I’m opposed to the death tax, but here’s a couple of points to ponder:
[ul][li]In terms of human beings, the death tax falls on the heirs. Whether or not the decedant truly earned his wealth, the heirs did not earn their inheritance.It’s not necessarily true that the death tax is paid by the wealthy. Even if an estate is over $1 million, some of the heirs may not be rich at all.[/ul]In theory, if we must have a death tax, there’s a lot to be said for the alternative approch suggested by UncleBeer: Don’t tax the estate, but include the inheritance as ordinary taxable income to the heir.[/li]
However, I’d prefer a system that taxes income just once. That is, only untaxed income, such as unrealized capital gains, money in IRA accounts, etc. would be taxed at death.
Personally, the way I feel about it is that we should pay what taxes we need for the services that government must provide. Government on the other hand has a responsibility not to waste that money.
It has been estimated that as much as 80% of the revenue that the government receives ultimately does nothing. It purchases no goods and services whatsoever, but is simply consumed by the bureacracy of government itself.
That is not fulfilling it’s responsibilty.
A man who dies with a multimillion dollar estate on the other hand has more likely than not proven himself to be both frugal and efficient in the use of his funds.
The argument has been raised that the heirs have no claim on the money because they didn’t earn it.
The Government didn’t either. It has even less of a claim since it has already been a full partner in the process that produced the wealth.
That being said, I don’t see how it is defensible, advisable or even remotely desirable, to contravene the wishes of the deceased (who after all earned the money,) and let the money be wastefully consumed by an inneficient and fiscally irresponsible government.
At least there’s the possibility the cash will be used constructively by the heir. No such possibility exists with the government.
Finally, the estate tax laws really aren’t a death tax, they’re an ignorance tax. Any man with significant wealth and a few years can take advantage of estate planning techniques to reduce their estate shrinkage to practically nothing.
I have a significant net worth and I am quite certain the Federal Government has even less of a claim on those assets than my heirs. However, neither of there wishes really has any moral significance. It is not there money.
My property is still respected after my death. That is the law of the land. They don’t take my organs without my permission. They don’t use me for fertilizer without my permission. You just can’t walk up and take my car because I’m dead. While living I am entitled to make plans for the disposal of my assets upon death that must be honored.
So, to put that other argument to rest, it is still the deceased’s money up to the time it is distributed. Debts payable to the deceased still legally need to be honored, income taxes need to be paid, accounts settled. One may be dead, but one’s responsibilities still live on. Why should it be different with one’s property?
It depends on who you see as paying the tax. We had the good fortune to inherit some money from an estate that was well over a million dollars (not like we got the whole thing or anything). In my view, the estate (i.e. Merrill Lynch) paid all taxes. I feel we never paid any tax at all on the money. They never told us what our share of the estate would have been without the taxes (not that I didn’t figure it out), just an estimate of the amount of the check after taxes. So, although we are not rich, I don’t feel we paid taxes on this money either. (Although we did end up paying capital gains tax for the time from the point she died and the time we got our check - the stock market was doing very well that year).
In our case, we got X% after the specified bequests were handed out and taxes were paid on the remainder. So the Humane Society, the University of Texas, etc. (or whatever charities she had in the will) got their money first, the federal government then took there share (55% of anything in excess of $600,000 or whatever it was at the time), and we got our x% of that. We just had to wait our turn. Had she not died for another 18 months, the stock market would have crashed, the bequests would have taken much of the estate, and the estate wouldn’t have been taxable at all, but we probably would have gotten much less money.
I felt it was fair - it was still “free” money that I didn’t have to do a darn thing for (other than choosing the right husband) and he didn’t have to do a darn thing for (other than being lucky enough to be related to this woman he’d never met).
Exactly. In one of Kurt Vonnegut’s novel’s a lawyer explains the concept of “magic moment.”
From God bless you, Mr. Rosewater; or, Pearls before swine,
by Kurt Vonnegut, 1965.
If the death tax were shifted from the estate to the recipient, the net effect might be no increase in the death tax, or even a reduction. But, people would then see the tax as falling on themselves, and they’d be more unhappy about it.
In our case, had the burden shifted to us, rather than the estate, we’d have paid significantly more. Our marginal tax rate is rather high, and only a small fraction of what we got was taxed at 55%. Most was not taxed at all.
The money was not ours until it was distributed. We couldn’t spend it. We couldn’t borrow against it. We couldn’t tell Merrill Lynch where to invest it. (Some of my husband’s relatives tried all of these things.) Taxes happened pre-distribution. Had the market crashed pre-distribution, there wouldn’t have been a darn thing I could have done about it.
For those who advocate a huge reduction in the estate tax, where do you thing would be a more fair way to get the revenue from. Let’s avoid the argument that “Well, the government takes too much anyway.” Even the most die-hard Libertarian government needs some revenue. Assuming that the government need X amount of dollars in revenue each year to run properly, what is the best source?
I submit that high estate taxes would cause the least disincentive for people to work hard. People might not work as hard if the income tax rates were extremely high. If the estate tax rates are high, what are people goint to do, not amass wealth? If they did decide to “spend their kids’ inheritance” then they are helping the economy out.
Regardless of how much money you think the government needs (and should spend), it seems to me that the estate and gift tax is the best way to raise revenue.
Well Abe, if you did away with the estate tax it only seems fair that you do away with the cost basis step up at death.
Furthermore, I don’t think that “what is easiest,” or “what causes the least pain” is necessarily the criteria for which to do anything.
We should be using a simplified version of the income tax system we have now. More importantly we need to learn the lesson of “Tanstafl” (There ain’t no such thing as a free lunch.)
Government is reeling under the huge burden of Medicaid, Medicare, and Social Security.
Old farts are a hugely important voting block, and they are catered to. I think nationwide, more than 70% of the residents of nursing homes are on medicare. Partly this is because it is possible to shelter extremely large estates from the cost of nursing homing care, and get the government to foot the bill.
That needs to be done away with. Households capable of paying their own way need to do so, rather than relying on the Gov to foot the bill for their life needs.
Furthermore, instead of taxing the wealthy for being frugal at death, we should do it while they’re alive. Why should somebody with $1,000,000 net worth and a pension also receive a Social Security check?
These elder benefits are considered the third rail of politics. Touch them and you die. The fact is they need to be reformed.
Medicaid, medicare, Social Security, Pension laws, Nursing home laws and other elder entitlements need to be revamped.
As a country, we can’t afford the payouts we’re making.
I agree with getting rid of the basis step up, and that is what Dubya’s plan does. Only the first $1.3 million in assets gets a step up, when the estate tax goes bye-bye.
I also agree that taking care of the oldsters is tricky. They are a huge voting block, so I don’t see any way to get our politicians to touch their benefits with a 10 foot pole. My parents are already complaining that they get taxed on social security, when it was paid for by taxes already. Heaven help us of the Chronologically Gifted[sub]tm[/sub] get that taken away from them.
Social Security was not invisioned as a retirement fund. It is a safety net to make sure that the less wealthy have at least the bare minimums necessary to live (and it is sure the bare minimum) Those who can afford to forego social security should do so.
As far as “causing least pain” I think it is significant. Not in the sense of least impact on particular people, but as far as guiding society to do beneficial things. All taxes contain some element of social guiding in them. (Income tax deductions for home interest rates or education expenses. Estate tax deductions for charitable contributions, education expenses and medical expenses) The government decided that making those tax breaks would encourage behavior that is beneficial to society.
Similarly to sin taxes on cigarettes and liquor. Although done at state and local levels too, various government entities decided that the harmful effects on society from those products justifies having high levels of taxation, despite the huge lobbying capabilities of both industries.
Each decision on what to tax must take into account what the effect of that tax on the economy and society will be. If we can come up with a tax that, while fairly apportioned, has the least negative side effects, that is the tax that I think should be implemented.
Your argument to prove that the American Public doesn’t favor tax cuts is that Bush stole the presidency? :smack:
Currently the defense budget is 17% of total government spending. Are you suggesting that one of the many social programs be cut to increase the defense budget? If so, I would certainly agree with you. (My 17% figure is from 2001, so Bush may have already raised it. Feel free to correct my figures.) IMO it should be doubled at least.
Also, it’s already been stated in this thread that the estate tax generates less than 2% of government revenue. The important thing is that the estate tax debate is a polarizing issue. People usually feel strongly one way or the other. And, as I have already stated, I feel that there is a slippery slope here and this tax will do nothing but increase. All taxes gradually increase over time, but this one in particular is not paid by the vast majority of voters so politicians will be motivated to raise it. Already many on this thread some have suggested that the rich have no right to pass on any wealth at all.
Well, I would argue that it is America’s unique blend of capitalism and democracy that provide the rule of law and economic freedom to make us the most economically successful nation on earth. 
Socialist countries aren’t terrible places to live for the most part I would imagine. But, to suggest that we should be following their example of having higher tax rates than us is folly. We are more successful economically than them precicely because we are less socialist than them, IMHO.
Well, I am way off topic now. Back to the debate…DEATH TO THE DEATH TAX!
Well, you make a better case than capacitor who matter of factly states that Amercans haven’t favored tax cuts for three years and when asked for proof offers up the Bush-Gore election. :rolleyes:
I disagree that Americans are against tax cuts. Because capacitor claimed it the onus is on him to prove it.
Well, my guy ain’t hypothetical…He is a real person and I told you what he actually paid. And the IRS and state of New York dutifully sent him rebates and haven’t come after him yet. When I said the only significant tax deduction Dr. J. had was the money going to a 401K, I didn’t mean that he didn’t also take the standard deduction to which everyone is entitled, along with his exemption, so the money you figure his tax on is not $79,500. [He actually did go a few thousand dollars over the standard deduction by counting just state tax and charitable deductions, so he took a $7650 deduction rather than the standard deduction of $4550 and then he had the $2900 exemption for himself.]
By the way, I realized later that if I am going to count the employer’s contribution to payroll taxes then it is really only fair that I also count the other non-salary compensation that the employer provides to Dr. J. (health insurance, retirement pension, …) which the employer kindly sends him in a statement each year. Putting this stuff in the denominator, reduces the percentage taxes back down to basically what it is if we don’t count any of the non-salary compensation from the employer in numerator or denominator. So, we can safely say that either way Dr. J. pays just a tad under 1/3 of his compensation in all federal and state income and payroll taxes. Dr. J. doesn’t find this to be too onerous.
As for other ways of taxing such as taxing the heirs for the income rather than taxing the estate. Well, I am not in principle against some different way of doing it (which is not, by the way, what the Republicans are proposing). But, I don’t see any in principle reason why it has to be treated the same as other income particularly given that it is unearned (by the heirs who receive it)…The supposed idea behind, say, earned compensation is that it bears some relation to the economic value of what you produce and while I think this point is rather debatable, I would say that it certainly bears a closer relation to such value than that which you receive via inheritance.
The other issue is progressivity. Some of us think that the fact that the percent of income that the richest 1% receive as a fraction of total income has gone up by like a factor of 2.3 over the last 30 years (if I remember this statistic right) suggests that we do not need to be working to make our taxation system more regressive so that inequality becomes even worse. [This makes me think of the slogan of the “Billionaires for Bush and Gore” parody website which says “…because inequality isn’t growing fast enough…”]
And I heard that it was 1/60th of 1%…
In other words, we ain’t gonna let you trot out a statistic as ludicrous as this without a cite.
Hell, why only double! We should go until we are spending at least 5 times as much on the military as the rest of the world combined! [Does anybody know what the current ratio is?..I seem to recall that it is pretty close to 1-to-1 with the rest of the world combined.]
Well, I will trust you on the 2% or so figure at the moment just because I don’t have the figures in front of me. However, I seem to recall that once one considers the fact that only a small portion of federal government spending is discretionary (e.g., not already promised out as social security, …) then the amount of non-discretionary revenue it provides is up on the order of 8% or so (or something like that). And because inequality has risen so dramatically, the revenues from the estate tax are projected to increase rapidly over time even with rising exemption limits.
I would say that income inequality is even more polarizing. And, the slippery slope argument seems contradicted by the facts. While it might seem conceivable that the masses would overtax the rich, the history of the world is one of the economically powerful dominating the less powerful, not the other way around. Of course, occasionally there are violent rebellions of the masses … But this is one of the things that we are hoping to avoid here by trying to keep our society from becoming too economically polarized.
As for the “socialist countries” subthread, Debaser, have you ever visited…or better yet, lived in…any of the other Western Democracies or is your opinion on the superiority of our society based on not having done any firsthand comparisons? [Also, I don’t think that the U.S. has the highest per capita GDP anyway. Anyone out there have the figure?]
There is some real question about how this appeal of the step up would work in practice and even whether such a repeal would survive. The details of this whole issue are explained in this CBPP article: http://www.cbpp.org/6-3-02tax.htm See the article for further details but the summary is
Sure. This cite will tell you that 33 cents out of every dollar is lost to bureaucracy:
I also saw it at the Cato institiute last year, but I can’t find it there.
This is how Uncle Sam plans to spend your money next year:
Add 9 cents for net interest. That gives you 42 cents out of every dollar. Add the 15 cents for income security. That’s 57 cents. Take the 22 cents for Social Security. That’s 79 cents. How much of the health and medical’s 22 cents would you like to apply? How much of that goes to paying medicare and medicaid payments to the financially able? It’s probably between 8 and 12 cents, but we only need 1 to get 80.
We haven’t even factored in the statistic from Congress’s own budget office that suggests that somewhere between $1.20 AND $1.60 is removed from the economy for each dollar paid in tax, nor have we factored in the fact that on September 10 of last year the DOD stated that it couldn’t account for 25% of its budget. That’s another 4 1/2 cents.
So, let’s try to put all these figures together in a way that makes sense. We’ll start with 33 cents bureaucratic waste, and split the difference and give it a 1.5 factor. That’s 49.5 cents. Net interest goes in there and brings it up to 58.5 cents. 25% of the defense budget is 4.5 cents. That’s 63 cents, right there inarguably from governments own figures. The 22 cents of social security is a straight payout to individuals. That’s 85 cents. What percentage of income security (read welfare and unemployment) is a straight payout?
We still haven’t touched medicare and medicaid. Even if we remove the 1.5 factor (which the congressional budget office says we shouldn’t, we’re still north of 80 cents when we lad in medicare and medicaid to the wealthy and income security.
When you have 1/3 waste off the top and theelderly entitlements that we have, there ain’t no other way to slice it, bud.
No I didn’t say that Americans aren’t against tax cuts in principle. I was saying they in general believed that balancing the budget and governmental fiscal responsibility was more a priority than across the board tax cuts, which has been proven since to knock the budget out of all projections, as much as the economic downturn
You just said the revenuew will increase rapidly over time. I don’t know what you mean by “inequality”. But, wouldn’t this statement agree with my slippery slope arguement?
Instead of focusing on the history of the world, I would point to the history of the last 100 years in this country. Taxes are usually intented to be short term, and start small. Then they never go away and gradually grow over time. Even without an increase, the estate tax will grow because of inflation. As someone pointed out, the million dollar limit will soon be reached by many homeowners who are argueably not “rich”.
Nope. I am your typical untravelled American.
You can’t be suggesting that if I spent a week, or year, in say Ireland than I could comment on the current economic situation in the world with impunity. I was trying to show that I was stating opinion by saying “I would argue”, “I would imagine”, “IMHO” if we were to have a discussion on the US vs. Socialism.
I don’t think that I am coming out of left field by suggesting the US has a stronger economy that that of the socialist countries. Anyway, I still think that my original point on this is valid: You cannot hold up “other industrialized nations” as an example for us to follow with tax rates because when you say that you are really referring to many countries that are essentially socialist. Do you want the US to be a socialist country? If so, just come forward and say that.
jshore:
Yeah, I realized late last night that I’d forgotten to subtract the standard deduction from Dr. J’s taxable income. Sorry 'bout that. Skews my numbers somewhat, but I don’t have the ambition right now to re-calculate 'em. I did my taxes once already this year; I ain’t doing someone else’s.
jshore again:
I’m the guy that threw out a figure of 1¾% as the portion of federal revenues that obtain from the estate tax. Lemme see if I can find that .pdf again. I believe it was from the actual FY200 budget . . . nope; can’t seem to locate right now. Here’s a summary (from the Whitehouse OMB) of actual revenues from 1999 and estimates of 2000 - 2005. Is shows that estate & gift taxes comprised just over 1.5% of federal revenues in 1999. The estimates for '00 - '05 range from about 1.5% to about 1.75%.
http://w3.access.gpo.gov/usbudget/fy2001/guide02.html
and jshore again:
Yeah, well. It ain’t what I’m proposing either. I’m not sure why, in response to me, you’re refuting a suggestion I’ve not made.
jshore one more time:
You guys keep saying this; this meaning “unearned income is justly taxed at a higher rate than earned income.” At least now it’s being admitted that it’s debatable, though. So, debate it. Quit stating the contention over and over, and let’s hear the rationale. I’ve asked for this several times, from several participants, and all we get is a restatement of the same old argument. So, one final time before you force us to dismiss the contention as unsupportable, “Why? Why is unearned income justly taxed at a higher rate than earned income?” And I’m still looking for a definition, or at minimum, a list of sources, of “unearned income,” too. So far for our list, we have inheritances, which to be honest, ain’t really taxed as any kind of income at the moment, and possibly, capital gains. And not another damned thing from the people claiming there’s such a thing as “unearned income.” How 'bout income from gambling ? How 'bout lottery winnings? How 'bout the cut of the settlement the IRS gives tax-cheat-whistleblowers? How 'bout gift taxes? How 'bout social security income (which a close look at reveals they’re little different from capital gains)? What about interest income? What other income ya got that you feel is “unearned.” Hell, a case could easily be made that welfare payments are “unearned income,” too. Define your terms and support your argument. This is a reasonable request. In fact, it’s necessary for you, or someone, to fulfill it, else there is no debate.
finally from jshore:
The structure of the inheritance tax, as it stands is progressive. We found that a $1M inheritance is taxed at 0%, a $2M inheritance is taxed at 27.5%, and continuing this progression, we find that a $3M inheritance gets taxed at 36.6%, a $5M inheritance would be taxed at 44% . . . and so on until we run right up against the asymptote at 55%. My proposal retains the progressive nature of the estate tax to the same extent the income tax does and I’m not necessarily against an even more progressive income tax. I am in favor of simplifying the whole mess though. This is the second time in your response to me, you’ve taken issue with a position I’ve not stated and do not hold. If you’re attempting to waylay me with strawmen, I ain’t havin’ it. I suspect though, this is not the case; I suspect portions of your response to me are merely parts of the mosaic that’s routinely trotted out in support of estate taxes.
And with that, I should inform you, that much like RTFirefly, it’s entirely possible I may not be back to this thread before Monday. I’m AFK the entire weekend.
Unclebeer:
Ha! That’s just because you’re too chicken to defend your arguments, isn’t it…
Oh, wait. You’re on my side. Never mind.