Gonzo, would you please explain to the class the relationship between correlation and causation? Thanking you in advance.
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.
You know ten years ago the limit was like $400K
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.
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.
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.
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.
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.
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.
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.
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?
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.”
It’s all money in the end. And there are trusts.
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 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.
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.
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.
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.
I was inferring the estate sending it down in whole.
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.