OK, time for be to play Bad Liberal again, and also give credit to someone I have previously criticized for being either dishonest or an idiot. “Jane Galt” actually makes some very good points about the estate tax repeal.

Because basis will no longer be ‘stepped-up’ after death (except for a $1.3 million exemption) they will simply be taxed like all other capital gains – at the time those gains are realized.

This seems to be a little appreciated aspect of the estate-tax repeal. Currently, if you have an asset that increases in value by a million dollars, you are legally considered to have sold that asset at death, and your heirs become liable for the tax on the increase in value. That’s what forces inheritors to sell assets: they need the money to pay the tax on the rest. However, part of the estate-tax repeal is to eliminate the implicit sale at death as well. The basis value of the asset will be inherited along with the asset itself, and the tax on appreciation will come due (as normal capital gains) when the asset is sold normally. This actually strikes me as a good way to deal with inheritance. The government gets the same revenue they would have gotten if the original owner had lived until the actual sale – except for differences in tax rates due to differences in income levels – and nobody is forced to liquidate anything during their time of grief.

This doesn’t take us as far as Jane Galt would have us believe it does, though. For one thing, Matt Yglesias is right when he says that “repealing the Estate Tax in the face of massive deficits is not the height of sound policymaking.” Even if the bill does come due eventually, that doesn’t do us any good now while spending that is out of whack with revenue is still increasing the deficit. Between now and then, interest will accrue on that debt. Also, Jane’s appeals to her own authority notwithstanding, I’m inclined to believe that the Small Business Council of America might actually know as much as she does when they claim that the repeal would hurt small business. I’m similarly inclined to believe that the folks who say this will have a disastrous effect on charitable giving might know a thing or two that Galt doesn’t, though in both cases I won’t deny there might also be some vested interests involved.

In short, Galt raises several good points about basis costs and how the situation is more complex than most opponents of estate-tax repeal seem to admit, but then (typically) gets a bit carried away trying to turn them into a case for her side in the culture wars. Liberal opponents might be guilty of oversimplification, but she’s only scarcely less so in her response.