# Inheritance Tax **URL:** \ **Category:** Great Debates\ **Created:** [February 16, 2011, 12:40am UTC](https://boards.straightdope.com/t/inheritance-tax/571519 "2011-02-16T00:40:27Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 18, 2011, 10:12pm UTC](https://boards.straightdope.com/t/inheritance-tax/571519/81 "2011-02-18T22:12:28Z")
> [@gonzomax](#): > > Funny how part of the understanding of the Egyptian ruler overthrow was about it being 38th in the world for bad income distribution. You should eventually expect people to tire of exploitation. > We are 43rd. It may be our turn. Gonzo, would you please explain to the class the relationship between correlation and causation? Thanking you in advance. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [February 18, 2011, 10:33pm UTC](https://boards.straightdope.com/t/inheritance-tax/571519/82 "2011-02-18T22:33:00Z")
> [@flickster](#): > > Don’t have to & don’t personally know anyone that would have to worry about the current limit. > > That said, what magic does having an estate over $5 mil create that someone having an estate of 4.8 mil. Why should they get slammed simply because the estate is over 5 mil? > > Now we all know that all this random number does is increase the income of a butt load of attorneys and accountants to make sure what wealth is reported doesn’t exceed that amount. > > So why bother? Well first of all the esatte tax is marginal. The first 5 million is exempt and then every dollar AFTER $5 million gets taxed (and the rate is about 35% for every dollar after $5 million) Second, the estate tax is not optional. You can engage in tax planning to minimize the effect of the tax but this frequently requires years if not decades of lead time and ultimately we collect tens of billions of dollars in estate taxes every year (except last year) you can’t plan your way entirely out of it if you are rich enough. Its a problem most would like to have. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [February 18, 2011, 10:36pm UTC](https://boards.straightdope.com/t/inheritance-tax/571519/83 "2011-02-18T22:36:22Z")
> [@Lobohan](#): > > That’s way more strict than the current rules. Republicans would shit angry bees if your idea came to pass. > > I’m all for it. 😃 > > ETA: Of course the down side would be people couldn’t get willed family homes. The 5 million cap is there so that a small business or a farm can go to the kids without the kids suddenly owing outrageous taxes on it. You know ten years ago the limit was like $400K ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [February 18, 2011, 10:45pm UTC](https://boards.straightdope.com/t/inheritance-tax/571519/84 "2011-02-18T22:45:05Z")
> [@SmartAlecCat](#): > > If person A works for 40 years and makes $100K a year, they pay $40K (or so) of taxes a year for all the services, defense of the country, etc. they make use of. > > Suppose person B gets a $5M inheritance, sticks it all in the bank and pulls out $100K a year, make use of the exact same services, defense of the country, etc. that person A got. > > In the U.S. are their tax burdens comparable? Not really. Person A pays payroll taxes (for social security and medicare) but also get social security and medicare benefits when they become eligible. Person A gets taxed at the income tax rate which will give you about $21K if you’re single and about 17K if you are married in taxes. Your marginal rate is between 25 to 28% (depending on whether you are married, etc). Person B may get some of that income taxed as capital gains which is 15% This will lower his overall tax rate. There are other things like the fact taht the person earningn his money can put money in retirement accounts while the investor cannot. The investor recognizes income when the cinoem is earned by his investments, not when he pulls the money out necessarily. ---
**Author:** ![Max\_Torque](https://avatars.discourse-cdn.com/v4/letter/m/e9bcb4/32.png) [@Max\_Torque](https://boards.straightdope.com/u/Max_Torque)\ **Post date:** [February 18, 2011, 10:47pm UTC](https://boards.straightdope.com/t/inheritance-tax/571519/85 "2011-02-18T22:47:41Z")
> [@Damuri\_Ajashi](#): > > You know ten years ago the limit was like $400K Actually, it was $675,000, when I took Stiffs & Gifts back in 2001. I’ll raise my challenge yet again to the estate tax abolisher crowd: show me where the estate tax has become a disincentive to becoming wealthy, and I’ll remove my support for it. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [February 18, 2011, 10:48pm UTC](https://boards.straightdope.com/t/inheritance-tax/571519/86 "2011-02-18T22:48:05Z")
> [@SmartAlecCat](#): > > Ok, suppose he’s an idiot and sticks it under a mattress. > > He inherits the $5M, lazes away the days, never working, lives for the same amount of time as the working stiff who got his money as income, spends exactly the same amount of money each year, consumes exactly the same services, takes advantage of the defense department defending the country, etc. > > Are their tax burdens comparable? > > I don’t think we should treat the inherited income any different from the earned income. (If anything, we should value the earned income higher, since the working stiff contributes a benefit to society.) If he is simply pulling money out from underneath his mattress then he pays no income taxes at all because he does not have any income. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [February 18, 2011, 10:51pm UTC](https://boards.straightdope.com/t/inheritance-tax/571519/87 "2011-02-18T22:51:44Z")
> [@Fool\_in\_the\_Rain](#): > > Out of curiosity, isn’t most, if not all, of the “inheritance” already taxed previously? (i.e property tax, income tax, etc.) I realized there may be 401k’s and other saving vehicles that haven’t been taxed yet - due to not being drawn from, for example - but wouldn’t most of the deceased’s property/wealth have already been taxed? How do you mean? Its been taxed before in much the same way that the air you breathe has been inhaled before. Most large estate have assets that have never been taxed. For example Bill Gates’ shares of microsoft have never been taxed. The ownership interest of most small business owners have never been taxed. The increase in value of the home you leave to your kids have never been taxed. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [February 18, 2011, 10:54pm UTC](https://boards.straightdope.com/t/inheritance-tax/571519/88 "2011-02-18T22:54:16Z")
> [@Rand\_Rover](#): > > The point is that the principle bvehuind a policy matters even if the policy would negatively affect only a small number of people. There is a HUUUUGE difference between killing people and taxing them. You can adopt different policies for tax than you can for the death penalty based on how many people it will affect without being inconsistent. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [February 18, 2011, 10:58pm UTC](https://boards.straightdope.com/t/inheritance-tax/571519/89 "2011-02-18T22:58:35Z")
> [@Max\_Torque](#): > > Actually, it was $675,000, when I took Stiffs & Gifts back in 2001. > > I’ll raise my challenge yet again to the estate tax abolisher crowd: show me where the estate tax has become a disincentive to becoming wealthy, and I’ll remove my support for it. Hey, don’t get me wrong. I don’t think there’s anything wrong with having an estate tax. If anything I think that the rate is too low and the exclusion is too high. We had people amassing HUGE fortunes when the exclusion was laughable and the rate was obscene. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 19, 2011, 12:12am UTC](https://boards.straightdope.com/t/inheritance-tax/571519/90 "2011-02-19T00:12:42Z")
> [@Max\_Torque](#): > > Actually, it was $675,000, when I took Stiffs & Gifts back in 2001. > > I’ll raise my challenge yet again to the estate tax abolisher crowd: show me where the estate tax has become a disincentive to becoming wealthy, and I’ll remove my support for it. What type of evidence would you accept? This is why theprinciple of the thing matters for these types of policy decisions–there’s no way to construct a US w/o the estate tax and see what would happen. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 19, 2011, 12:21am UTC](https://boards.straightdope.com/t/inheritance-tax/571519/91 "2011-02-19T00:21:42Z")
> [@Damuri\_Ajashi](#): > > There is a HUUUUGE difference between killing people and taxing them. Thanks for pointing that out, I had not considered it. :rolleyes: You missed my point. Several posters in this thread seemed to say that the goodness or badness of having an estate tax wasn’t worth thinking about because it only affects a very small number of people. I think that’s rather asinine, as I demonstrated with a more stark example. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [February 19, 2011, 1:50am UTC](https://boards.straightdope.com/t/inheritance-tax/571519/92 "2011-02-19T01:50:18Z")
> [@Rand\_Rover](#): > > Thanks for pointing that out, I had not considered it. :rolleyes: > > You missed my point. Several posters in this thread seemed to say that the goodness or badness of having an estate tax wasn’t worth thinking about because it only affects a very small number of people. I think that’s rather asinine, as I demonstrated with a more stark example. The estate tax applies to everyone without fear or favor. Only a few people have enough to actually pay anything once they die. If they did not wish to, they can easily give enough money to charity while they live so that their heirs would not have to suffer a penny’s loss to the government. Given that the person making the money gets full use of it without having to worry about the estate tax, it is hard to see how it affects his actions. Even if he for some reason really, really wants his heirs to be filthy rich, every dollar he makes and socks away will be 65 incremental cents to them. This just seems yet another instance of the conservative fantasy that this relatively low tax rate will somehow destroy the will of someone to make money. I paid in the top bracket one year, and it sure didn’t destroy mine. In any case we have many counter-examples of people who take money from their heirs in favor of foundations. Do you even have one of a rich person disincentivized by the inheritance tax? ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 19, 2011, 2:48am UTC](https://boards.straightdope.com/t/inheritance-tax/571519/93 "2011-02-19T02:48:32Z")
> [@Voyager](#): > > The estate tax applies to everyone without fear or favor. Only a few people have enough to actually pay anything once they die. If they did not wish to, they can easily give enough money to charity while they live so that their heirs would not have to suffer a penny’s loss to the government. > > Given that the person making the money gets full use of it without having to worry about the estate tax, it is hard to see how it affects his actions. Even if he for some reason really, really wants his heirs to be filthy rich, every dollar he makes and socks away will be 65 incremental cents to them. This just seems yet another instance of the conservative fantasy that this relatively low tax rate will somehow destroy the will of someone to make money. I paid in the top bracket one year, and it sure didn’t destroy mine. > In any case we have many counter-examples of people who take money from their heirs in favor of foundations. Do you even have one of a rich person disincentivized by the inheritance tax? You seem to have “money” stuck in your head as your model of what a rich person has a lot of. Maybe you could think about this in a more fulsome way if you thought of other valuable things a rich person could die holding and the effect of the estate tax on those things. One example would be shares of stock of a privately held corporation. As for your call for an example–exactly how do you suppose I could possibly provide an example of a rich person disencentivised by the inheritance tax? As I keep repeating, I think this is a policy question where we have to rely on broad principles–examples and statistics don’t really work here. The principle I think should apply here is “We are a nation that values hard work and achievement and wants to encourage it as much as possible.” ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [February 19, 2011, 10:47pm UTC](https://boards.straightdope.com/t/inheritance-tax/571519/94 "2011-02-19T22:47:37Z")
> [@Rand\_Rover](#): > > You seem to have “money” stuck in your head as your model of what a rich person has a lot of. Maybe you could think about this in a more fulsome way if you thought of other valuable things a rich person could die holding and the effect of the estate tax on those things. One example would be shares of stock of a privately held corporation. It’s all money in the end. And there are trusts. > [@](#): > > As for your call for an example–exactly how do you suppose I could possibly provide an example of a rich person disencentivised by the inheritance tax? As I keep repeating, I think this is a policy question where we have to rely on broad principles–examples and statistics don’t really work here. The principle I think should apply here is “We are a nation that values hard work and achievement and wants to encourage it as much as possible.” Damn right! And the estate tax forces the heirs of that rich person to work a teensy bit harder, instead of sitting making money off of his or her parents. So you should be all for it. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 20, 2011, 12:57am UTC](https://boards.straightdope.com/t/inheritance-tax/571519/95 "2011-02-20T00:57:20Z")
> [@Voyager](#): > > It’s all money in the end. And there are trusts. You have such a fundamental misunderstanding of how so many things work that I find it hard to respond, but I’ll try. Taxes must be paid in cash (United States dollars, to be specific). Therefore, if someone builds a valuable privately held company and dies owing estate tax, they must raise cash to pay the estate tax, which may involve selling some of the company or levering it up. So your response makes no sense whatsoever. > [@](#): > > Damn right! And the estate tax forces the heirs of that rich person to work a teensy bit harder, instead of sitting making money off of his or her parents. So you should be all for it. You’ve struck at the heart of much of the reason for support of the estate tax–pure and simple jealousy that some people are born with money while you weren’t. Well, tough titties, bub. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [February 20, 2011, 1:18am UTC](https://boards.straightdope.com/t/inheritance-tax/571519/96 "2011-02-20T01:18:46Z")
> [@Rand\_Rover](#): > > You’ve struck at the heart of much of the reason for support of the estate tax–pure and simple jealousy that some people are born with money while you weren’t. Well, tough titties, bub. And tough titties that the government decides to tax the estate rather than sending it down in whole to the heirs. Some things in life aren’t fair - I didn’t inherit $10M from my grandparents, and my husband’s inheritance was taxed so we got about 2/3rds of what we’d have gotten without it. Life has been so unfair to both of us. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 20, 2011, 1:23am UTC](https://boards.straightdope.com/t/inheritance-tax/571519/97 "2011-02-20T01:23:55Z")
> [@Dangerosa](#): > > And tough titties that the government decides to tax the estate rather than sending it down in whole to the heirs. Some things in life aren’t fair - I didn’t inherit $10M from my grandparents, and my husband’s inheritance was taxed so we got about 2/3rds of what we’d have gotten without it. Life has been so unfair to both of us. Your perspective here is just completely skewed. You say “sending it down in whole,” as if all a person’s possessions when they die go to the government, which then parcels those possessions out. ---
**Author:** ![RickG](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/rickg/32/5174_2.png) [@RickG](https://boards.straightdope.com/u/RickG)\ **Post date:** [February 20, 2011, 1:46am UTC](https://boards.straightdope.com/t/inheritance-tax/571519/98 "2011-02-20T01:46:06Z")
> [@Rand\_Rover](#): > > You have such a fundamental misunderstanding of how so many things work that I find it hard to respond, but I’ll try. Taxes must be paid in cash (United States dollars, to be specific). Therefore, if someone builds a valuable privately held company and dies owing estate tax, they must raise cash to pay the estate tax, which may involve selling some of the company or levering it up. So your response makes no sense whatsoever. This is a tale oft told, but, as far as I understand, pretty much baloney and bad economics. Small businesses and farms subject to the estate tax have a long time to pay it (something like 15 years, IIRC). If the business is not generating enough cash to pay the tax over that long a period, it’s likely not actually worth much more than its assets. If that’s the case, it’s being mismanaged and **ought** to be sold off to people who are competent, since the heirs clearly aren’t. In that way, the estate tax aids the efficient market and discourages rent-seeking behavior. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [February 20, 2011, 3:28am UTC](https://boards.straightdope.com/t/inheritance-tax/571519/99 "2011-02-20T03:28:26Z")
> [@Rand\_Rover](#): > > Your perspective here is just completely skewed. You say “sending it down in whole,” as if all a person’s possessions when they die go to the government, which then parcels those possessions out. I was inferring the estate sending it down in whole. ---
**Author:** ![fumster](https://avatars.discourse-cdn.com/v4/letter/f/e9c0ed/32.png) [@fumster](https://boards.straightdope.com/u/fumster)\ **Post date:** [February 20, 2011, 4:34pm UTC](https://boards.straightdope.com/t/inheritance-tax/571519/100 "2011-02-20T16:34:48Z")
> [@RickG](#): > > This is a tale oft told, but, as far as I understand, pretty much baloney and bad economics. Small businesses and farms subject to the estate tax have a long time to pay it (something like 15 years, IIRC). If the business is not generating enough cash to pay the tax over that long a period, it’s likely not actually worth much more than its assets. If that’s the case, it’s being mismanaged and **ought** to be sold off to people who are competent, since the heirs clearly aren’t. In that way, the estate tax aids the efficient market and discourages rent-seeking behavior. There is no point in even going there. It does not matter in the least that there are no actual family farms being sold to pay estate taxes in the reality based universe. All that matters is the _idea_ that it could happen. Facts, figures, and logic are all things of the past. [Previous page](https://boards.straightdope.com/t/inheritance-tax/571519.md?page=4) [Next page](https://boards.straightdope.com/t/inheritance-tax/571519.md?page=6)