What if, instead of trying to remove the estate tax, it were increased [Archive]

Spectre of Pithecanthropus

11-28-2005, 04:19 PM

First off, can you give us some particulars? Most of us know that inheritance taxes are much higher in Britain, but not by how much.

It's a tricky issue to decide. As in Britain, the cost of living can vary so much regionally that it's difficult to decide on a an exemption level that would work for the whole country. Moreover, certain types of inheritances seem just and reasonable, even for an egalitarian society, while others bring about indignation in those not so fortunately placed. For example, many of us might agree that inheriting a million dollars of free and easy cash is an unfair advantage obtained absolutely without effort on the part of the inheritor, but far fewer would agree that parents should not have the right to will their houses to their children tax free, yet the value of such a house might easily approach or surpass $1M in areas like San Francisco or New York.

Martin Hyde

11-28-2005, 04:23 PM

Well, me personally. I'd do everything in my power to start liquidating my assets and setting up my estate in another country to avoid said estate taxes, and I'd do so in whatever ways me and my accountants and tax experts worked out that would allow me to do it without losing much in the process.

Anyways, estate taxes are inherently unfair.

When someone receives an estate only money should be taxed, and that as income, the rest should be an untaxed gift legally speaking.

An estate was taxed while it was being built there's no just reason to tax it when it's being transferred to new ownership.

Shodan

11-28-2005, 04:48 PM

You might get an idea of what might happen if you leave aside the notion of a progressive estate tax, and look at what might happen if the state simply confiscated everyone's estate at death.

As Martin Hyde mentions, more effort would be put into trying to find tax shelters and less into growing the estate. Those tax attorneys are paid the big bucks for a reason. And if there somehow weren't any ways to escape the tax, then you will have to deal with the notion of forcing my wife (for instance) to sell our house to pay the estate tax, or throwing her onto the street if she survives me.

And if you want to say, "No, houses are exempt", then I simply put more of the value of my estate into my house. Or if you say, "No, life insurance is OK", then I buy a big policy.

You are up against the basic human feeling that my family is much more important to me than a group of strangers. So, when something threatens their well-being, I am more likely to do whatever I can to ensure that they benefit from my estate more - far more - than "the poor", or whoever you allege is going to get my money after I die.

I didn't build the estate for the benefit of strangers. I want my wife and children to get the best that I can provide. And I decline to recognize the authority of anyone who wants to overrule that. And those who tell me I should work hard and sacrifice so my kids get second best and most of it goes to strangers, I tend to laugh at. It doesn't work that way.

The whole notion that my right to my property expires in principle once it reaches a certain level doesn't appeal to me. And that I can decide better how to provide for my family is part of what I mean when I assert that I am "of sound and disposing mind" and pick an executor.

The idea of an estate tax seems to me to be something the government does because I am dead, and they think therefore they can get away with it, and therefore violates the idea of limited government.

Besides, I already paid tax when I earned it.

Regards,
Shodan

19ForMe

11-28-2005, 05:22 PM

I'm not sure the US and UK are that different.

The US estate tax kicks in at $1,500,000 at rates in the 45-47% range. The UK inheritence tax kicks in at 40% on amounts over 275,000 pounds. The US has a higher rate but higher exemption amount. It looks like the UK system hits the upper middle class harder but the US hits the very rich harder. Neither system tax amounts left to spouses.

As to what would happen with higher estate taxes, I imagine it would depend on how it was raised. If the exempt amount was lowered, you would probably see more upper middle class people giving anual cash gifts to the kids and maybe taking reverse mortgages and life annuities. If the rate was raised substantially, the rich would probably do more planning to place future appreciation into the hands of younger relatives. Of course there are people that do no planning for their own deaths so the tax increase would probably raise revenue.

Evil Captor

11-28-2005, 09:19 PM

clairobscur

11-28-2005, 10:11 PM

When someone receives an estate only money should be taxed, and that as income, the rest should be an untaxed gift legally speaking.
.

Why only money? What difference does it make? Willing $ 1 million is different from willing $ 1 million house, as mentionned in the previous post? A homeowner's estate wouldn't be taxed, but a renter's estate would? Are shares or bonds money or not? What about gold? Jewelry?

Driver8

11-28-2005, 10:23 PM

I'm not for taxing the rich just "because they can afford it". If the current system (a combination of sales, income, etc taxes) all works out so everyone is paying roughly the same percentage, so be it. Tweak it a bit if it helps keep the economy running. Wealthy people have every right to enjoy their cash without anyone claiming it is theirs.

However, I can't really get that worked up about the estate tax. It's not like the kids did anything to earn the money. In fact, the kids almost certainly grew up in an environment where they did not have to worry about college education funding and had far more oppurtunities than regular kids. If they can't find success after such a great position on an unlevel playing field it seems only fitting that they don't find it at all, rather than just have it given to them when mommy and daddy dies. Rather that money is taxed away and spent on merit based college bursaries, for example. It seems far more reasonable that your success is defined by your own effort than the amount of money you get when your parents go to the big Boca Raton in the sky.

In fact, the more I think about it, the more ridiculous the idea of inheritance seems. It seems to counter any idea of a truly merit based society, where your own success is defined by your own hard work and intelligence. If say, Paris Hilton, got to where she is now from a median income American family, then I say great! No additional taxes just because she is rich. She deserves it all!

DrDeth

11-28-2005, 10:54 PM

An estate was taxed while it was being built there's no just reason to tax it when it's being transferred to new ownership.

Not true, a general fallacy. A large portion of most estates consist of Capital gains that have never been taxed. Your death becomes a "sale' thus they should IMHO be taxed then. Besides- the estate tax is compleetly totally painless. I'd have a 1 mill$ exclusion, then a 100% tax. Income tax would then go WAY down (or the bdiget woudl get balanced, even better), allowing us to spend the money while we're still alive. As- you can't spend it when you're dead, anyway. If you then wanted to leave your heirs more than a megabuck, then there's always Life Insurance. Life insurance has always been tax exempt.

How can Income Tax (paying tax on your money before you even get a chance to spend & enjoy it) be better than Estate tax- when you can't enjoy it anyway? :p

11-28-2005, 10:59 PM

It would be a great thing. The people who can most afford to pay taxes -- the rich -- will carry more of the burden, instead of the present "soak the middle class" approach, which is what the advocates of no estate tax are basically all about.

Really? And here I thought that the top 1% earners in the US paid out something like 26% of the taxes already...and the top 10% paid well over 50%.

Are you laboring under the assumption that the middle class don't pass on 'estates'? Seems to me the current system helps out the middle, upper middle and lower upper classes more than it helps out the super wealthy (you know, those folks who have in excess of $1.5 million to leave to their families).

As for the OP, pretty much what Shodan said. Trying to increase the tax radically will merely have the super wealthy finding loopholes...so you'll be hurting the middle, upper middle and lower upper classes (and probably not bringing in all that much money either for your troubles). Attempting to simply confiscate all the loot will basically have the effect of capital fleeing the US to other parts like rats leaving a sinking ship. Unintended consequences and all that.

-XT

Bryan Ekers

11-28-2005, 11:00 PM

A 100% estate tax is a major element in Ernest Callenbach's novel Ecotopia, along with the abolition of corporations and a generally relaxed attitude toward work.

I figure any such society might be able to subsist on tourism if it had natural attractions, otherwise it'd get run over by the first opportunistic invader that came along, with no real means to defend itself nor the economic base to support a standing military.

As to the idea of dramatically increasing existing estate taxes, I predict what others have already done; a dramatic increase in finding and exploiting investments that will not be subject to such a tax, including putting all your money into a corporation and naming your children as salaried officers with access to corporate assets like cars, building and planes, or some such.

In fact, the more I think about it, the more ridiculous the idea of inheritance seems. It seems to counter any idea of a truly merit based society, where your own success is defined by your own hard work and intelligence.
Is it ridiculous to provide the greatest possible financial advantage and security for your children?

DrDeth

11-28-2005, 11:35 PM

As to the idea of dramatically increasing existing estate taxes, I predict what others have already done; a dramatic increase in finding and exploiting investments that will not be subject to such a tax, including putting all your money into a corporation and naming your children as salaried officers with access to corporate assets like cars, building and planes, or some such.

But they won't. Any why?Because by-and-lagre- the extremely wealthy are also extremely greedy. Thus, letting their kids have it while they are still alive won't happen. It didn't happen when we did have a rather high ET. As a matter of fact, most of those tax dodges you dudes all say will happen didn't occur very often. Why? Because most of them cut into the Rich Dudes ability to spend and gloat over the money while still alive.

Note that the ET, while still around- had exclusions that made only the Super-rich have to pay anything. Your heirs can settle for just being rich, instead of super-filthy-rich.

robertliguori

11-28-2005, 11:47 PM

Bryan Ekers

11-28-2005, 11:47 PM

But they won't. Any why?Because by-and-lagre- the extremely wealthy are also extremely greedy. Thus, letting their kids have it while they are still alive won't happen. It didn't happen when we did have a rather high ET. As a matter of fact, most of those tax dodges you dudes all say will happen didn't occur very often. Why? Because most of them cut into the Rich Dudes ability to spend and gloat over the money while still alive.

Don't forget the biggest perk; spitting in the face of the poolboy and other menials in between slurps from the caviar trough.

Wesley Clark

11-29-2005, 06:22 AM

Income for the wealthiest is growing far faster than for anyone else. There is a linear relationship between income rating and income growth.

http://www.osjspm.org/101_income.htm#6

So taxing the rich is not unfair as they are experiencing far more economic growth than the lower and middle classes, who shouldn't be forced to carry an extra tax burden on salaries that aren't growing as much.

Wesley Clark

11-29-2005, 06:27 AM

Really? And here I thought that the top 1% earners in the US paid out something like 26% of the taxes already...and the top 10% paid well over 50%.

Are you laboring under the assumption that the middle class don't pass on 'estates'? Seems to me the current system helps out the middle, upper middle and lower upper classes more than it helps out the super wealthy (you know, those folks who have in excess of $1.5 million to leave to their families).

As for the OP, pretty much what Shodan said. Trying to increase the tax radically will merely have the super wealthy finding loopholes...so you'll be hurting the middle, upper middle and lower upper classes (and probably not bringing in all that much money either for your troubles). Attempting to simply confiscate all the loot will basically have the effect of capital fleeing the US to other parts like rats leaving a sinking ship. Unintended consequences and all that.

-XT

The middle class do not pay on estates

http://moneycentral.msn.com/content/Retirementandwills/Planyourestate/P52707.asp

Of the 2.4 million people who died in 2001, exactly 51,841 estates (2% of the total) faced a federal estate tax, according to recent IRS figures

Again, considering that much of the economic growth in the US has gone to the wealthy in the last 20 years it is only fitting that their tax rates increase to reflect this. Its silly to constantly increase taxes on people whose incomes are not increasing while lowering them on people who are experiencing record economic growth. It is bad social policy and bad economic policy.

Bryan Ekers

11-29-2005, 06:51 AM

Again, considering that much of the economic growth in the US has gone to the wealthy in the last 20 years it is only fitting that their tax rates increase to reflect this. Its silly to constantly increase taxes on people whose incomes are not increasing while lowering them on people who are experiencing record economic growth. It is bad social policy and bad economic policy.

Fair enough, but it requires a light touch to edge the taxes up slowly, hopefully so the ultrarich won't realize right away that they're being significantly affected. A radical increase (or more specifically, the announcement of a radical increase that will take effect the following tax year) will lead to capital flight and prove counterproductive.

clairobscur

11-29-2005, 07:00 AM

Is it ridiculous to provide the greatest possible financial advantage and security for your children?

It's certainly a reasonnable point of view for a parent, but this doesn't mean it's a good idea from a societal point of view. For instance, if I'm the duke of Z, with associated priviledges and rights that other people don't have, it certainly makes sense that I'll want my chidren to inherit the priviledges of nobility. It also makes sense for parents to hide their criminal child from the police. It doesn't mean these will be accepted by society, or should be.

BobLibDem

11-29-2005, 07:01 AM

The idea of an estate tax seems to me to be something the government does because I am dead, and they think therefore they can get away with it, and therefore violates the idea of limited government.

Besides, I already paid tax when I earned it.

For the sake of argument, Shodan, let's say over the course of your life you've slowly bought shares of Acme. It turned out to be a wise investment indeed and the $10,000 that you invested in Acme over the years turns out to be worth at your death a sum of $5,000,000. Precisely when did you pay tax on the $490,000 capital gain?

The objections to raising the estate tax seem contradictory. On one hand, some are saying "doesn't matter what you do, we'll find loopholes anyway" while others are saying "this estate tax is costing us too much." You can't have it both ways.

The estate tax is an effective way for the government to raise money by taxing those that can afford it most. Take two men, Smith and Jones. Smith earned $1,000,000 at his job. Jones inherited $1,000,000. Why should Smith pay tax and not Jones?

clairobscur

11-29-2005, 07:10 AM

But they won't. Any why?Because by-and-lagre- the extremely wealthy are also extremely greedy. Thus, letting their kids have it while they are still alive won't happen.

Anyway, it's not an obstacle. Under french law, a gift from a living parent to a child (or to anybody else for that matter) will be taxed, for instance. So, "people would then give their money/house/whatever to their heirs before their death" isn't an issue. You just have to suppress this loophole by passing a law.

The issue is only whether or not it is a good thing to let people give a significant amount of wealth to some other person (who will generally be a close relative), and if it's deemed acceptable, whether or no this amount should be limited, should be taxed, and to which extent.

DrDeth

11-29-2005, 07:15 AM

I should point out that gifts under $10,000 per month are legal and untaxable. I'm not sure how difficult it is financially and legally to parsel an entire estate into $9,000 packages and distribute them around an extended family. However, make it more profitable to do so, and you'll see more people doing it.

It was perfectly legal to do so, and do so year after year. Few took advantage of it. Even when the ET was at it's highest. You can also transfer Real Estate in many instances- by adding their name, and ther was also MANY ways of "giving" the estate away while you were still alive to your heirs. Few did so.

SentientMeat

11-29-2005, 07:19 AM

Bryan Ekers

11-29-2005, 07:36 AM

It's certainly a reasonnable point of view for a parent, but this doesn't mean it's a good idea from a societal point of view. For instance, if I'm the duke of Z, with associated priviledges and rights that other people don't have, it certainly makes sense that I'll want my chidren to inherit the priviledges of nobility. It also makes sense for parents to hide their criminal child from the police. It doesn't mean these will be accepted by society, or should be.

Well, with nobility officially abolished in the United States for well over 200 years and aiding and abetting having been a crime at least that long, these examples aren't particularly convincing. It's unclear that wealth alone is antisocial, though it can certainly be used antisocially, as can any possession. You'll have to make a much stronger argument that inherited wealth somehow hurts society before advocating punitive taxes in the name of protecting society.

Bryan Ekers

11-29-2005, 07:51 AM

Take two men, Smith and Jones. Smith earned $1,000,000 at his job. Jones inherited $1,000,000. Why should Smith pay tax and not Jones?

Because whoever earned the million before leaving it to Jones presumably paid income or capital gains taxes on it already.

As a minor note, is the million-dollar inheritance a big pot of cash, or can it be in property? I can imagine a large family farm, whose main asset is a hundred square miles of rich fertile land worth, say, $10 million. If there's a big inheritance tax at each generation, how long before the entire farm belongs to the government? I think there's too much of an impression that the wealthy have big hoards of cash that they swim backstrokes in, a la Scrooge McDuck, and inheritance tax is just a matter of grabbing a few truckloads while everybody's at the wake.

BobLibDem

11-29-2005, 07:59 AM

Because whoever earned the million before leaving it to Jones presumably paid income or capital gains taxes on it already.

That presumption is incorrect. If the estate tax is eliminated, many capital gains will never get taxed once, let alone twice. And any time anyone makes money, they get taxed. It doesn't matter if the person that pays them "already paid taxes on it" or not. If I'm charitable and decide to give you a million dollars, the notion that you should get it tax free because I already paid taxes on it falls apart. The recipient gets the money for the first time, he pays taxes on it when he gets it. It is not double taxation.

chrisk

11-29-2005, 08:02 AM

Because whoever earned the million before leaving it to Jones presumably paid income or capital gains taxes on it already.

As a minor note, is the million-dollar inheritance a big pot of cash, or can it be in property? I can imagine a large family farm, whose main asset is a hundred square miles of rich fertile land worth, say, $10 million. If there's a big inheritance tax at each generation, how long before the entire farm belongs to the government? I think there's too much of an impression that the wealthy have big hoards of cash that they swim backstrokes in, a la Scrooge McDuck, and inheritance tax is just a matter of grabbing a few truckloads while everybody's at the wake.

Well, I doubt that the goverment will keep the land - they'll probably sell it off to someone else, but that's not really the point.

How about, just off the top of my head, we include an exemption, or a much lower estate tax rate, for any property on which the estate tax was paid when the bequeathor inherited it?? or the value of such property. That would slow the shrinkage of your family farm, at least.

It might get very complicated in other situations... a retail mogul dies, and his estate includes several businesses that he inherited from HIS father, but most of them have increased in value since then. (Pay low rate on the value that they were inherited at, adjusting for inflation perhaps, and high rate on the added value.)

Proceed to poke holes in this suggestion.

msmith537

11-29-2005, 08:02 AM

Sounds to my like more sour grapes and rich-people bashing. I am of the opinion that you should keep as much as possible because that the government will mismanage my tax dollars far worse than I ever could.

No one has made a credible argument for increased estate taxes. "Because they're richer than me and can afford to" is not a valid reason.

Income disparity is not due to inherited wealth. It is the result of a wide and complex range of other socio-economic issues. Estate taxes are just a "feel good" to make people think they are stickin' it to the man.

Bryan Ekers

11-29-2005, 08:18 AM

That presumption is incorrect.

Well, it isn't if the money was accumulated through normal income, taxed accordingly.

If the estate tax is eliminated, many capital gains will never get taxed once, let alone twice.

In that case, have the person inheriting a property pay the capital gains tax the dead person would have paid had he sold it at the moment of death. As a result, if the inherited property does not continue to appreciate, it won't be taxed again (or at least not significantly). Tax wealth only on its growth - don't penalize it for stability.

If I'm charitable and decide to give you a million dollars, the notion that you should get it tax free because I already paid taxes on it falls apart. The recipient gets the money for the first time, he pays taxes on it when he gets it. It is not double taxation.

That's already covered for gifts over $10,000. What I'm objecting to is a worst-case scenario where two or more generations of a family rapidly die of following some epidemic illness, setting off a chain of inheritances with the government grabbing a big cut at each step. A surviving grandchild could very rapidly be left with nothing, or an estate that is so burdened with tax claims that it may as well be nothing.

BobLibDem

11-29-2005, 08:22 AM

What I'm objecting to is a worst-case scenario where two or more generations of a family rapidly die of following some epidemic illness, setting off a chain of inheritances with the government grabbing a big cut at each step. A surviving grandchild could very rapidly be left with nothing, or an estate that is so burdened with tax claims that it may as well be nothing.

Doesn't the current exempted amount prevent any possibility of someone being left with nothing? I'm no CPA, but isn't the exempted amount in 2006 $2 million? So how is it possible to get left with nothing?

SentientMeat

11-29-2005, 08:29 AM

A surviving grandchild could very rapidly be left with nothing, or an estate that is so burdened with tax claims that it may as well be nothing.Like any other victim of misfortune, from New Orleans to New Delhi, surely? The grandchild has nothing anyway - it all belongs to his grandparents, and we are debating what portion is socially equitable for them to shower upon him as a gift.

Bryan Ekers

11-29-2005, 08:33 AM

How about, just off the top of my head, we include an exemption, or a much lower estate tax rate, for any property on which the estate tax was paid when the bequeathor inherited it?? or the value of such property. That would slow the shrinkage of your family farm, at least.

I sincerely hope so. It'd be a shame if someone inheriting a family farm has to instantly mortgage it just to pay the inheritance tax. Personally, I'd be fine with eliminating (or hugely reducing) inheritance taxes on land completely, on the basis that the existing property tax is enough of a bite.

It might get very complicated in other situations... a retail mogul dies, and his estate includes several businesses that he inherited from HIS father, but most of them have increased in value since then. (Pay low rate on the value that they were inherited at, adjusting for inflation perhaps, and high rate on the added value.)

Proceed to poke holes in this suggestion.

Though I have a business degree, I'd have to do a lot more reading before engaging in a detailed analysis of inheritance tax reform. I have a number of basic objections to punitive taxes of any kind, or efforts to use taxation to "smooth" society. I'd prefer taxes to never rise above the level of "nuisance", though naturally the wealthy can tolerate much larger nuisances than anyone else.

Bryan Ekers

11-29-2005, 08:46 AM

Doesn't the current exempted amount prevent any possibility of someone being left with nothing? I'm no CPA, but isn't the exempted amount in 2006 $2 million? So how is it possible to get left with nothing?

I'm considering the possibility where the family's wealth is mostly in one large immovable asset, like a plot of farmland or a factory. A major tax bill suddenly requires a big cash payment, which could force the inheritor into debt or a rushed sale of the asset. Unless the IRS is willing to be a lot more understanding and patient than its reputation indicates, I can see an inheritor getting seriously clobbered, especially if the parent who was the key manager of the asset died without any warning (even worse, intestate).

Like any other victim of misfortune, from New Orleans to New Delhi, surely?I don't think taxation is supposed to considered a misfortune, randomly devastating people. And India has its own problems, which I think are outside the scope of a discussion on inheritance taxes of the U.S. and U.K. (and Canada, which I, being Canadian, expect to reference by and by).
we are debating what portion is socially equitable for them to shower upon him as a gift.
I'm definitely not going to debating anything with an eye on what is socially equitable as a factor. Sorry, Karl.

Bryan Ekers

11-29-2005, 08:53 AM

I'm definitely not going to debating anything with an eye on what is socially equitable as a factor.
I must be getting sleepy, or just indecisive. What I meant was:

I'm definitely not going to debate anything that keeps an eye on what is "socially equitable".

Wesley Clark

11-29-2005, 08:54 AM

Ravenman

11-29-2005, 08:58 AM

I am of the opinion that you should keep as much as possible because that the government will mismanage my tax dollars far worse than I ever could.Could you use some specific examples in which you used your personal wealth to build roads, defend our country, conduct medical research, inspect food for microscopic diseases, or imprison lawbreakers? Seems to me that these are all essential government services that require taxes, and I'd be interested to know if you do all of them better than the government does.

I have zero problem with taxing the transferrance of wealth. What is being taxed in an estate tax is not death, but the transfer of wealth to another person. If I just up and gave someone $5 million in cash, that person would have to pay taxes on it, even if I already did when I earned the money. Does my untimely demise and the transfer of the $5 million in my personal vault mean that nobody should pay taxes on that transfer?

(Side note: I believe the transfer of farms and related property are handled somewhat differently than other estate assets. Factcheck.org (http://www.factcheck.org/article328.html) says that of the 440 farm estates that were taxed in 2004, roughly 40% paid an estate tax valued at 1.6% of the estate. Plus, common sense should tell us that if Bryan's point about government slowly taking over all farms through the use of the estate tax, that takeover should have already been complete decades ago.)

SentientMeat

11-29-2005, 09:00 AM

I don't think taxation is supposed to considered a misfortune, randomly devastating people.But in that example it wasn't the taxation which was a misfortune but the sudden family-killing epidemic. If the natural misfortune had somehow wiped out the wealth[/]i of the grandparents rather than their actual [i]lives, the grandchild would deserve no more sympathy than the rest of us who are born without a fortune.
I'm definitely not going to debating anything anything that keeps an eye on what is "socially equitable". Sorry, Karl.No apology necessary, Pinochet.

John Mace

11-29-2005, 09:17 AM

That presumption is incorrect. If the estate tax is eliminated, many capital gains will never get taxed once, let alone twice.
Really? If my parents bought a house for $100K and leave it to me when they die, don't I inherent that $100K basis also, so when I evenetually sell it, I have to pay taxes on the gain. If the current system doesn't work that way there is no reason it couldn't be made to do so. That way, if the house is worth $1M when I inherit it, I won't have to sell the house just to pay the capital gains tax.

Bryan Ekers

11-29-2005, 09:24 AM

Plus, common sense should tell us that if Bryan's point about government slowly taking over all farms through the use of the estate tax, that takeover should have already been complete decades ago.

My concerns about the gradual confiscation of family farms isn't based on the current laws, but the OP's proposed increase to "a very large amount". The OP had UK levels in mind, which are not crippling, but there are quite a few people in this thread with much higher levels in mind. I'm pointing out that in a rush to punish the plutocrats, extremely high inheritance taxes could easily clobber farmers out of existence.

Heh, Pinochet. No need to be formal; call me "Gus".

BobLibDem

11-29-2005, 09:41 AM

11-29-2005, 09:43 AM

The middle class do not pay on estates

Er...yeah. I know. I was addressing the OP. Read the title: What if, instead of trying to remove the estate tax, it were increased? My assumption was that by 'increased' the OP meant to lower the current cap (as it would kind of be unfair to tax at a higher rate if its currently between 45-47% according to 19ForMe and kicks in after $1,500,000). Assuming the cap would be lowered I'd say it definitely WOULD impact the middle, upper middle and lower upper classes more that it would the super wealthy (who presumably are already above the cap).

I guess I don't understand the underlieing problem here. If I inherit a chunk of money (whether or not taxes were paid on it previously) I will still pay taxes from USING the money...unless I simply stuff it into a mattress forever...won't I? If I purchase a new house, a car, a big boat, etc, I have to pay taxes on all that stuff (and luxury taxes can be pretty damn high...least they were when I lived in Virginia). If I inherit a house then eventually I'll pay taxes on the sale of the house...unless I keep it forever of course. SOMEONE will eventually sell it though so in the end the government will get its pound of flesh...won't it?

-XT

clairobscur

11-29-2005, 09:49 AM

Well, with nobility officially abolished in the United States for well over 200 years and aiding and abetting having been a crime at least that long, these examples aren't particularly convincing.

I was merely poiting out the fact that "parent are going to wish the best for their kids" though perfectly understandable, isn't really a relevant argument in this debate.

It's unclear that wealth alone is antisocial, though it can certainly be used antisocially, as can any possession. You'll have to make a much stronger argument that inherited wealth somehow hurts society before advocating punitive taxes in the name of protecting society.

That was basically my point. That the argument should be focused on the positive or detrimental results inheritance could have on society, whether it's equitable or not, possibly on general principles but not on the wishes of parents, since going this way, we could justify pretty much anything.

BobLibDem

11-29-2005, 09:54 AM

I guess I don't understand the underlieing problem here. If I inherit a chunk of money (whether or not taxes were paid on it previously) I will still pay taxes from USING the money...unless I simply stuff it into a mattress forever...won't I? If I purchase a new house, a car, a big boat, etc, I have to pay taxes on all that stuff (and luxury taxes can be pretty damn high...least they were when I lived in Virginia). If I inherit a house then eventually I'll pay taxes on the sale of the house...unless I keep it forever of course. SOMEONE will eventually sell it though so in the end the government will get its pound of flesh...won't it?

If you inherit the money and spend it, you pay sales tax where applicable. If you earn the money and spend it, you pay tax when you earn it and when you spend the rest. You're still giving a huge break to inherited wealth if they get to skip paying taxes when they receive the money. If the principle is that eventually paying one tax makes you immune from other taxes, I don't see the logic.

Bryan Ekers

11-29-2005, 10:01 AM

I was merely poiting out the fact that "parent are going to wish the best for their kids" though perfectly understandable, isn't really a relevant argument in this debate.

Why isn't it? It explains the motivation to exploit various legal strategies that will definitely be explored following a dramatic hike in inheritance taxes. The wealthy won't be seeking to save money out of extreme greed (as has been stated by DrDeth) or by some compulsion to keep society inequitable (as has been implied by SentientMeat) but out of a legitimate concern to preserve what they've accumulated for the benefit of the their children.

I mean, if we're going to characterize people, let's at least be evenhanded about it.

clairobscur

11-29-2005, 10:02 AM

John Mace

11-29-2005, 10:14 AM

I would hope that jealousy is not what informs our tax policy. I've always thought that tax policy should be formed with one objective in mind-- to raise the money needed by the government in the most even handed way possible. I don't think it's good public policy to use the tax code to punish someone whose parents are wealthy. No need to knock them down a few rungs on the socio-economic ladder in the interest of "equality". That is simply not the kind of society I want to live in.

If someone inherits cash, that cash should be taxed the same as any other cash that person receives (as income). Assets should be taxed at the time of sale, not at the time of inheritance since inheritance is not a voluntary transfer and a taxation can often lead to liquidation of that asset. As long as the heirs inherit the original basis (see my house inheritance example above), then the full tax will be paid once the asset is sold.

clairobscur

11-29-2005, 10:22 AM

Really? If my parents bought a house for $100K and leave it to me when they die, don't I inherent that $100K basis also, so when I evenetually sell it, I have to pay taxes on the gain. If the current system doesn't work that way there is no reason it couldn't be made to do so. That way, if the house is worth $1M when I inherit it, I won't have to sell the house just to pay the capital gains tax.

Taking the original value of the property as reference would cause some problems. For instance, two children inherit from their recently deceased father a house that was bought for 20 000 $ in 1920 and 20 000 $ in cash. Do you think that if one was saying "I'd like to keep the house, and you could keep the cash", it's going to fly? Whether or not you're going to tax it, you've to take into account the actual value of the estate not it's value at some random point in the past.

Also, you didn't consider the case when the house actually *lost* value. Your parents bought a house during a bubble and in a neighborhood that degraded a lot. Or maybe they just didn't take any care of the house, and it's about to collapse. It's now worth half the price they originally paid for it. Are you willing to pay a tax on its original value? Are you willing to pay taxes on the basis of the original value of your mother's 12 yo car? Of her Enron's stocks?

clairobscur

11-29-2005, 10:28 AM

I guess I don't understand the underlieing problem here. If I inherit a chunk of money (whether or not taxes were paid on it previously) I will still pay taxes from USING the money...unless I simply stuff it into a mattress forever...won't I?
-XT

Yes, but it's exactly the same if you get the money by being paid for your hard work or because a random benefactor gave it to you. In all these cases, you'll get taxed when you'll receive the money and you'll get taxed again when you'll spend it. There's no difference.

Shodan

11-29-2005, 10:31 AM

If you inherit the money and spend it, you pay sales tax where applicable. If you earn the money and spend it, you pay tax when you earn it and when you spend the rest. You're still giving a huge break to inherited wealth if they get to skip paying taxes when they receive the money. If the principle is that eventually paying one tax makes you immune from other taxes, I don't see the logic.
I don't think anyone is suggesting eliminating capital gains taxes on inherited assets. So there isn't any break involved.

Thus, when the heirs receive the shares and then sell them and realize the profit, they pay capital gains taxes. It would therefore be unfair to proactively tax them on the assets before they realized the gains, and then tax them again when they realize the gains.

Regards,
Shodan

John Mace

11-29-2005, 10:38 AM

Taking the original value of the property as reference would cause some problems. For instance, two children inherit from their recently deceased father a house that was bought for 20 000 $ in 1920 and 20 000 $ in cash. Do you think that if one was saying "I'd like to keep the house, and you could keep the cash", it's going to fly? Whether or not you're going to tax it, you've to take into account the actual value of the estate not it's value at some random point in the past.
Why not? They both know the rules, so they can make an informed decision. And it's not a "random point in the past", so calling it that is intellectually dishonest-- it's the value at the time of purchase. There is absolutely nothing "random" about that.

Also, you didn't consider the case when the house actually *lost* value. Your parents bought a house during a bubble and in a neighborhood that degraded a lot. Or maybe they just didn't take any care of the house, and it's about to collapse. It's now worth half the price they originally paid for it. Are you willing to pay a tax on its original value? Are you willing to pay taxes on the basis of the original value of your mother's 12 yo car? Of her Enron's stocks?
That would be a loss, not a gain. You don't pay tax on a loss.

BobLibDem

11-29-2005, 10:39 AM

I don't think anyone is suggesting eliminating capital gains taxes on inherited assets. So there isn't any break involved.

Thus, when the heirs receive the shares and then sell them and realize the profit, they pay capital gains taxes. It would therefore be unfair to proactively tax them on the assets before they realized the gains, and then tax them again when they realize the gains.

I'm not positive you're wrong. Off to do more research.

clairobscur

11-29-2005, 10:39 AM

Why isn't it? It explains the motivation to exploit various legal strategies that will definitely be explored following a dramatic hike in inheritance taxes.

Yes, but you didn't originally mention this because it could a motivation to exploit legal stategies and would defeat the purpose of higher taxes, but in response to a statement regarding whether or not inheritance made sense in a society (allegedly) based on merit. "Parents are going to want their kids to get their hard earned money" doesn't answer this question. Of course, they will. Whether or not it's just. Just like they'll want them to inherit the priviledges of nobility they won for themselves on a battlefield.

BobLibDem

11-29-2005, 10:46 AM

CPAs, please advise if this is correct:

From MSN (http://moneycentral.msn.com/content/Retirementandwills/Planyourestate/P52707.asp)

Currently, the estate-tax system comes with a great bonus known as the “step up” in tax basis. Essentially, the property and most investments in an estate get a new value for tax purposes when someone dies. It’s this value that the heirs use to determine their taxable profit when the property or investments are sold.

Here’s how it works. Say your parents paid $20,000 for stocks that were worth $200,000 on the day they died and bequeathed them to you. Without the step up, you'd have to pay capital-gains taxes on that $180,000 increase in value if you sold the investments. Thanks to the step-up, however, the stocks get a new basis of $200,000. If you sold them for $200,000, you wouldn’t owe any capital gains tax.

Estates get this special tax bonus whether or not they pay any estate tax. For the vast majority of people that means the increase in value of their estates never gets taxed, either when they die or when the property they bequeath to others is ultimately sold.

From this, it appears that current estate law does indeed exempt asset appreciation from being taxed at all.

clairobscur

11-29-2005, 10:50 AM

I don't think it's good public policy to use the tax code to punish someone whose parents are wealthy.

You're not "punishing" him. The money isn't his own, and he didn't earn it. He's not "punished" anymore than someone who doesn't inherit because his parents were poor or disowned him. He's not punished anymore than I am when I don't win the lottery.

The only ones for whom you could make this argument are the parents, who aren't grantedd the right to dispose of their money in the way they see fit.

Assets should be taxed at the time of sale, not at the time of inheritance since inheritance is not a voluntary transfer and a taxation

Of course it's a voluntarily transfer. I'm not obligated to choose you as my heir, and you're not oblgated to accept my heirlom.

John Mace

11-29-2005, 11:04 AM

CPAs, please advise if this is correct:

From MSN (http://moneycentral.msn.com/content/Retirementandwills/Planyourestate/P52707.asp)

From this, it appears that current estate law does indeed exempt asset appreciation from being taxed at all.
Thanks for the research. I think this is a bad feature. Not only is there no reason for the preferential treatment, it'll most likely lead to some other adjustment to make the whole thing more "fair" and thus more complicated.

John Mace

11-29-2005, 11:06 AM

Of course it's a voluntarily transfer. I'm not obligated to choose you as my heir, and you're not oblgated to accept my heirlom.
But the fact of the transfer is not voluntary, unless you know of some way to "take it with you." :) There is no way to not transfer it, so it cannot be called voluntary.

If I tell you that you must sell your house tomorrow, doesn't matter whom you sell it to, would you call that a voluntary transfer?

John Mace

11-29-2005, 11:08 AM

You're not "punishing" him. The money isn't his own, and he didn't earn it. He's not "punished" anymore than someone who doesn't inherit because his parents were poor or disowned him. He's not punished anymore than I am when I don't win the lottery.
Some people are making that argument. Re-read post #8.

Evil Captor

11-29-2005, 11:08 AM

Well, with nobility officially abolished in the United States for well over 200 years and aiding and abetting having been a crime at least that long, these examples aren't particularly convincing. It's unclear that wealth alone is antisocial, though it can certainly be used antisocially, as can any possession. You'll have to make a much stronger argument that inherited wealth somehow hurts society before advocating punitive taxes in the name of protecting society.

What part of "unlevel playing field" don't you understand?

Evil Captor

11-29-2005, 11:17 AM

Sounds to my like more sour grapes and rich-people bashing. I am of the opinion that you should keep as much as possible because that the government will mismanage my tax dollars far worse than I ever could.

No, it's class warfare, and the middle class is fighting back after the upper class ripped them off, and continues to attempt to rip them off. Frex, the Republicans in Congress backed off from their budget cuts to Medicare and school lunches because they'd just voted to extend the tax hiatus on the estate tax, and they didn't want Dems to be beating them about the head and shoulders for giving to the rich and taking from the poor so blatantly. But rest assured, the Repubs will be going after those programs full throttle in 2007.

No one has made a credible argument for increased estate taxes. "Because they're richer than me and can afford to" is not a valid reason.

Just as a thought experiment, is there any reason you would ever find valid for increasing estate taxes?

Income disparity is not due to inherited wealth. It is the result of a wide and complex range of other socio-economic issues. Estate taxes are just a "feel good" to make people think they are stickin' it to the man.

Perhaps because ... they're sticking it to the man?

Evil Captor

11-29-2005, 11:21 AM

I'm definitely not going to debating anything with an eye on what is socially equitable as a factor. Sorry, Karl.

So, you're not going to debate anyone who disagrees with you? I guess that IS an easy way to win all your arguments, and it keeps 'em real short, too.

jshore

11-29-2005, 11:25 AM

Some people are making that argument. Re-read post #8.

That doesn't talk about punishment. It talks about not giving people random rewards just because they were born into wealth. Look, the point is that one can look at the estate tax from two angles. From the angle of the person who earned the money, it seems reasonable that he should be able to pass on some of this to his loved ones when he dies. However, from the angle of the person who inherits the money, it seems to pretty much make a mockery of the idea of equal opportunity. In fact, things are already unequal enough between the lives of people growing up in rich or poor families without adding inheritance into the mix.

It seems to me that the estate tax is some sort of compromise between the two points of view...i.e., the point of view of the dead-and-rotting and that of the living. And, if anything, it currently errs far more toward the side of the dead-and-rotting. I.e., we have decided that we don't really believe in "equal opportunity" in any legitimate sense of the words but that we will at least take a portion of the money for the government so it can be used (among other things) to at least help provide some very bare minimum to those who are on the short end of the born-into-money lottery. We've gone from "equal opportunity" to "everyone is at least entitled to some bare minimal amount of opportunity". For some reason, the rich are supposed to be up-in-arms about this.

clairobscur

11-29-2005, 11:29 AM

Why not? They both know the rules, so they can make an informed decision.

Of course they could. But they'll likely not agree on such a sharing because what matters is the actual current value. That's just common sense. If there's a disagreement about an estate and the case go to court, the court isn't going to use the value of the elements of the estate in 1920 as a reference. "I agreed, but they had lied to me in this document mentionning the value of the house" "No, they didn't lie, 20 000 $ was indeed the real value 80 years ago". Dubious.

And it's not a "random point in the past", so calling it that is intellectually dishonest-- it's the value at the time of purchase.

What I meant by "random point in the past" is that the reference point in the past isn't fixed and will vary for each element of the estate. It will be the value of this piece of land in 1923, of the house last year, of the diamond ring 25 years ago, and so on... And besides no making much sense, it would extremely inconvenient. Each asset would have to be presented with an evidence of its price when bought, or to be apraised by some retired expert who was familiar with the relevant market 34 years ago.

That would be a loss, not a gain. You don't pay tax on a loss.

There's no loss involved. You had nothing, then you inherit and get something.

And what you get isn't a 20 000 $ house in the middle of nowhere but a 1 million $ dollar one in a now urbanized area. It's not a brand new car but a 12 year old one, and so on....

What you're proposing is to inherit something and then pay tax on the lowest of two values : the current value and value at the time it was bought. On the basis that somehow you'd "lose" something both if the value of the estate has increasd and if it has decreased.

John Mace

11-29-2005, 11:39 AM

That doesn't talk about punishment. It talks about not giving people random rewards just because they were born into wealth. Look, the point is that one can look at the estate tax from two angles. From the angle of the person who earned the money, it seems reasonable that he should be able to pass on some of this to his loved ones when he dies. However, from the angle of the person who inherits the money, it seems to pretty much make a mockery of the idea of equal opportunity. In fact, things are already unequal enough between the lives of people growing up in rich or poor families without adding inheritance into the mix.
The motivation is punishment arising out of jealousy.

I don't understand this "equal opportunity" argument. If it's valid, then we should limit the ability of parents to help their children while the parents are still alive.

Mama Zappa

11-29-2005, 11:40 AM

Because whoever earned the million before leaving it to Jones presumably paid income or capital gains taxes on it already..
Income, perhaps. Capital gains, nope. The way US inheritance law works right now is that inherited property (house, stock, whatever) is valued at its present value for estate tax purposes, but there's no automatic capital gain payment.

If I buy 10,000 worth of stock, and it's worth 1 million when I die (that is, I think, under the current cutoff threshold), there are no capital gains paid on that million, ever. If I sold it a week before I died, I'd have to pay income tax on the 990,000 increase in value. If I leave it to my heir, and he sells it a week later for 1 million, his "basis" is whatever it was worth the day I died. In this scenario, the gummint makes not a dime on that increase in value.

I'd love to see that changed - the estate should pay capital gains on things that the person would have been tax for had they been sold during his lifetime. It's quite a nice little loophole, and one that anyone with any investments (including houses) benefits from.

clairobscur

11-29-2005, 11:40 AM

But the fact of the transfer is not voluntary, unless you know of some way to "take it with you." :) There is no way to not transfer it, so it cannot be called voluntary.

If I tell you that you must sell your house tomorrow, doesn't matter whom you sell it to, would you call that a voluntary transfer?

The loss of possession isn't voluntary. But the transfer is. And actually, I have a way to "take in with me". I can be buried in a gold casket buried in a marble vault, for instance.

It's purely on a voluntary basis that I will decide to make you my heir (providing that the local law doesn't prevent me from freely disposing of my esate by will, which would be the case in France). Hence it's a voluntary transfer.

clairobscur

11-29-2005, 11:43 AM

Some people are making that argument. Re-read post #8.

I reread it. The poster is making the same point. You're not "punished" by being "deprived" of something that never was yours.

John Mace

11-29-2005, 11:44 AM

Of course they could. But they'll likely not agree on such a sharing because what matters is the actual current value. That's just common sense. If there's a disagreement about an estate and the case go to court, the court isn't going to use the value of the elements of the estate in 1920 as a reference. "I agreed, but they had lied to me in this document mentionning the value of the house" "No, they didn't lie, 20 000 $ was indeed the real value 80 years ago". Dubious.
I don't understand this argument. Valuing assets, while not simple, is not rocket science, and accountants do this every day of the week.

What I meant by "random point in the past" is that the reference point in the past isn't fixed and will vary for each element of the estate. It will be the value of this piece of land in 1923, of the house last year, of the diamond ring 25 years ago, and so on... And besides no making much sense, it would extremely inconvenient. Each asset would have to be presented with an evidence of its price when bought, or to be apraised by some retired expert who was familiar with the relevant market 34 years ago.
No more inconvenient than if the original owner were to sell the assets. There is no added complexity.

There's no loss involved. You had nothing, then you inherit and get something.

And what you get isn't a 20 000 $ house in the middle of nowhere but a 1 million $ dollar one in a now urbanized area. It's not a brand new car but a 12 year old one, and so on....

What you're proposing is to inherit something and then pay tax on the lowest of two values : the current value and value at the time it was bought. On the basis that somehow you'd "lose" something both if the value of the estate has increasd and if it has decreased.
Again, I don't understand what you are saying. I'm advocating that the tax rules stay exactly the same before and after the inheritance. There is nothing complex or tricky about this.

clairobscur

11-29-2005, 12:07 PM

The motivation is punishment arising out of jealousy.

Then, show us that it's indeed a "punishment" of the heir, and that it's "arising out of jealousy.

Let's assume a veteran is awarded a pension. The pension is passed onto his heirs and onto the heirs of his heirs, and so on. Basically, it's the same as a priviledge based on nobility.

Now, someone is arguing that such pensions shouldn't be hereditary. The veteran earned his pension, but the heirs certainly didn't.

In this case too you could argue that this is "punishing" the heir and assume it's motivated by jealousy. Such a statement doesn't tell us if abolishing hereditary pensions is the way to go or not.

I don't understand this "equal opportunity" argument. If it's valid, then we should limit the ability of parents to help their children while the parents are still alive.

And if I understand correctly the previous posts, it's already the case, since hand-outs from parents above a given amount are taxed.

Besides, there's a very important difference. As long as you're alive, you can argue that your freedom to freely dispose of your wealth is infringed by preventing you from giving it to whomever you want. But once dead, you don't have any "freedom" that ought to be respected.

We traditionnally acept the concept that your will is to be respected, but we could as well decide that your will becomes completely irrelevant once you're dead because, not being a living human any more but a mere piece of meat, you don't have any "right". So, it's up to the living to decide what to do with this huge stack of bills you hide under your mattress, which has no owner and isn't different from cash abandonned on the pavement.

jshore

11-29-2005, 12:10 PM

Really? And here I thought that the top 1% earners in the US paid out something like 26% of the taxes already...and the top 10% paid well over 50%.

The problem with such a statistic is that it convolves two things: the share of income earned by these people and the rate of taxation on that income. As it turns out, the huge lion's share of the disproportionality in the amount of taxes these groups pay is due to the vast inequality in income, with progressivity in the tax rates contributing a much lesser amount. (And, this progressivity is further reduced once one considers state and local taxes, which tend to be regressive.)

What this does illustrate though is that because the income distribution has become so skewed, the most effective way for the government to increase its revenue is to tax the upper incomes more than they do now...If you try increasing taxes further down the ladder, you have to do it some combination of very broadly and very steeply in order to gain a significant amount of revenue. Our society has reached a point of inequality where a statement analogous to "I rob banks because that is where the money is" applies to whose taxes must be increased to actually give the government a decent additional amount of revenue.

Bryan Ekers

11-29-2005, 12:32 PM

Yes, but you didn't originally mention this because it could a motivation to exploit legal stategies and would defeat the purpose of higher taxes, but in response to a statement regarding whether or not inheritance made sense in a society (allegedly) based on merit.
But western societies are not solely based on merit, nor do I recall at any time saying that they were or should. "Merit" is too subjective a term.
Of course, they will. Whether or not it's just. Just like they'll want them to inherit the priviledges of nobility they won for themselves on a battlefield.
But in societies where feudal systems of nobility have been abolished or marginalized (and for hundreds of years, no less), the notion is irrelevant. Aside from your genetic legacy and whatever positive or negative environmental influence you've had, what you leave your child is wealth, and not much else.

What part of "unlevel playing field" don't you understand?

Umm, it's relevance to this discussion? Ideally, citizens will receive equitable treatment before the law and have inviolable civil rights, including the vote. While it might be feasible to edge up taxation on the wealthy during this recent period of economic expansion, I don't see the value in pursuing economic equality for its own sake, considering how destructive such a quest has proven to be time and again.

So, you're not going to debate anyone who disagrees with you?

No, I'm not going to debate in this thread the merits of creeping socialism. If you want to debate how much taxation the wealthy can comfortably bear in order to get better government programs and reduce the tax burden on other citizens, fine. If you want to tax the wealthy radically in order to make them not wealthy because you view the existence of wealth as inherently unfair, talk to someone else.

clairobscur

11-29-2005, 12:33 PM

I don't understand this argument. Valuing assets, while not simple, is not rocket science, and accountants do this every day of the week.

And how do they value them? The answer is: at their current value. The argument is that only the current value is relevant for all involved.

No more inconvenient than if the original owner were to sell the assets. There is no added complexity.

Nope. If the riginal owner were to sell the assets, he would sell them at their *current* value. You're not going to convince someone to buy a house worth 100 000 $ for 1 million $ because it's the price you bought it.

The complexity added is that you have to evaluate each element at the price they were worth at various times in the past instead of just looking at the current market price or just selling them.

Again, I don't understand what you are saying. I'm advocating that the tax rules stay exactly the same before and after the inheritance. There is nothing complex or tricky about this.

You don't get taxed for a loss, because you dont make any money on a loss. But by inheriting something you're making money. There's no "loss" involved at all.

If you want simple, here's simple : you receive an income, that can be money or stocks, or houses, or bags of beans. You're taxed on this income, in the same way you'd be taxed on the income received in payment for your work. And simply on the basis of the actual and current value of whatever you received.

Let's assume you've been working for me and I can't pay you. I offer to instead give you my old car as payment and you agree. Now, the IRS wants to know how much you made this year. What value do you think they will assign to the car I gave you? The price I bought it for 20 years ago? I don't think so. It will be valued at its current market price that can be higher or lower depending on it being an historical car or not.

Shodan

11-29-2005, 12:36 PM

CPAs, please advise if this is correct:

From MSN (http://moneycentral.msn.com/content/Retirementandwills/Planyourestate/P52707.asp)

From this, it appears that current estate law does indeed exempt asset appreciation from being taxed at all.
It seems you were right, and I was wrong. I appreciate the correction.

Regards,
Shodan

BobLibDem

11-29-2005, 12:39 PM

It seems you were right, and I was wrong. I appreciate the correction.

Regards,
Shodan

Shodan, although I virtually always disagree with you, I appreciate the gentlemanly way in which you conduct yourself. You're a classy guy. And you might still be right, who knows if the MSN site is correct?

clairobscur

11-29-2005, 12:41 PM

But western societies are not solely based on merit, nor do I recall at any time saying that they were or should. "Merit" is too subjective a term.

But in societies where feudal systems of nobility have been abolished or marginalized (and for hundreds of years, no less), the notion is irrelevant. Aside from your genetic legacy and whatever positive or negative environmental influence you've had, what you leave your child is wealth, and not much else.

I reiterate, caricaturing :

-Some poster stated "It's not fair"

-You answered : "Parents want it to be this way"

-I posted : "That's not relevant. It doesn't adress the fairness issue".

Shodan

11-29-2005, 12:54 PM

Shodan, although I virtually always disagree with you, I appreciate the gentlemanly way in which you conduct yourself. You're a classy guy. And you might still be right, who knows if the MSN site is correct?
Back atcha. :cool:

I actually just got back from Hawaii on a trip financed by a bequest from my deceased great-aunt, who had a taste for wealthy men. And we are engaged in near hand-to-hand combat with the IRS over how much tax must be paid on a big whack of stock that she inherited from her last husband, but which cannot be sold (?). So the whole topic is near and dear to my heart.

Anyway, I have no doubt that your cite is the Straight Dope. Now, if you can advise me on how to convince the feds that the stuff we rolled over in 2003 was really on the Schedule C, and we don't really owe them as much as they claim....

Regards,
Shodan

John Mace

11-29-2005, 12:56 PM

clairobscure: I can't make sense out of what you are posting, so I'm going to just re-iterate what I originally said and leave it at that. I am simply proposing that the heirs inherit the original cost basis of an asset and that they pay taxes only at the time of sale of that asset. The tax is computed on the difference between the sale price and the purchase price (the original cost basis). I don't understand why you want to make it more complicated. If the assets were never passed on to heirs, but were sold by the original owners, the exact same tax compuatation would be made.

I don't think an inheritance should be treated as a sales transaction, and while I have no problem with using taxes to give disadvantaged people a "leg up", I strongly object to using the tax code to inhibit wealth acquisition. That's where the "jealousy" comes in. Income equalization is a destructive goal, as has been shown over and over again throughout history. I short, I have no problem trying to raise people up, but I do have a problem with trying to cut people down. We can do the former w/o doing the latter.

Blalron

11-29-2005, 01:06 PM

19ForMe

11-29-2005, 01:20 PM

Shodan, although I virtually always disagree with you, I appreciate the gentlemanly way in which you conduct yourself. You're a classy guy. And you might still be right, who knows if the MSN site is correct?

The MSN quote is correct. There is a "step up." It does work the other way as well. You could have a "step down."

Basically, the Estate Tax hits "fair market value" at the date of death (or six months later by election). Try to imagine the troubles if you were to reconstruct the cost basis of all the assets the deceased acquired over their lives. Did the mint Babe Ruth card come in a 5 cent pack of gum or from a $50,000 auction bid. No one is alive to answer. This rule is supposed to ease the compliance burden on the relatives.

There have been pushes in congress to treat a death as a taxable disposition instead of the current estate tax. In that case, everything the deceased owns would be taxed as gain between the fair market value and the historical cost basis. This has appeal but in many situations the records could be a problem.

Apos

11-29-2005, 01:28 PM

I don't really have much of an opinion on this other than to agree with the idea that raising taxes increases incentives to spend economically valueless time and energy trying to avoid them... but this is not necessarily a very strong reason to avoid raising those taxes.

Bu I do wish there were some way to help all the poor little rich kids in their travails. I grew up with a lot of these kids, and let me tell you: their suffering at having to grow up rich is truly heartbreaking:
http://www.hbo.com/docs/programs/born_rich/index.html

19ForMe

11-29-2005, 01:34 PM

I actually just got back from Hawaii on a trip financed by a bequest from my deceased great-aunt, who had a taste for wealthy men. And we are engaged in near hand-to-hand combat with the IRS over how much tax must be paid on a big whack of stock that she inherited from her last husband, but which cannot be sold (?). So the whole topic is near and dear to my heart.

This is one of those great points of conflict. I assume the stock is either restricted or part of a private company. Establishing fair market value is always a trick.

As a hypothetical, what happens when Sam Walton or Bill Gates die? The stock they own is theoretically valued based on the closing price of the stock on the public market. Given the size of the blocks of stock they own, it really isn't all that meaningful. No one has the $50,000,000,000 needed to purchase. Maybe a discount should be given to entice a buyer. Maybe it should be valued at $40,000,000,000. On the other hand, maybe the ability to gain control of the company in one shot is worth something. Maybe someone would gladly pay $60,000,000,000 for control of a monster public company. Hard to say. Taxpayer will say discount for large sale. IRS will insist on premium for control.

That is the easy case where the public markets already provide some starting point for negotiation.

What is a private company worth that owns 40% of the parking garages in Phoenix?

What if the Google founders died in 2002? The business loses money but looks promising.

Fights over these things are not uncommon.

Bryan Ekers

11-29-2005, 01:48 PM

I reiterate, caricaturing

Well, heck, if we're gonna get all caricatury:

Me: protect the inheritance

You: but dukes and duchesses...!

Me: what are you talking about?

You: duke and duchesses....!

Me: again, what are you talking about?

Heh, just kidding. One of the major requirements for not living in fear, I find, is protection against the casual seizure of your property, be it by roving brigands, the King's taxmen, or the secret police. The idea that property is yours to be disposed of at your pleasure (or, after your death, in accordance with your last wishes) and cannot be casually stolen, seized or nationalized is critical to a free society's long-term stability. History is full of people who fell out of favour with the state, which had no problem killing or exiling the victim and seizing his property, for the personal enrichment of the local despot, or to prop up a failing dictatorship or whatever. I don't see how seeking to protect (as much as legally possible) one's property for eventual transfer to one's children can be seen as unfair.

Apos

11-29-2005, 01:51 PM

Ok. Let them keep the family farm. But if and when they choose to sell it, the estate tax kicks in.

But this gives people a strong incentive never to sell their property: even when it would otherwise net a social economic benefit and they would rather sell it.

It's always important to remember that taxes do not increase or decrease anything worthwhile to society: they just transfer money, not increase it. But the activity people take to avoid paying taxes DOES hurt society by giving people a perverse incentive to avoid doing things that would otherwise be to society's mutual benefit.

There's generally no way to get around this by making creative exemptions or rules. The only efficient tax is a tax that affects all people equally and unavoidably (say, everyone gets taxed 2$), and even that is probably just too idealistic: people still find all sorts of ways no matter what you try.

DrDeth

11-29-2005, 02:16 PM

What I'm objecting to is a worst-case scenario where two or more generations of a family rapidly die of following some epidemic illness, setting off a chain of inheritances with the government grabbing a big cut at each step. A surviving grandchild could very rapidly be left with nothing, or an estate that is so burdened with tax claims that it may as well be nothing.

No. There are very large exclusions. Personal residence (to a certain amount) Family business/farms (again to a certain amount) and anything under (I think the last figure was) $1 million $. Not to mention all Life Insurance. So the surviving grandkid "only" has a nice big free paid for house and a million bucks- all tax free. I'll live on that, thankyouverymuch.

Martin Hyde

11-29-2005, 02:28 PM

Inheritance is, IMO, a socially inequitable mechanism of acquiring great wealth. It is truly an accident of birth that you happen to be occupy such an upper percentile. Indeed, it is arguably a factor in social immobility (http://www.economist.com/world/na/displayStory.cfm?story_id=3518560), which should surely not characterise a land of genuinely equal opportunity. Is it understandable that one might wish to make one's progeny underservedly rich at a stroke? Of course. But governments are invested to view such evolutionary urges dispassionately, for the good of all.

I consider that the UK's 40% tax is a fair balance: one can still make one's children enormously wealthy, but they can't do the same to theirs without some of the hard work that the ability to amass such fortunes is meant to reward in the first place: no unmeritocratic (and undemocratic IMO) dynasties are allowed to form. For example, your kids might control a 60% stake in your mansion, but your grandkids will be left with only 20% of it unless your kids worked to buy back the other 40% off the state (ie. everyone else).

As for the loopholes, well, I'm all for a honey-trap approach. What is left of the British aristocracy plays a good trick of leaving their estate to the heirs at least 7 years before they expect to die, since if they do die within those 7 years, it is taxed at full whack retrospectively. Increasing that time to 15 or 20 years, out of the blue, puts the giver in a position of grave risk, with everyone else reaping the winnings from those lost bets. For sheltered assets, I'm all for a similar tactics: "you have two weeks to declare such and such assets before they are returned to what will then be their rightful owners (ie. everyone else)".

I think this violates a fundamental human right. The right to property. And it also violates the fundamental nature of the family. Successful families should be able to build wealthy dynasties. Social engineering is only the goal of oppressive governments, it is a tool of tyrants used to control the people like sheep.

From time immemorial families have worked by sticking together. By helping one another. The estate tax hits directly at that, it's just as perverse as government coming in to my home and telling me what I can teach my son, what he's allowed to watch on our TV. Or coming in to my bedroom and telling me in what manner me and my wife (or my boyfriend or girlfriend or whatever) can express our love. Anytime government involves itself in these fundamental aspects of human life, it is destroying some of what it is to be a human, to be an individual, and to be the member of a family.

This takes us step-by-step closer to a hive-like society where there are no individuals. When achieving great things brings you no form of gain, as it would in a truly "egalitarian" society, then great things stop being achieved. We become little more than a colony of ants.

And personally I'd rather see the human race wiped off the face of the earth than see our societies go down that road.

Ravenman

11-29-2005, 03:21 PM

I think this violates a fundamental human right. The right to property. And it also violates the fundamental nature of the family. Successful families should be able to build wealthy dynasties. Social engineering is only the goal of oppressive governments, it is a tool of tyrants used to control the people like sheep.God DAMN that Magna Carta! How dare those peasants seek to overturn the natural order of things!

Apos

11-29-2005, 03:22 PM

Successful families should be able to build wealthy dynasties. Social engineering is only the goal of oppressive governments, it is a tool of tyrants used to control the people like sheep.

Well, that, or the building of wealthy dynasties. They both work!

From time immemorial families have worked by sticking together. By helping one another. The estate tax hits directly at that, it's just as perverse as government coming in to my home and telling me what I can teach my son, what he's allowed to watch on our TV. Or coming in to my bedroom and telling me in what manner me and my wife (or my boyfriend or girlfriend or whatever) can express our love. Anytime government involves itself in these fundamental aspects of human life, it is destroying some of what it is to be a human, to be an individual, and to be the member of a family.

Damn government, telling us that we can't express our love through a trust fund and a Rolls Royce!

Please, spare me. While I'm symapthetic to the idea that government taking your money is a violation of some idea of liberty, the pathos of that being akin to it violating far more personal liberties is just too over the top.

Governments require money to run. The people that earn most of the income and have most of the wealth are, unavoidably, going not only to pay a bigger share of these costs (arguably while reaping more of the benefits too) but be harmed by it less on an absolute scale. That doesn't mean that taxes are good or that a system can't be too progressive, but if we are going to have a government then its going to be part of the economy and its going to affect what you can earn and save and so on.

And sorry, the absurd wailing about a hive mind ain't going to cut it as an objection.

This takes us step-by-step closer to a hive-like society where there are no individuals.

Right: because the only thing that defines us as being individuals are differences in our net worth.

When achieving great things brings you no form of gain, as it would in a truly "egalitarian" society, then great things stop being achieved.

Again, this is slippery slope taken to such an absurd degree that it's almost comical.

SentientMeat

11-29-2005, 03:30 PM

I think this violates a fundamental human right. The right to property.But you still have property: the tax isn't 100%. You pay a portion to everyone else for the privilege of being able to call the remainder "yours", and the enforcement infrastructure which goes with it.
And it also violates the fundamental nature of the family. Successful families should be able to build wealthy dynasties.Pardon me, but fuck 'em.
From time immemorial families have worked by sticking together. By helping one another.And you can: the tax isn't 100%.
And personally I'd rather see the human race wiped off the face of the earth than see our societies go down that road.Honestly? You honestly set forth such absurd hyperbole?

jshore

11-29-2005, 03:38 PM

I don't understand this "equal opportunity" argument. If it's valid, then we should limit the ability of parents to help their children while the parents are still alive.

Well, I agree. That is why the debate is between those who don't really want to implement equality of opportunity to the letter but want to preserve some of it in spirit and those who simply want to completely throw it out the window.

The fact is that there is nothing even close to equality of opportunity in our country...and conservatives generally seem to want to take us ever further away from it. (I use "want" here in the sense of supporting policies that do this. One could argue that they don't want this but that they don't care enough about this relative to other principles to push us ever further away from equality of opportunity.)

I short, I have no problem trying to raise people up, but I do have a problem with trying to cut people down. We can do the former w/o doing the latter.

Well, this might be true if our current society had less extreme income inequality. However, as I noted in a previous post, income inequality in our society is so extreme that we are in the situation where the analogy to "robbing banks because that is where the money is" applies to raising revenues for taxation. I.e., the only realistic way to raise revenues with minimal pain in a society where the top 1% pull down roughly 20% of the income and have roughly 40% of the wealth is to increase taxes on this segment of the population. (And, as noted by another poster, this is also the segment of the population who have seen the lion's share of the gains in real income from our society's growing wealth over the last 25 years...while everyone else has been pretty much treading water.)

I hardly think that is "trying to cut people down" particularly when you are talking about a tax that is imposed not on the person who earned the money but really on the people who are going to obtain the money through no virtue or hard work of their own. If you don't support taxes on this sort of unearned income, what sort of taxes will you support?

John Mace

11-29-2005, 03:44 PM

Well, this might be true if our current society had less extreme income inequality. However, as I noted in a previous post, income inequality in our society is so extreme that we are in the situation where the analogy to "robbing banks because that is where the money is" applies to raising revenues for taxation. I.e., the only realistic way to raise revenues with minimal pain in a society where the top 1% pull down roughly 20% of the income and have roughly 40% of the wealth is to increase taxes on this segment of the population. (And, as noted by another poster, this is also the segment of the population who have seen the lion's share of the gains in real income from our society's growing wealth over the last 25 years...while everyone else has been pretty much treading water.)

I hardly think that is "trying to cut people down" particularly when you are talking about a tax that is imposed not on the person who earned the money but really on the people who are going to obtain the money through no virtue or hard work of their own. If you don't support taxes on this sort of unearned income, what sort of taxes will you support?
I don't understand. If the tax rate stays the same and someone makes twice this year what they made last year, you get twice the tax on their income. Why do you need to raise the rate to get more tax revenue?

Shodan

11-29-2005, 03:54 PM

Please, spare me. While I'm symapthetic to the idea that government taking your money is a violation of some idea of liberty, the pathos of that being akin to it violating far more personal liberties is just too over the top.
I disagree - property rights are human rights. And questions about inheritance strike very close to ideas on how families relate to each other, and who bears primary responsibility.
Governments require money to run. The people that earn most of the income and have most of the wealth are, unavoidably, going not only to pay a bigger share of these costs (arguably while reaping more of the benefits too) but be harmed by it less on an absolute scale. That doesn't mean that taxes are good or that a system can't be too progressive, but if we are going to have a government then its going to be part of the economy and its going to affect what you can earn and save and so on.
I think you are mistaking taxation-so-that-the-government-can-fufill-its-necessary-functions with taxation-because-that-rich-bastard-has-more-than-me-no-fair.

As long as we are merely discussing taxes as a method of raising revenue for the government, and that government's role is limited in scope, we can probably find common ground in agreeing on how to raise the money with minimum impact. Once you venture into questions of social engineering, you have trespassed (in my opinion) into places the feds ought not to go. Because you often wind up punishing success in order to subsidize failure. Otherwise known as "killing the goose that lays the golden eggs".

It's a subtle distinction, but an important one.

Regards,
Shodan

Apos

11-29-2005, 04:05 PM

I disagree - property rights are human rights. And questions about inheritance strike very close to ideas on how families relate to each other, and who bears primary responsibility.

You shouldn't put "I disagree" before a sentance that fails to take issue with what I said. I don't disagree that property rights are real human rights. I just think when we're talking about only a portion of total property, we're really not talking about anything even close to telling people what they can do in their bedrooms, what they can say and think, and their individuality. That's just patently absurd hyperbole that demeans the debate.

As long as we are merely discussing taxes as a method of raising revenue for the government, and that government's role is limited in scope, we can probably find common ground in agreeing on how to raise the money with minimum impact. Once you venture into questions of social engineering, you have trespassed (in my opinion) into places the feds ought not to go.

But I didn't venture there. It isn't social engineering to point out that rich people have more of the wealth in society (a LOT more of it) and so that taxing total income is going to take more from them... as well as not hurting their basic functioning anywhere as much as those living much closer to the edge of functioning.

Because you often wind up punishing success in order to subsidize failure. Otherwise known as "killing the goose that lays the golden eggs".

Given that marginal and overall tax rates on the rich are way way way lower than they used to be, back when America was growing at a much greater rate than it is today, I just don't see us plausibly being anywhere near that level.

msmith537

11-29-2005, 04:46 PM

No, it's class warfare, and the middle class is fighting back after the upper class ripped them off, and continues to attempt to rip them off. Frex, the Republicans in Congress backed off from their budget cuts to Medicare and school lunches because they'd just voted to extend the tax hiatus on the estate tax, and they didn't want Dems to be beating them about the head and shoulders for giving to the rich and taking from the poor so blatantly. But rest assured, the Repubs will be going after those programs full throttle in 2007.

Just as a thought experiment, is there any reason you would ever find valid for increasing estate taxes?

Perhaps because ... they're sticking it to the man?

I would prefer a simpler and more equitable tax structure. I'm not sure there is much point in furthur debate because I think we just fundamentally see the world differently. You believe in a Robin Hood take from the rich to give to the poor mentality while I basically see the government stealing what someone built a lifetime creating to pass along to their offspring.

I would like to see evidence that the world is a worse place for inherreted wealth.

clairobscur

11-29-2005, 06:23 PM

Shagnasty

11-29-2005, 06:42 PM

Life, liberty and the pursuit of wealthy dynasties? :dubious:

I think that it falls into the liberty and pursuit of happiness clauses. Those mean that our government shouldn't just decide to screw with people because it can. Property falls into that category. I'm sure I could make up all kinds of crazy tax scenarios that would piss you off. They do affect real peopel and those aren't always the super-rich.

jshore

11-29-2005, 09:01 PM

I don't understand. If the tax rate stays the same and someone makes twice this year what they made last year, you get twice the tax on their income. Why do you need to raise the rate to get more tax revenue?

Right...and then the Wall Street Journal editorial page complains that the percentage of tax paid by the top 1% is skyrocketting (without noting that the reason is that there income is skyrocketting) and their friends in Congress and the White House lower the tax rate on these poor oppressed rich folks.

Bryan Ekers

11-30-2005, 01:47 AM

Starting to sounds like two different debates, to me:
Should inheritence taxes be jacked dramatically? (no)
Should recent upper-class tax cuts be repealed? (yes)

Saint Cad

11-30-2005, 02:02 AM

jshore

11-30-2005, 09:49 AM

Starting to sounds like two different debates, to me:
Should inheritence taxes be jacked dramatically? (no)
Should recent upper-class tax cuts be repealed? (yes)

Yeah...I think the debate is more about inheritance taxes in general. While the OP started things off by asking whether they should be jacked up, I think that is really a moot point. It ain't going to happen even if it should. Realistically, the debate of any political relevance is whether they should be retained or whether their impending (temporary) expiration should be permanent. I prefer to discuss things that are within the realm of political possibilities.

John Mace

11-30-2005, 10:09 AM

Right...and then the Wall Street Journal editorial page complains that the percentage of tax paid by the top 1% is skyrocketting (without noting that the reason is that there income is skyrocketting) and their friends in Congress and the White House lower the tax rate on these poor oppressed rich folks.
But that's an entirely different argument, and a strawman at that since I'm not calling for a lowering of the income tax on the rich-- in fact this thread isn't even about the income tax.

Anyway, I'm not arguing against an estate tax, I'm just saying: make it the same as other taxes on similar income. I want the tax code to be as economically neutral as possible. I want people to make business decisions based on what is best for their business, not on what is best for reducing their overall tax burden.