The Steel man Undisclosed

Steelmanning is a term that has been growing in popularity lately. I think I first heard it in this discussion between Dave Rubin and Eric Weinstein. I’ve also heard Sam Harris discuss it, I believe on one of his podcasts. You’ve likely heard of “strawmanning” or the “straw man fallacy” which can take a variety of forms. You could selectively present the weaker pieces of an argument, or only address one small aspect that is not the focal point. It’s basically just an attempt to invalidate a notion that was not actually the one expressed by an opponent. As you might have figured out, steelmanning is roughly the opposite. As I take it, steelmanning is the act of responding to your opponent’s argument as if it were the most coherent and compelling version of their insights that you can manage, even if they have not necessarily offered that. I think of it sort of like taking devil’s advocate against yourself. People have vastly different ways of expressing and interpreting positions, so checking if your criticism addresses the points that seem strongest to you can be a useful tool.

Unfortunately, steelmanning can be misused. I absolutely agree with the point made here about it being “arrogant to declare that you’re definitely doing it”. If you openly state that you’re steelmanning a position, you might as well say “I’m going to do a better job expressing your point than you did”. This is both obnoxious and ineffective. Steelmanning should remain undisclosed. I think Ozy’s post “Against Steelmanning” may in fact be strawmanning the concept of steelmanning. She brings up crucial problems with the application of the concept, but I don’t think it is intended to be used for condescension. I agree that it’s a very difficult skill, but keeping the concept in mind as you debate with someone is valuable. I don’t think it’s meant to be something explicitly mentioned during an argument. In fact, I think her first two propositions for “alternatives to steelmanning” are exactly what steelmanning is intended to be. Chana Messinger’s response to Ozy provides further discussion and I think both parties make some excellent points. If used effectively, I think steelmanning can help to make disagreements clear, improve arguments, and even cut down on polarization and partisanship.

Estate Tax

Unfortunately, this tax is not simple, so I’ll have to go into some details that I’m sure some will find boring. But once I’m through with the details I will explain the reasoning behind my suggestions. Inheritance tax, also sometimes referred to as “the Death tax”, is incurred by the recipient of an inheritance. Estate tax is very similar in nature, though it applies to the estate before being passed on to an heir. Different countries have different formulae for wealth transfer at death. Canada has no inheritance tax and instead applies capital gains taxes at fair market value on the assets (estate) as if they have been sold. Any capital gains on these assets is then taxed at 50 percent. There are exemptions like transfer of assets to a spouse or leaving “marketable securities to a registered charity through your will”. Primary residences and Lifetime Capital Gains also have their own exemptions. In the United States, estate tax is federal and inheritance tax is left to the state to decide.

Obviously this debate could be framed in many ways, but federal estate tax in the United States is easiest to address. The basic exemption is the one I want you to understand. It can be found here. Also shown is the table for tentative tax, which isn’t worth getting into. As you can see, the first $5.49 million is exempt. Estate tax only applies to amounts exceeding that first $5.49 million. So if an individual’s estate is worth $10 million when they die, they will be taxed at 40% on $4.51 million (without any additional exemptions). This means the estate tax will amount to $1.804 million. So if there were a single heir, that person would inherit $8.196 million. My proposition is to have brackets that scale percentage based on the value of the estate. Let me explain.

I think an exemption makes sense, but with an adjustable percentage, that exemption could start quite low. I don’t have exact amounts worked out, but with a reformed tax the exemption could apply to the first $500,000 and then an estate valued between that and $1 million could be taxed at 1 or 2%. As the value of the estate rises, so does the percentage, in much the same way income tax brackets do. The percentages could also be made to apply ONLY to the wealth within that bracket, also mirroring income tax. This is discussed at more length here. The point is, having a flat 40% tax on taxable estates makes little sense. The higher the net worth/estate value, the higher the percentage taxed on wealth that falls into that bracket. This suggestion is just a marginal tax rate being applied to estates.

I completely agree with what Milton Friedman says when he addresses the idea of 100% inheritance tax. Having a 100% inheritance/estate tax would disincentivize business and cause people to spend frivolously on luxuries and entertainment. But I don’t see how having a fairly high estate tax would yield these same results. If people can only pass on say, 60% of their total wealth, are they less likely to try to earn more? I don’t think so. Of course if they’re only able to pass on 5% of their total wealth they’re likely to spend it, but that isn’t what I’m suggesting. I think a marginal estate tax would allow for wealth exceeding $1 billion to be taxed at say, 80%, and still not destroy incentives to earn.

So absolutely, I can see why a 100% (or close to it) estate tax is bad, but I think raising it (especially in the sense of scaling to wealth) makes sense. I see no adequate justification for repealing estate tax (or lowering it for that matter). Peter Schiff argues that the wealthiest Americans don’t even pay much estate tax because they use loopholes in tax code, lawyers and the like to essentially avoid paying these taxes. Here’s the full podcast for context. The problem with this argument and others involving inefficiency (at generating government revenue) is that they address estate tax as if corruption is built in. If we can do something about heavy lobbying in regards to tax reform then we can start to challenge tax avoidance and evasion. I don’t blame business moguls when it comes to avoiding taxes within legal parameters. Unfortunately many of these tycoons attempt illegal methods as well (evasion). Enforcing stricter policies is a good way to make businesses more accountable. No, I don’t mean more regulation, I mean reforming current regulations to make them more concise and to include fewer loopholes. A reform to estate tax like the one I suggest must coincide with a reform in the way tax policies are enforced or it’ll be insignificant. I recognize that it’s not an easy task. Further discussion here.

As far as fairness goes, the current U.S. estate tax does not seem unfair to me. As stated, I believe it could use reform, but certainly not in the direction of reducing the burden on the wealthy. Schiff and other opponents of the estate tax imply that this tax is targeting small family business owners and farmers. I would hardly call a $5.49 million business a small family business. It’s a substantial estate at that point. And beyond that point, you’re only taxed 40% of the additional wealth. It takes until roughly $20.5 million to be taxed even 30% of your total wealth. That doesn’t seem so unreasonable. As far as farming goes, it’s a relatively expensive industry, so I can understand issuing some exemptions. But those exemptions should be for owners of small farms with high costs for assets (equipment, machinery, inventories). I think exemptions can also be given on the basis of renewable energy and other sustainability practices (as long as they don’t become vessels of further tax avoidance).

If the heir to a business has to sell their parent’s business in the case that they can’t afford the assets because of estate tax… is that truly a bad thing? Of course they will have valuable skills if they were an apprentice to their parent, but those skills do not automatically qualify the heir to take over as CEO. They would certainly already have an advantage if they sought employment with whoever purchases the business from them and they could work their way up to the top like everyone else is required to do.

I would love to hear some alternative perspectives and criticism of my suggestion of creating a bracket system for estate tax.

The Biggest Misconception About Income tax

This video touches briefly on most of the debates concerning income tax. Obviously, it’s a sensationalist title and the discussion itself is reduced to character attacks and shouting, but it’s entertaining and significant nonetheless. I by no means wish to claim that this debate offers the best positions for either side of the discussion, nor do I think it’s the most productive debate on the issue. The reason I picked this debate in particular is because Stuart Varney (The Fox Host) glosses over the issue of marginal tax rates when he says  “federal income taxes and state income taxes add up to a net loss of 50 cents on the dollar for me, for every extra dollar that I earn“. This is the most crucial and most misunderstood fact of income tax brackets. Many people, possibly even the majority, think that it can actually mean a decrease in net income if you move up a tax bracket. This is simply false. The higher marginal income tax rate applies only to the income generated that exceeds the last bracket. Hypothetically, if income under $40k were taxed at a rate of 10%, and I earned $40k, I would pay $4k in income tax. Someone who earns $10 million per year pays that EXACT same rate on their first $40k earned. I think Stuart Varney understands this but he certainly does a good job of obfuscating this fact.

An issue that is relevant to estate tax as well as income tax is the setting of a maximum. Estate tax in the U.S. essentially functions as a flat tax (40%) after $5.49 million. Income tax for 2017 in the U.S. maxes out at 39.6%. I would love to hear a coherent justification for brackets halting at an arbitrary point. Why does the tax rate not increase as income increases? I see no sound justification for why someone earning say, $1 million above the ~$420k bracket should pay the same rate (on the $1 million) as someone earning $1 billion above that bracket. If percentages scale with income up to ~$420k it makes no sense to have them suddenly cap at 39.6%. Sure the percentages would have to level off and increase at an exponentially smaller rate at higher incomes as to not approach 100%, but having the tax become flat arbitrarily past the $420k mark is senseless.

There are, of course many more topics brought up in the video I linked such as capital gains taxes, national deficits, the nature of tax being non-voluntary, etc. I think to even broach these subjects it’s crucial to develop an understanding of commonly held misconceptions that many people share.