Much better than gold for when civilization collapses.


Posted by: Minivet | Link to this comment | 07-10-08 12:35 PM
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114: There are no cultures outside of large-scale agricultural empires that compete for higher status? The potlatch culture of the Pacific Northwest did not have status competition?


Posted by: Walt Someguy | Link to this comment | 07-10-08 12:35 PM
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Am I the one needs to go to the re-education camp?

Cause I need to visit Rittholz, who based on double-digit M3 for a decade and commodities, thinke we are in and headed for hyperinflation...

and visit Mish's, who thinks we are in and headed for massive deflation.

Both these guys make their livings of their judgements.


Posted by: bob mcmanus | Link to this comment | 07-10-08 12:36 PM
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This distinction between M0 through M3 is a necessary first step. I hadn't heard of it before. M0 consists of ontologically straightforward physical objects. M1 consists of physical objects plus a bunch of simple promises regarding physical objects. The higher orders of money are more elaborate promises.

This doesn't capture the evaluative and measuring aspects of money, though.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 12:37 PM
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115: You've mentioned the size of the derivative market before, but I'm not sure what lesson you're deriving from it. (And just out of curiousity, which market do you mean? All derivatives? Credit default swaps?)


Posted by: Walt Someguy | Link to this comment | 07-10-08 12:37 PM
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I once knew a guy who went around with a suitcase full of hundreds of billions of Austro-Hungarian rat orgasms, waiting for them to regain their value. He had inherited the suitcase from his father, who had inherited it from his own father, who had looted it from the Austrian Central Bank at the end of WWI.


Posted by: John Emerson | Link to this comment | 07-10-08 12:39 PM
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116: people can only count up to three (or sometimes four). Everything else is based on memory and grouping.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 12:39 PM
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109: Well, they also measure M3. I admit I didn't know what "M4" was, but wikipedia says it's just the UK equivalent of M3.

If you're point is just that there are some novel financial instruments and derivative arrangements that perhaps should be tracked as "money", but that the Fed doesn't currently measure, you're probably right. (Although they have plenty of smart poeple looking into the issues.) But it's just ridiculous to say "the Fed no longer even bothers to measure money supply or velocity".


Posted by: Brock Landers | Link to this comment | 07-10-08 12:39 PM
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Status hierarchies in smaller scale societies aren't conceived of numerically, but graphically. There is really interesting work out there on the diagrams aboriginal Australians use to represent kinship relations.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 12:40 PM
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122: GREETINGS SIR MY NAME IS ALGERNON MBUTU SESE. I HAVE COME INTO INFORMATION ABOUT A LARGE STORE OF MOUSE ORGASMS BELONGING TO THE BEREFT DAUGHTER _______ OF THE FORMER NIGERIAN PRESIDENT. BECAUSE YOU SEEM TO BE HAVE REPUTABLE I SELECTED YOU FROM AMONG SEVERAL TO RECIEVE THIS OFFER TO SHARE WITH ME THIS LARGE MOUSE ORGASM BOUNTY. WITH YOUR KIND REGARDS PLEASE SEND A SMALL INITIAL MOUSE ORGASM DEPOSIT.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 12:41 PM
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The fed discontinued public reporting of M3 in 2006.


Posted by: lw | Link to this comment | 07-10-08 12:42 PM
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Tweety: I'm not sure I understand the difference between "counting" and "memory and grouping"

I know there are theories that small collections are perceived directly as collections, where has larger collections are perceived using a kind of unconscious, analogue weighing mechanism. But at least when I was doing my dissertation, the "direct perception of small collections" theory was on the decline.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 12:43 PM
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116: people can only count up to three (or sometimes four). Everything else is based on memory and grouping.

Fixed.


Posted by: Minivet | Link to this comment | 07-10-08 12:44 PM
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121: According to BIS, the combined turnover in the world's derivatives exchanges totalled USD 344 trillion during Q4 2005. ...Wiki on derivative (finance) ...after two years of mortgage vehicle bullshit, 545 shouldn't be unreasonable. Or maybe that does include other instruments. I have read that number several places

Maybe I am confusing a stock with a flow? Does it matter? If "exchanges" declined from 500 T to 250 T are we in trouble? Hedge traders would be unhappy.

109:My info is that they stopped releasing M3 within the last two years.


Posted by: bob mcmanus | Link to this comment | 07-10-08 12:48 PM
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127: right you are. So I was wrong about that. But I have to confess, M3 seems fairly overbroad anyway, for most practical purposes. But, of course, it's all in how we want to define things.


Posted by: Brock Landers | Link to this comment | 07-10-08 12:48 PM
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In any case, for most of human history, people were not keeping score with numbers.

Except for keeping track of who's a 6 and who's a 10, of course.


Posted by: JL | Link to this comment | 07-10-08 12:50 PM
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128: oh? It's possible my information's old, but that (direct perception of small collections) is what I had understood fMRI studies to be pointing at. I think I read about it in this book, which turns out to be from 2000, so maybe things have shifted since then.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 12:52 PM
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124:Brock, they simply can't. They might be able to get a little better in America, but that really doesn't matter much anymore.

Brad Setser spends his time trying to track how many Treasury bills China's holding, but since possibly a third are bought thru London cutouts, can only guess.


Posted by: bob mcmanus | Link to this comment | 07-10-08 12:53 PM
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I should also say that 123 was intentionally simplified in order to give it a more Emerson-ish flow.


Posted by: Sifu Tweety | Link to this comment | 07-10-08 12:53 PM
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122 is incredibly funny.

125: Money (and numerical accounting, in general) allows the development of large bureaucratic states which permits larger-scale status competition, but this is not a particular property of money. Anything that allowed the development of large bureaucratic states would permit larger-scale status competition.

The one thing I think you can plausibly attribute to money (and this is a Marxian point) is that it allows impersonal commerce, which leads to societies that are buffeted by changes in "the economy", rather than specific forces such as the weather or war.


Posted by: Walt Someguy | Link to this comment | 07-10-08 12:54 PM
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135: Hey! Copyright violation!

To the hog farm with him.


Posted by: John Emerson | Link to this comment | 07-10-08 12:56 PM
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|| Holy shit, did anyone see this?

President George Bush: 'Goodbye from the world's biggest polluter'

By Robert Winnett, Deputy Political Editor and Urmee Khan

Last updated: 7:52 AM BST 10/07/2008

George Bush surprised world leaders with a joke about his poor record on the environment as he left the G8 summit in Japan.

The American leader, who has been condemned throughout his presidency for failing to tackle climate change, ended a private meeting with the words: "Goodbye from the world's biggest polluter."

He then punched the air while grinning widely, as the rest of those present including Gordon Brown and Nicolas Sarkozy looked on in shock.

Mr Bush, whose second and final term as President ends at the end of the year, then left the meeting at the Windsor Hotel in Hokkaido where the leaders of the world's richest nations had been discussing new targets to cut carbon emissions.

One official who witnessed the extraordinary scene said afterwards: "Everyone was very surprised that he was making a joke about America's record on pollution."

Mr Bush also faced criticism at the summit after Silvio Berlusconi, the Italian Prime Minister, was described in the White House press pack given to journalists as one of the "most controversial leaders in the history of a country known for government corruption and vice".

The White House apologised for what it called "sloppy work" and said an official had simply lifted the characterisation from the internet without reading it.

I figure this is the political thread, so not too OT. I know Bush is dumb, but wow... ||>


Posted by: PGD | Link to this comment | 07-10-08 12:57 PM
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My info is they used to try to control supply and velocity with interest rates, but now they are watching Libor and tips and spreads to guess at supply and velocity. IOW, the spreads are determining policy, rather than policy determining spreads.

I think negative real Fed rates, barely effective as stimulus if at all, means they haven't a clue.


Posted by: bob mcmanus | Link to this comment | 07-10-08 12:59 PM
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My reading of the historical evidence (particularly 78-82) is that the actual money supply doesn't matter that much. What matters are real economic variables (unemployment, capacity utilization) and inflation. The actual relationship between the money supply and inflation is pretty murky (though the Fed apparently has a good track record forecasting future inflation), so the Fed is better off targeting inflation.

The turnover in the derivatives market is a flow.

I hate you, PGD. A discussion of "what's money" is about 80 times more interesting than a discussion of what a dumb asshole Bush is. I know that better than I know the names of my own children.


Posted by: Walt Someguy | Link to this comment | 07-10-08 1:00 PM
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138: he also greeted Berlusconi in Spanish.

So great that we finally get the answer to the question "what would happen if a 13-year-old who didn't want the job was made the President?"


Posted by: Sifu Tweety | Link to this comment | 07-10-08 1:00 PM
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Both the anecdotes in 138 are great.


Posted by: Brock Landers | Link to this comment | 07-10-08 1:00 PM
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Tweety: I was working on that part of my dissertation in 1995, before fMRI really took off, so my information is more dated than yours.


Posted by: rob helpy-chalk | Link to this comment | 07-10-08 1:01 PM
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I hate you, PGD. A discussion of "what's money" is about 80 times more interesting than a discussion of what a dumb asshole Bush is.

Very true. Please carry on. Sorry, didn't think Bush could still surprise me, but apparently he can.


Posted by: PGD | Link to this comment | 07-10-08 1:06 PM
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The one thing I think you can plausibly attribute to money (and this is a Marxian point) is that it allows impersonal commerce,

But this is huge. The less personal commerce is, the larger a geographical and cultural market it can span, the more division of labor you get. And the division of labor is the single largest force for productivity growth outside of scientific/technological advance, and is initimately connected with it.

Anyone talked about the pre-Civil War period in which American paper money was issued by private banks , and the valuation of the money depended on your trust in the bank?


Posted by: PGD | Link to this comment | 07-10-08 1:13 PM
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Some pictures from the private bank note era. My favorite is the money issued by the ladies clothing store. Good stuff.

I'll stop now. I hate it when I get interested in a thread just as it dies.


Posted by: PGD | Link to this comment | 07-10-08 1:15 PM
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In XIXc China, transferring money from Beijing to Shanghai cost 10% of the value of the money.


Posted by: John Emerson | Link to this comment | 07-10-08 1:17 PM
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The turnover in the derivatives market is a flow.

And what I think we are seeing is that much of what might be considered "money" in this climate has no (exchange) value unless it flows. Unfortunately that includes houses.

Thirty years ago I tried to explain use-value and exchange-value to somebody. Do derivatives have any use-value at all?


Posted by: bob mcmanus | Link to this comment | 07-10-08 1:18 PM
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Do derivatives have any use-value at all?

yes, for hedging risk.


Posted by: PGD | Link to this comment | 07-10-08 1:19 PM
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and the valuation of the money depended on your trust in the bank?

And this has changed?

I'm outa here.


Posted by: bob mcmanus | Link to this comment | 07-10-08 1:20 PM
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Derivatives and complex financial instruments are important incentives for sharp people who compete to be the first one to figure out how they work, thus earning billions and driving the system to collapse.


Posted by: John Emerson | Link to this comment | 07-10-08 1:22 PM
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McManus: "For my opinion on the topic, I oppose the "death tax" but strongly favor high taxes on income. Wealth doesn't become income until it flows into somone's possession. IOW, it is not a death tax to tax the heirs, but the heirs should be taxed very heavily. "

Maybe I'm missing the point of your post, but the "death tax" is a tax on the heirs. I'm not sure how it would be possible to have an estate tax that isn't.


Posted by: Ginger Yellow | Link to this comment | 07-10-08 1:24 PM
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Just treating inheritances as income would be worse than the inheritance tax, which only kicks in at a pretty high level.


Posted by: John Emerson | Link to this comment | 07-10-08 1:26 PM
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Maybe I'm missing the point of your post, but the "death tax" is a tax on the heirs. I'm not sure how it would be possible to have an estate tax that isn't.

Change it to a tax on the people who inherit the tax, instead of a tax on the entire estate - and have it only apply above a certain threshold. Then if $10M is left to two people, they both pay the tax. But if $10M is split between 50 beneficiaries, they wouldn't pay any tax.

Of course, I follow George W. Bush's rueful cynicism in presuming that the lawyers would just find loopholes in this as well.


Posted by: Fatman | Link to this comment | 07-10-08 1:27 PM
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Just treating inheritances as income would be worsebetter than the inheritance tax, which only kicks in at a pretty high level.


Posted by: Brock Landers | Link to this comment | 07-10-08 1:29 PM
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Old US currency is interesting but really expensive, but a lot of old foreign currency is cheap. French revolution banknotes are under $20, and anything east of the Elbe is basically cheap. Chinese banknotes run cheap, Tibetan ones printed with multicolored wood blocks run expensive.

The $545T figure apparently includes both sides of a derivative-- that is, if A sells B an obligation that pays if SPX dips below 1000, and B resells to C, each promise is counted seprately and all are added together, so the net value outstanding in the derivates markets is many-fold smaller. I do not think that a net accounting has been done, probably wouldn't be possible. The 545T is maybe relevant as the amount that would be up in the air if all markets seized up simultaneously, or all counterparties became simultaneously insolvent. I knew but have forgotten the document where it originated, basically an attempt to point out counterparty risk.


Posted by: lw | Link to this comment | 07-10-08 1:29 PM
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Brock, you'll have to convince us of why progressive taxation is de facto wrong. This is not the libertarian blog.


Posted by: Fatman | Link to this comment | 07-10-08 1:30 PM
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But if $10M is split between 50 beneficiaries, they wouldn't pay any tax.

But why the fuck not? If they'd worked for the $200k, they'd pay taxes on it.


Posted by: Brock Landers | Link to this comment | 07-10-08 1:30 PM
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148: Does car insurance have use-value? If I'm a farmer, and I make a deal with you that if you pay me now, I'll give you a hundred oranges when my crop comes in, does that have use-value?

I think the use-value/exchange-value distinction is fine, and can be used to make sense of a bunch of modern economics. (Economists don't put it that way, but you can translate it pretty easily.) Assets that have liquid markets have exchange values higher than they do use values. If the derivatives market dried up, the individual derivatives would be worth less (but not worth zero).

The difficulty that Marxian thinkers always ran into was the desire to identify use-value with the value of labor inputs.


Posted by: Walt Someguy | Link to this comment | 07-10-08 1:31 PM
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145: I'm not saying that the influence of money is not important, just that's not that mysterious.


Posted by: Walt Someguy | Link to this comment | 07-10-08 1:32 PM
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Why must you leave me, bob? I'll have no choice but to get work done!


Posted by: Walt Someguy | Link to this comment | 07-10-08 1:42 PM
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155: Agreed. What I meant to say. "Worse from their point of view".


Posted by: John Emerson | Link to this comment | 07-10-08 1:45 PM
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But if $10M is split between 50 beneficiaries, they wouldn't pay any tax.

If it is received as income, I would tax it at prevailing rates.

I thought there were two taxes, an "inheritance tax" on the estate, and then income taxes on the heirs. Am I wrong? As I said trusts don't bother me much, and if that $10M is cut into ten trusts delivering 50k a year to ten heirs, the only taxes I would levy would be on the $50k. When and if the trust was liquidated, tax it as income.

I might exempt some family houses, but probably not businesses or farms. Sorry. If your dad leaves you 100k acres, assess & tax it as a form of income. What's the difference between a trust and a farm? Damfino. I could change my mind fast on details.

But I am a "tax income, not capital" kinda guy. I would eliminate corporate taxes. I would also like to see 95% marginal rates.


Posted by: bob mcmanus | Link to this comment | 07-10-08 1:58 PM
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160:186 comments in one Calculated Risk thread on Fannie & Freddie.


Posted by: bob mcmanus | Link to this comment | 07-10-08 2:03 PM
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My understanding is that gifts and estates are not taxed as income. In any case, I don't report them.


Posted by: George Washington | Link to this comment | 07-10-08 2:07 PM
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The banks fucked up, no question. And it is mysterious how they could fuck up so big.


Posted by: Walt Someguy | Link to this comment | 07-10-08 2:09 PM
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Wealth becomes power as it becomes liquid. (This is also a metaphor about political capital)

1000 trust fund Waltons making $50k a year might be able to buy a Congressperson if they pool their resources, but I doubt if it would be enough. And anyway, they are no different than any other middle class group.

The Walton heir netting $100 million a year is the problem. Tax them out of existence.


Posted by: bob mcmanus | Link to this comment | 07-10-08 2:11 PM
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A truly progressive tax would be levied on lifetime, not annual, income. So it makes sense to exempt a big chunk of something that is definitely a once-in-a-lifetime windfall from an income tax designed to redistribute annual income. A middle class person could get an inheritance that for one year shoots them into a top tax bracket.


Posted by: PGD | Link to this comment | 07-10-08 2:49 PM
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168: Why make it an exemption? If you allow one-time transfers to be distributed evenly over a fixed (non-adjustable) term of years, you can't game the system but it fixed the case of unusually high taxes on the single year.

Other than that problem, I can't see any reason why the vast majority of inheritance shouldn't be treated as income.


Posted by: soup biscuit | Link to this comment | 07-10-08 2:59 PM
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this is simple. the bill? one that requires charitable foundations to actually spend the 5% on the charitable causes (rather than, e.g. on administrative fees, trustee costs, etc.) But but, I hear you cry, it has to pass and just that didn't pass last time! Ah, got ya: here's how to take care of that-- point out to them that if they don't do this, teh (shhhh) gay and lesbian people like me, of far, far more meager wages, might just set up charitable foundations, of which we shall make our not-yet-legal-spouses the administrators, to which we shall leave ALL our meager funds, so that we will find, at last, a way around the fact that we (unlike legally married couples) have to pay tax on the relatively meager goods we leave one another should one of us pass away.
yup. that'lll do it. see? no trick at all.


Posted by: academic lesbian | Link to this comment | 07-10-08 3:29 PM
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Congress likes the rich a lot more than it hates gays and lesbians.


Posted by: Walt Someguy | Link to this comment | 07-10-08 3:33 PM
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163

"I thought there were two taxes, an "inheritance tax" on the estate, and then income taxes on the heirs. Am I wrong? ..."

Yes. Estates are taxed based on the value of the entire estate. Most estates are too small to pay any tax but the top rate is close to 50%. The amounts distributed to heirs are not considered income and are not further taxed. Once you inherit property any income from that property is taxed like any other income.


Posted by: James B. Shearer | Link to this comment | 07-10-08 3:43 PM
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Oh, good. The Feds aren't after me.


Posted by: George Washington | Link to this comment | 07-10-08 3:48 PM
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171- I think that's way too prudent to be how Congress actually functions. I am, however, certain that it is that line of reasoning on which the log cabin boys rely.


Posted by: academic lesbian | Link to this comment | 07-10-08 3:50 PM
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171 is so, so true.

But it's relatively easy to posture about gays and lesbians. Either helping or harming the rich requires redistributing real money, which is hard.


Posted by: PGD | Link to this comment | 07-10-08 4:26 PM
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Catching up.... LB mostly has it right in 1, IMO. Charity is well and good, but deductible contributions are mis-allocating a whole lot of resources. Let people contribute their after-tax dollars to things they really care about. Political causes still manage to raise money despite the absence of a tax deduction. And if you really must have deductible contributions, make it a whole lot harder to qualify (e.g., go back to legislative charters for those organizations).

Private foundations, bah. Way too carried away with the dead hand, trying to get a tax deduction for money you're going to give to charity in the future but haven't yet, or both. Abolish 'em all.

The concept Emerson was expressing in response to Cala is referred to as "tax expenditure" and is a well-established way of thinking about such things, although arguments like Cala's still get made from the right.


Posted by: Not Prince Hamlet | Link to this comment | 07-10-08 5:35 PM
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I find it hard to get too worked up about what others do with their money, be they rich or poor. I am bothered by the impulse of some to tell others how to dispose of their wealth, be it ill gotten gains or hard earned scratch. US GDP is around 13 Trillion, Federal budget around 2.8 trillion. 8 billion is a rounding error to the Feds.


Posted by: Tassled Loafered Leech | Link to this comment | 07-10-08 7:04 PM
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The federal budget is composed almost entirely of a large number of rounding errors, almost every one of them less than 8 billion dollars.


Posted by: John Emerson | Link to this comment | 07-10-08 7:11 PM
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A billion here, a billion there, pretty soon you're talking about real money.


Posted by: Everett Dirksen | Link to this comment | 07-10-08 10:02 PM
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The real outrage is that some people have eight billion dollars estates, not what they do with them.


Posted by: Martin Wisse | Link to this comment | 07-11-08 3:57 AM
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Estate taxes seem bizarre and old-fashioned to me, since Ireland has for many years had a system that taxes the beneficiaries on the value of their benefits, after exempting a tax-free threshold. Businesses and farms get substantial relief. It works pretty well, especially from the point of view of perceived fairness.


Posted by: emir | Link to this comment | 07-11-08 5:02 AM
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