That’s the beauty of the invisible hand. You make it 35%, and fewer people will bother to work around it to thwart it. You make it 55%, and many more of the “rich” will engage in all kinds of schemes that would render the 55% moot. Make it 70% and almost everyone with an estate over $5M will never pay the estate tax. There are literally hundreds of methods to pass your money to your progeny and the government cannot control all of them. Those methods cost money and hassle and effort and complications, but make the estate taxes high enough and everyone will be using them.
Don’t believe it if you don’t want to. But the fact remains that if in some place the benefits of your work don’t accrue to you and those you wish, you would face a disincentive to making or keeping money in that place. I believe there was also a huge estate tax avoidance advisory industry in the time that the 55% tax was in place? I was also trying to check, but could not find it - Would someone know when the estate tax was first introduced? In the US? In other countries?
A precedent still doesn’t make multiple taxation a good or desirable thing though does it?
I don’t get your point.
But you think it’s ok for government to just take the money? I’m confused.
I don’t think you’ve understood my point - When people die, instead of paying estate tax to the government, the amount they would have paid as estate tax should instead go to a VC
Are you saying government is better at investing money than people who either did or did not inherit money? In other words, is government a better judge of what should be done with money than private agents? I don’t think so at all.
Jeez. For someone who’s being so excessively arrogant, it would have behooved you to have done some research beforehand. As far as I can tell, historically capital gains have always been taxed in the US. Only in the period of 2008-2012 have capital gains taxes been zero, and then only for the lower bracket of income tax payers. Next time you have a point to make, instead of going in with so much bombast, just try and provide a cite instead? Might help.
Arrogance aside, you completely missed the point. Capital gains taxes are paid upon sale, but only if they’re sold during the owner’s lifetime. Knowing that, reread my post; grasp why death evades tax; and see if you can say “Aha! I didn’t understand that before!”
Or, more likely, persist in your ignorance, and blame the messenger’s arrogance for it. 
bldysabba - septimus is referring to the “stepping up” that occurs when stocks or real estate are inherited. When that happens, the “base” (the base price above which the capital gains are calculated) is moved to the stock price on the day the stock is inherited and to the (I guess appraised) value of the real estate property.
I never understood the reasoning for the “stepping up” thing.
Sure, I didn’t know that, thanks for educating me about the peculiarities of the american tax code. Will you take the stick out of your ass now?
I don’t understand it now. It’s perfectly reasonable for the base price to be inherited for calculation. Doesn’t necessitate an estate tax.
Please. You’re just making this up out of nothing. There isn’t any magic number that people agree is fair and will willingly comply with. People will do whatever they can to get around a 55% tax. And they’ll do whatever they can to get around a 35% tax. And they’d do whatever they could to get around a 5% tax or a 95% tax.
Please. There is no magic number, it’s a continuum. If the tax is 35%, and another method would cost 30% and impose complexities that would make it much more of a hassle, a lot of people would just go with 35%. Increase it to 50%, and a lot more people would take the other way.
It’s an ancient custom so we can’t determine when it was first used. But in the United States specifically, the first federal estate tax was enacted in 1862.
It doesn’t make it good or bad. But I thought your point was that multiple taxation was something that wasn’t being done. I was pointing out it’s routine.
I just don’t see why the government has any role in investing money. It’s not the government’s job to manage your money and as you pointed out the government isn’t set up for money management.
The government provides public services. And to do that, it requires money. So the government has to collect taxes.
And if somebody has to pay taxes, I think dead people are a good choice. Taxes aren’t going to hurt them any. Better to tax dead people than living people anyway.
No, there are costs associated with trying to avoid taxes. These could be lawyers, setting up trusts, whatever.
If you make the tax 95%, most people will try and avoid most of the tax because the benefit to them would almost certainly exceed the costs by a large margin. If you make the costs so high that tax avoidance is impossible, and taxes so high that there is a disincentive to earn, you’ll manage to shut down creation of wealth. If you make the tax 5%, most people will pay the tax, because it is probably cheaper than the alternative, but you will probably not fulfill the purpose that you’ve set out to achieve with taxation in the first place. Sure there isn’t a ‘magic’ percentage in between. But to claim that there isn’t a number (or a smallish range) that will strike close to the optimum balance (in a particular time and place) is false.
Ok, so in the US there’s a long historical basis for it and people probably factor it into their expectations. Then I figure your government should just try and find a good way to administer it, and a good level to apply it at. <shrugs>
I personally think multiple taxation is ‘bad’. Just see it as being really unfair yknow?
Maybe we’re talking at cross purposes here. I was addressing the justification for estate taxes that the descendants of the deceased have done nothing to ‘earn’ the inheritance, and more meritorious people abound who ‘deserve’ the money more. That’s why I suggested the VC idea. Nor did I say government has to do it. Let there be a market of VC’s that the deceased can will the amount to.
As for the government’s slice of the pie - won’t they get it anyway? For example - The people who inherit the money will be put to use - and they’ll pay taxes on proceeds thereof.
I actually think the opposite. Living people are more likely to care what is done with the taxes they pay. Important as a check on government.
Keep in mind I’m not discussing some theoretical tax. I’m talking about the same estate tax rate that existed for years and was working with no problems. It was cut significantly during the Bush administration as part of their “reduce taxes for the rich” policy. To the degree that people seek to avoid paying taxes, the current tax rate is the avoidance. I’m just saying we should go back to the pre-Bush tax.
It’s a little off-topic, but what the heck.
To those complaining about how the estate tax is double taxation. Think about this:
I spend $10 to buy a block of cheese. That income I just spent was taxed when I got it.
The cheesemaker is taxed on his income and spends that ten dollars on a painting.
The painter is taxed on his income and spends that ten dollars on some organic eggs.
The farmer is taxed on his income and spends the ten dollars during a lap dance.
The stripper is taxed on her income and saves that money. She eventually becomes a billionaire tech magnate. The stripper dies of the Hep C she got grinding against truckers. Her daughter gets a billion dollars.
Why was everyone in this cycle taxed when they got money, but the stripper’s daughter not? The estate tax isn’t a death tax or double taxation. It’s the normal shit that happens when money changes hands. And it helps society.
Roosevelt thought the estate tax served the purpose of stopping the accumulations of over sized fortunes. He was rich so he knew what the rich and powerful were like. Swollen fortunes are more than money. They fundamentally change the country dynamics. The regular people get less and less control of their country. The rich get more and more. It is not about money. it is about power brokers determining the policies of the government.
The Koch Bros. provide clear lessons . Murdoch does too.
Some rich will try and take over governance in back rooms . They are doing it now. It is not about confiscation. it is about saving the country from a monied take over. We should have a strong inheritance tax .
Let’s see. Here’s some estate tax revenue data together with the collection parameters:
Year, Cut-off, %, Total Revenue
2001 $675,000 55% ~$25.1B
2002 $1 million 50% ~$25.2B
2003 $1 million 49% ~$22B
2004 $1.5 million 48% ~$24B
2005 $1.5 million 47% ~$23B
2006 $2 million 46% ~$27B
2007 $2 million 45% ~$24.9B
2008 $2 million 45% ~$26.5B
2009 $3.5 million 45% ~$23B
Do you see any correlation between total (BTW, miniscule) estate tax revenue collected and the cutoffs/tax rates? I don’t.
Data sources: Estate tax in the United States - Wikipedia and http://finance.fortune.cnn.com/2011/03/14/death-tax-revenue-tumbles-22/
Obviously, people just avoid dying when the tax is too high.
As I said, there is a multitude of methods to transfer wealth that is not inheritance-based. Most of those methods have inherent costs. When those costs are about the same or greater than the estate tax, those methods are not used. When those costs become significantly smaller than the estate tax you can be sure those methods will become more popular.
What does that prove other than people make bad decisions?
If you’re going to try to come up with a general rule that governs 100% of human actions you’re going to have a difficult time.
If people are avoiding the tax through legal loopholes, close the loopholes. If they’re avoiding the tax illegally, enforce the law.
You probably never dealt with a serious tax CPA. There is no way to close all the “loopholes”. They will just think of new ones.
Is that a reason not to close loopholes?