I’m sure someone will correct me if I’m wrong, but I think this tax accounts for something like .00001% of the budget.
And…we are running a surplus, so nothing would have to be cut.
And again…You are completely ignoring the right and wrong of this issue. I don’t care what programs get paid for with this money, it is WRONG to steal a person’s assests once they die.
No, but retirement plans and the like are, which I believe was the focus of the study.
Programs don’t need to be cut if the government is collecting more revenue than is needed for operating expenses (of course, in the out-years the situation could change, but then that’s why we have an annual budget process).
Not really. Perhaps the annuity and insurance aspects are, as well as the funding of defined benefits (which are pretty obsolete) but that’s a far cry from “retirement plans” in general.
You are correct, Scylla, and I know better. I made the mistake of relying solely on my own experience, which, to my great and utter dismay, includes being a participant in and analyst of a defined benefit plan, in which the actuaries play a central role. Actuaries have also been heavily involved in analysis of the social security program over the years, though generally not the federal budget (although as more and more of the budget becomes entitlement-driven, there’s certainly room for them as well).
I agree. An actuary would have a lot to say about entitlement programs and social security, although the latter is such a Ponzi scheme I’d like to think no self-respecting actuary would touch it.
In response to my pointing out that the newspaper in question leans conservative, waterj2 said:
You’ll have to ask them that – though I don’t think the story did give that impression, if you actually read it.
However, in today’s paper they endorsed Bush.
Yup. They’re obviously biased towards Gore. :rolleyes:
Okay, I will…Here are the relevant figures (from link I provide below):
“In 2000, the federal estate tax is expected to raise $27 billion in 2000. That’s more than double the total amount of federal income taxes paid by the bottom half of all taxpayers. According to the Center on Budget and Policy Priorities, repealing the estate tax would be very costly—$105 billion over the first 10 years, as it phases in slowly, and nearly $50 billion a year once it was fully in effect. The cost of repeal in the second 10 years—from 2011 to 2020—would be at least $620 billion, over half a trillion dollars!”
I don’t know what this amount is in terms of fraction of the budget, but I thought yearly budgets were on the order of a few trillion at most, so it looks like it is of order 1%.
I will not go through all the arguments for keeping the estate tax myself. They are made much better than I can make them by some rich people who actually have a conscience (and who stand to gain a lot financially under an estate tax repeal) at
http://www.responsiblewealth.org/press/estate_tax_wealthy_family.html
http://www.responsiblewealth.org/press/estate_tax_pr.html
[I think a rich person with a conscience is one of the most effective antidotes to a raving libertarian! ;)]
Now that is a very interestingly created and phrased statistic.
I’m all for rich people with consciences, but how does a law that takes someone’s money increase moral stature?
Last I checked we never had an Andrew Carnegie Memorial battleship paid for by the Government with his taxes. I doubt we’ll ever have a Bill Gate’s memorial Welfare fund from the same source.
If I recall correctly from the debates, it’s actually Al Gore who personally “will give” us all our wonderful entitlements.
Okay, curiosity got the better of me…I looked up the figures and the projected budget numbers for year 2000 are:
Receipts—1956 billion
Outlays---1790 billion , of which 618 billion are “discretionary” and 339 billion are “non-DoD (Department of Defense) discretionary”.
So, the estimated $27 billion reaped through the estate tax amounts to 1.4% of receipts, 1.5% of outlays, 4.4% of discretionary outlays, and 8.0% of non-DoD discretionary outlays. These percentages don’t sound so trivial to me!
Scylla, I have lost your point here. Mine is that these people at Responsible Wealth, some of who stand to gain a lot financially from repeal of the estate tax, nonetheless compellingly explain why they believe that the estate tax should remain in place. Why don’t you read what they have to say and comment on that?
As for “taking someone’s money”, I don’t want to hijack this thread more than has already happened (partly by others, partly by me), but suffice it to say that we are a society and we have collectively decided that those who earn money within that society owe part of that money to the society that enabled them to earn it and get to keep most of it for themselves. It’s as simple as that. If Bill Gates didn’t set up a corporation (using corporate law), patent/copyright his software (using patent and copyright law), hire employees (who were educated using government funds), deliver his products using the public road system…, then maybe he would owe nothing to society.
jshore:
I agree with you 100%. My point is that current estate taxes are horribly unfair. Under today’s law, a married couple can shelter up to about 1.3 million bucks before they pay the first dollar of estate taxes. That’s pretty wealthy. A single person gets about 650 grand right now.
Estate tax rates start at 55% (if I’m not mistaken,) at that level. IRA accounts get double taxed, (income and estate) and life insurance goes tax-free.
If we’re going to have estate taxes, then everybody should have to pay something.
Under today’s laws one who is frugal and wise in their retirement will end up paying 80% or more of their IRA assets to Uncle Sam.
It seems to me that today’s estate tax laws are a “let’s get the rich” ploy.
In order to be fair, and to make everybody do their share estate taxes should start much lower, we should go easier on IRA accounts, and tax life insurance.
Again, in today’s environment, the wealthy are prone to taking out large second to die policies in order to preserve their estates. These policies equate to government subsidization of the insurance industry in my eyes.
Assets like family farms and businesses which represent a large estate value, though they do not produce liquid wealth unless sold are not exempt from valuation for estate purposes.
A family that owns a working farm may only make $50,000 or so a year, but that farm may be valued at several million. The family has a choice: either pay a substantial portion of their income to purchase insurance so the farm can continue, or see it liquidated to pay the government. The same goes for partnerships and small businesses.
The current estate tax situation is hugely unfair.
One’s estate represents the accumulation of discretionary wealth that could have been spent. All taxes have been paid , and it is the property of the owner and the owner alone. The government should not double dip into it.
The current estate tax situation should be aboilished and replaced by either higher taxes across the board, or a more equitable system that does not target the most successful and frugal only.
I’ve looked at your looks and am unimpressed. That the Rothenbergs and Wicks among others care about the US as a society is admirable. What they do with their wealth is their business. While their generosity is laudable their penchant for charity should not be forced upon those not similarly inclined. The Rothenburg’s use of the family foundation as an estate planning tool doesn’t suggest that they’re being especially altruistic.
To me, the best argument against leaving huge wealth to your heirs was said by Warren Buffet. He loves his children to much to allow them the fate of the Kennedy heirs and others who have never had the strengthening experience of having to strive and earn their success.
To respond directly to a couple of points in your links:
Estate taxes effect only the wealthies
-my point exactly, see above.
the wealthiest families would get a giant tax break
-they are under an inequitable burden now that needs to be addressed. If one is penalized for success, what’s the motivation to be successful. Wealth is not a crime.
the estate tax is not double taxation
-Oh but it is. The percentage of tax is twice what the regular income maximum bracket is. Twice is synonym for double. As for the question of appreciated assets, it seems simple. Heirs should inherit the cost basis of items in the estate, or they should pay the taxes to “step-up” the value.
** No estate tax due to charities**
Oddly enough this is an inequity that swings the other way. Due to a loophole that allows the funding of charitable remainder trusts, a wealthy individual can make a donation to charity now, receive a huge tax break, and spend it all before he dies. It’s a wonderful tool, but the end result is federal funding of the charity of choice of the wealthy, not a gift.
**“The average effective estate tax rate (after all exemptions and
deductions) is not 55 percent (the top marginal rate), but a modest
17 percent of the gross value of the estates. That’s less than the
income tax rate paid by many middle Americans. **”
-That’s a grossly misleading statistic. The average family that pays estate taxes is usually not that far above the unified credit exemption. The reasonably wealthy usually pay a huge percentage.
To show you what I mean let’s look at a real life example:
A 70 year old widow of a successful Dr. dies. There is no unified credit trust in place, because the husband is predeceased. She has a house and personaly property valued at $500,000, appreciated stocks and municipal bonds valued at $300,000, and a spousal IRA she inherited worth $500,000 from which she has never removed a penny, but both her and her husband have worked to create (mostly nondeductible contributions)to live off of in retirement. Let’s see what her son will get from this 1.3 million dollar estate, shall we?
We’ll assume she died in PA (my state) and pays a 7% inheritance tax off the top. That’s $85,000, right there. $125,000 of the $800,000 will be taxed at 55%. That’s $68,750. Now the IRA is subject to Fedral income tax (since it’s nondeductible contributions,) at 28%. That’s $140,000. Now get this, the WHOLE IRA, including the taxes already paid, gets taxed again at 55% (we’re already over the Unified Credit.) That’s $275,000.
Now let’s see, our widow has 1.3 million dollars. Estate taxes total $568,750. That’s a 43% estate tax.
Remember, our widow is not super wealthy. For a lot of retired folks, the bulk of their assets is tied up in IRA accounts since that is usually the last asset spent. I’ve seen cases where 80% of people’s wealth has gone to estate taxes.
It is a horribly unfair system, and your links are hopelessly biased and underinformed about the rality of estate taxes.
The system needs to be abolished, and something representing a fair and equitable measure in which everybody contributes to the general welfare should be instituted.
I am not so naive as to beleive that the wealthiest need not contribute the largest percentage of taxes, but I view the abolishment of the estate tax as a good thing. We have a terrible system.
I shoud’ve previewed.
On another note, I completely ommitted local income taxes, and forgot to include state income tax of the IRA. That would knock the total estate taxes our widow pays north of 45%.
Hate to break it to you, but it doesn’t matter.
The president doesn’t make fiscal policy alone, so it doesn’t matter what he wants to do. As Truman pointed out “The President will say ‘Do this. Do that’ and nothing will happen.”
Yes, but as “ObviousMan” pointed out in the comic strip, Non Sequitur last week, pretty much all of the promises made by the presidential candidates deal with things they do not control directly.
I’ve lost you here Scylla. In my office we (actuaries) consult on pretty much all aspects of retirement plans. Our clients expect us to be financial, legal and general consultative experts for any problems they may encounter. Why don’t you suggest some of the things that you’re thinking of and I’ll see if I agree?
OTOH an actuaries role in the US may be less all-round than in the UK.
Where’s Dex when I need him?
regards,
pan
kabbes:
In the U.S. actuaries are not typically accountants, economists, investment advisors, or Certified Financial Analysts.
Most commonly actuaries are statisticians. They assign risk, and premiums in Insurance and annuitization schedules for annuities and defined benefit type retirement plans.
Scylla,
The truth is that actuaries in the US perform exactly the kind of work that kabbes describes, in the US as elsewhere. They are exactly the type of people who should be commenting on the SS plan.
I happen to work in the non-Pension consulting side of the business, but my company has a large pension consulting division as well. Your posts in this regard apear to be misinformed.
David B. brought up newspapers.
My home town one : The Plain Dealer has endorsed Bush!
IzzyR:
Could you be more specific? I’ve tried to outline some differences that I feel do not make Actuaries qualified. There’s more to the budget than retirement planning.
Where am I mistaken?
Please don’t misconstrue what I say to mean that actuaries don’t have anything meaningful to say about aspects of the budget, but I think that in rendering an opinion on the feasibility of a budget in general, they are crossing the line into territory pretty firmly owned by economists and CFAs.