Estate Taxes Suck

Great Debates
1

Some estate tax threads floating around here, and as the definitive final authority and chief deity of all things pertaining to estate taxes, that I would open this thread, and anybody who wants to care to defend this bloated, unfair, and unethical system can come in and get their ass soundly kicked.

For selfish reasons, I normally don’t participate in threads about subjects in which I’m knowledgeable, but here goes.

Why they suck:

  1. It’s punishment, and double taxation. In order to accumulate wealth, one must first earn something. Income is taxed. Those same dollars get taxed again at death. An individual is punished unfairly for being frugal and succesful. It is the deceased’s money and they should be allowed to dispose of it as they see fit without encumberance. Currently this is mitigated by a “free” step-up in cost basis upon death so that appreciation of assets isn’t taxed. That step-up would need to be eliminated upon repeal of the estate tax.

  2. Contrary to what has been said elsewhere, the estate tax does result in the elimination of family-owned businesses and farms. Corporations are immune, and have an unfair advantage in the marketplace due to the estate tax penalty smaller businesses and farms may suffer.

  3. It is unfairly selective. A couple with $1,300,000 in real assets, and an intelligent will pays no Federal estate taxes upon death. A widow without a sophisticated will who inherits a spousal IRA of $400,000 upon her husband’s death can pay more than $350,000 on the same estate. It seems to me that $650,000 is a high starting point if we’re going to have an estate tax. If we’re going to have them, smaller estates should also be taxed appropriately, and we shouldn’t have traps like the unlimited spousal exemption to catch the unwary couple who weren’t sophisticated enough to know they needed a Unified Credit Bybpass Provision in their wills.

  4. Some of the largest opposition to repeal of the estae tax comes from the Insurance sector. This is where the insurance company makes big bucks, as most people don’t do estate planning until they’ve accumulated wealth and gotten old. Such people with sizeable estates must often purchase huge policies at great cost. The alternative may be the loss of a business farm or other asset which has been in the family for generations or accumulated at the expense of a lifetime of effort. The current estate tax system is equivalent to government subsidization of the insurance industry.

  5. The alternative to paying large estate taxes is a bloated and Machiavellian system that can only be entered at great expense, and can result in the loss of assets or control of those assets when they may be needed in a future time. In short, one must give up the security that has been achieved over a lifetime in order to preserve a legacy.

2

Scylla, can I use that first argument against the sales tax, and property tax. Since I’m purchasing these same items with already taxed income, it shouldn’t be taxed again, right?

3

I don’t see the wealthy cry about poor people losing farms.

4

Sure, but in order to do it meaningfully you’d have to suggest that inherited assets aren’t susceptible to sales tax when spent. Otherwise you’re just passing gas.

5

Brian:

Poor people don’t lose farms because of estate taxes (this is so obvious that I’m appalled by your ignorance.) A large farm represents a great deal of wealth.

I have seen some people come pretty close to weeping when the family farm has to be sold at a bargain price to pay Uncle Sam. Those people, by your definition are wealthy.

6

Scylla,

I am appalled that you think this tax is not intended for the wealthy. You can argue that they deserve it. But when you appeal to pity by trying to eclipse the fact that farms are foreclosed everyday by greedy bankers and investors who also happen to want this tax eliminated, well, nice try. You can’t call me ignorant, I just don’t fucking care.

7

Scylla:
Why in the world would you open this thread? There is another, very active, thread in GD right now that is dealing with this exact issue. Are you just mad because nearly all the points in your OP have already been debated ad nauseum in the other thread? WTF were you thinking?

8

1 All dollars are taxed multiple times. An inheritance represents a transfer of wealth. Transfers of wealth (earning, winnings, windfalls, gifts, etc.) are taxed in our society. If you would like to argue that inheritance should be a special, non-taxed transfer of wealth, feel free. Otherwise the “double taxation” argument is simply a red herring.

2 Agreed. How significant is this? Numbers differ depending upon who is giving them, but I haven’t seen any numbers that place the number of taxable estates that involve a small business above 1%. Now, many people still think this is a problem, and they have proposed reforming the estate tax to remove or ameliorate this side effect. That seems a more prudent response to this argument, since it is a straightforward appeal to sympathy for farmers and small businessmen. It makes little sense to exempt the Sam Walton estate from taxes in order to let farmer Jones keep his farm.

3 How is it more unfairly selective than the rest of the tax code? People with large incomes generally pay fewer taxes if they solicit professional advice for financial matters. The same is true for people with small incomes, but the difference in scale will eventually remove any net benefit.

As to the high starting point – arguing that it should be lower directly contradicts your appeal in (2) that the present level is so low that small businesses and farms are adversely affected.

4 Nonsense. The requirement to carry liability insurance to license a car is a government subsidy of the insurance industry (and also a good idea). Nothing requires estate planning. Large estates benefit from estate planning. An industry has met the need for large estate planning. That’s called free enterprise. I thought you libertarian types were all for free enterprise. Do you also believe that by passing laws the government is subsidizing the law “industry”?

5 Yes. You can keep all of the money you earn as securely as your little heart pleases. When you transfer that wealth to someone else through wages, gifts, purchases, inheritance, etc. the government takes a cut. Arguing that this is unjust is not an argument against the estate tax, it is an argument against all taxation. Unless, as in (1) above, you wish to argue that inheritance should be a “special” transfer of wealth.

6 Any particular reason why you felt this required a brand new thread? Is your personal brilliance on this topic so vast that it just couldn’t fit in an already active thread?

9

Have you ever looked?

10

[QUOTE]
*Originally posted by Scylla *

  1. Contrary to what has been said elsewhere, the estate tax does result in the elimination of family-owned businesses and farms.

  2. A widow without a sophisticated will who inherits a spousal IRA of $400,000 upon her husband’s death can pay more than $350,000 on the same estate.

If we’re going to have them, smaller estates should also be taxed appropriately, and we shouldn’t have traps like the unlimited spousal exemption to catch the unwary couple who weren’t sophisticated enough to know they needed a Unified Credit Bybpass Provision in their wills.

[QUOTE]

  1. Name one- with all the figures & stuff. By the time a “family owned business or farm” gets so big it pays substantial estate tax- there is hardly anyone fo reason who could argue that is was not a “large” business/farm.

  2. Code section 2056, etc- allows for the widow to inherit ALL of a husbands estate with no estate tax- in most circumstances. When you are worth over a million dollars- and you do not have a reasonably competant tax advisor/ attorney- it’s not my fault. That is plain ignorance.

Ah, and so we should also not have "traps’ like the mortgage interest deduction, or the child care credit. Come on- get real.

11

Oh Lord, not another estate tax thread. But for you, Scylla, I’m willing to go once more into the breach. I’ll give you a fair chance to kick my ass, probably later today.

12

I missed that thread. I just saw Milo’s pit thread, and assumed it was dealing with a dead thread. When you assume…

I’ll go read that and post there.

If a Moderator would close this thread, I’d appreciate it.

13

While I’m waiting, I might as well tie up some loose ends.

Brian:

**

Foolish me. Somehow I thought posting on a specific topic implied you did care. I forgot that not caring entitles one to spout willful ignorance.

Varlosz:

**

Ummm. Oooops.
Spiritus:

** Agreed, but rarely at such confiscatory rates.

**

True. The super wealthy usually have these things well in hand. The moderately wealthy and the elderly are less likely to engage in or understand the need for estate planning, and they get shellacked. The elderly especially tend to be loathe to give up control or even reveal the extant of their asset base. In many cases, they simply don’t know how big their estate is.

** a need created by the Gov. It’s bloat pure and simple because of the Machiavellian tax code, just like there have come into being consultants to help people deal with their SS and disability benefits. Government law that governs lives is not accessible to the people who are being governed. One needs a CFP, a Lawyer, and an accountant simply to plan an estate.

**

I’ll overlook the libertarian jibe.

14

Scylla,

I should’ve made it painfully clear that I do not care to give the wealthy a tax break based on pity so they can look down on society some more.

15

[Moderator Hat: ON]

Closed at the request of the OPer.

David B, SDMB Great Debates Moderator

[Moderator Hat: OFF]