Apart from general redistribution of wealth, very little social engineering is achieved with the estate tax. Correct me if I’m wrong but I believe that the its pretty much a matter of a certain exemtion and a certain rate applied to the value of the estate.
What if the assets and the heirs **could be **categorized as follows with less tax applied to the top categories and more to the bottom:
Active business assets that will be passed to heirs that are or have been directly involved in the business
Active business assets to other heirs
Passive assets to heirs that are only a generation or two removed from the creation of that wealth
Passive assets to heirs that are farther removed from the creation of wealth.
Here is an article about Teddy Roosevelt and the estate tax. He was a rich guy who recognized the dangers of allowing fortunes to accumulate in the hands of the few. He said a real big fortune ,just by virtue of its size, differentiates it from those of more modest means. Money is power.
The early Americans were afraid of of a few gathering up fortunes and great political power. Those characteristics existed in Europe for generations and resulted in many wars . The aristocracy had gathered huge fortunes over time in Europe. We recognized the danger back then. Now we apparently have forgotten the lessons.
The Republican party works for those people. They are fighting to lower taxes for the rich and to end the estate tax. It is not in the interest of America to do this. It is merely a boon to those already extremely wealthy. But the fact the Repubs are overtly working for them, should alert you to the dangers. The rich have too much power and the Repubs are their employees, doing their bidding.
The estate tax changes will make 32 billion for the Waltons. Isn’t that nice. They need the money more than the government which is in huge deficit.
Frankly, your system sounds like a mess to administer. First of all, it wouldn’t be able to be paid until the estate is settled, and you could know for sure who was getting what, but beyond that, the executor would then have to categorize the heirs, define “directly involved in the business”, figure out when “wealth was created”, define a “passive heir”, and it sounds like it would be a big headache.
The advantage of the estate tax now is that it’s simple. Figure out the value of the estate, subtract the value of the property going to charity and the spouse, subtract 5 million from that, and then just use the sliding scale for what’s left over.
It would effectively remove much of the proceeds of the estate tax from the federal government to an army of accountants and tax lawyers(*). Just defining (and finagling so as to optimize) who is “directly involved in the business” would keep those two groups happy.
I’m not so sure what the big deal is with the estate tax. The opponents of the tax always trot out the small business and family farm as examples of items that will be forced to be sold off. They never say a word about the fact that the wealthy have lawyers who can find ways around this. For example, small business or farm owners can distribute some of the wealth before death, or they can buy life insurance that will pay the amount of the tax so that the heirs don’t have to sell the farm to pay the tax.
Opponents also say that the wealthy worked hard or smart for what they earned, so why shouldn’t they be able to pass it on. Well, there are a hell of a lot of people who worked just as hard or just as smart who didn’t do nearly as well. The winners just happened to be luckier (or more crooked). And the heirs probably didn’t work nearly as hard as the original creator of the wealth. They deserve some but not all the goodies.
I say let’s let small fortunes pass to heirs, but tax large fortunes significantly and prevent further concentration of wealth to a small portion of the population.
The principle problem with the estate tax is that it only applies to people with bad lawyers. A fair system doesn’t separate the ignorant individual from vast sums of money that the more savvy can avoid. If we are to have an estate tax, which doesn’t strike me as such a bad tax, even as a fiscal conservative, then it needs to be simple and evenly applied.
Today there are any number of trust arrangements you can enter into, not to mention things like family limited partnerships, that remove assets from your estate in arcane ways that are only accessible if you have a good lawyer. I see this divide with my clients, those who are the first generation to have wealth are much more prone to be subject to the estate tax through ignorance. Older money has learned how to arrange their affairs in ways to avoid the tax.
This proposal would just increase the opportunity for gaming of the system. Government expands in many ways, increasing the complexity of the tax code is one way that people would have to spend more time fending off the government and meeting with lawyers and less time in productive pursuits.
I’d accept federally backed estate tax loans to avoid the requirement of businesses being sold but other than that, I don’t really see the need for any shift downwards in the burden of the estate tax.
It predates the hippies. America has had the current estate tax since 1916, and had imposed estate taxes in the past as emergency war taxes. Britain has had some sort of inheritance tax since 1796.
I could go for this except I would keep the capital gains element and not tax that as income. If assets are transferred, there would have to be a way of valuing those assets, which could be the tricky part. The tax would then be due at 15% (currently) of the gain in value during the time owned by the recently deceased.
What I like about taxing the receipt (which is what is generally called an inheritance tax rather than estate tax (except in Britain, which has an estate tax but calls it an inheritance tax)) is that the amount of tax depends on the circumstances of the recipient - the person who is benefiting from the inheritance.
If Warren Buffet gave all his money to one person, that would all be taxed at 35% (currently). If he gave everyone in the US $100, most of that would be untaxed at the Federal level.
Why? I see no reason why a “wealth creator’s” child is more deserving than the inner city kid the “wealth creator” decided to mentor, or indeed the guy who sat next to him at the Packers’ games that he took a liking to.
You realize that if you taxed inheritances as simple income, that would drastically increase the amount of money people had to pay, right? I’m thinking that would just increase people’s problems with the tax.
When assets are transferred, value everything other than cash at $0.
Tax everything today at it’s current value, essentially taxing only the cash. When assets are sold, you pay tax on the total gains (aka sale price), based on normal income tax rates.
Pluses - easy to administer, easy to understand, nobody has to sell the family farm to pay estate taxes on it.
Minuses - the gov’t doesn’t get its money today, only when the assets are sold. You have to track when assets are sold, though I believe this is normal for the IRS.
I agree with provisions that protect the family business, but when you say “cash” do you literally mean only cash? Very little of any estate will generally be in cash (especially if such a provision became law). This would allow huge amounts of wealth to be passed on in the form of stocks and bonds, with the recipient living off dividends and interest, with no estate taxes paid. Are you okay with that? The truly rich generally live off investment income, so the assets may never be sold and therefore you have virtually eliminated the estate tax.
I know that I’m not always very clear… but its also interesting to note how those with preconceived positions read things.
I didn’t say anything about children and when I used the term “farthest removed” I’m not just talking about generations of relatives.
My overall point is that 1)assets in active, productive businesses are dif from bank accounts and stocks in publicly held companies, and 2) those heirs (normally children but could be key employees if this scheme was in place) who were involved in creating and growing the business should be treated differently.