Well, tell ya what - I’ll flame you, as soon as I can think of something bad to say about you.
How does that sound, you, you…owner of a chicken-raping goat?
OK, well, former owner. 
Damn. That thread’s still hilarious.
My hat’s off to the master.
Hey look everybody, I won the debate!!!
I’m a little confused with what you mean here. If you mean that no capital gains are owed at death, but that also no step up occurs, then I would have to say that the evidence suggests that Congress itself felt this was not viable 20 years ago. So, I am very skeptical. I am also skeptical of the intentions of politicians writing it into the law in the manner that they did in last years’ bill.
I have less problem with the idea (which it sounded like you endorsed in your response to RTFirefly but I wasn’t sure) of having the estate pay the capital gains that are due upon death. I.e., that settling the estate would mean realizing these gains, taxing them, and then the assets transfer to the heirs at the new stepped-up value. However, I am also quite sure that this is unacceptable to GW.
That to me sounds like a viable alternative. I am not saying that I would be in favor of it over keeping the estate tax, because I think good arguments can be made (and have been made in this thread) for having a different tax structure on an estate than a capital gains tax would impose…But, I would be interested in seeing a study on this idea and how it would compare in terms of revenue, how it affects people, etc.
Have to agree with RTFirefly…It’s a great story!
jshore:
Damn, everybody’s getting all reasonable. So we are all in agreement (with a lot of caveats) that paying a capitol gains tax has potential over a traditional cost basis step up + an estate tax.
I have offered the distinction between a valued exchange and a simple transfer as reason why the government should not impose a tax in these circumstances. Thoughts?
I think it is a distinction without a difference. I could probably make an equally compelling argument for the sales tax being distinct from other forms of taxes in certain ways, certainly compared to all income-type taxes. It seems to me like a way to try to raise a basic moral principle argument against an estate tax when in fact there isn’t any. I think one has to appeal to less abstract principles about one’s beliefs in what constitutes a fair and just society rather than any overarching principle that says one can tax this but taxing that is immoral.
So you would support a sex tax? They are the same thing after all.
A urination tax? A breathing tax? If you change a 20 into two tens should that be taxed?
I think the distinction between taxing a value added transaction and a simple transfer is a large and valid one.
Scylla: *What the government taxes are exchanges. You exchange work for $. Something has been done or created and the government gets a piece, as it should.
In an estate transfer, nothing has been done or created, the government is just taking an extra piece.*
Well, lottery prizes are taxed. Damn-all has been done or created when I happen to have the winning number in the lottery.
Gifts are also taxed, beyond a certain exempt amount, even though you did diddly-squat for them (which is kind of the definition of a gift).
Unemployment compensation is taxable income, although it’s hard to argue that merely being unemployed counts as “something done or created.” So’s illegal income, even though whatever may be “done or created” in that case is something the government doesn’t want done!
Basically, almost every time you get your hooks on some money you didn’t have before, it’s taxed. It doesn’t necessarily have to involve an “exchange” of work or any other commodity for that money.
As for your examples, Scylla, urination, sex, breathing, breaking a $20 bill, transferring money from savings to checking…none of them, presumably, involves your acquiring money that you didn’t have before. (If so—if you get paid for sex, for example—remember, that income’s taxable! :D) By that criterion, a sales tax is actually less defensible than an estate tax.
A lottery ticket is an exchange. One purchased the ticket in exchange for a chance. The payoff of that chance in terms of lottery winnings is an exchange of value for value. That should be taxed.
Gifts should not be taxed, just like estates should not.
The taxation of unemployment insurance is bullshit IMO, since that’s your own money coming back to you in terms of unemployment insurance you paid in (on the other hand you paid in a portion of your earnings to protect yourself and purchase insurance, and receive monetary consideration when it pays off, so maybe you should be taxed. That’s a toughie to figure out.)
Yet, the proceeds of life insurance represent “getting your hooks on money you didn’t have” without incurring a tax liability.
Life insurance: Yup, and so does winning the Nobel Peace Prize or getting federal disaster relief. How about alimony, or employer bonuses which have nothing to do with your salary or the quality of your work—you didn’t “exchange” any services for them, your employer just put some extra money in your paycheck because he was feeling Christmasy—which are both taxable? Should those count as “gifts” and be tax-free? Should we stop taxing Social Security benefits? I think jshore’s right on this one: there’s no consistent principle of “proper taxability” currently in place, according to which one can show that an estate tax is somehow “improper.”
Basically, the government gets its money wherever it can, using taxation and non-taxation as financial incentives and (in theory at least) trying to concentrate the heaviest burdens where they will be easiest to bear. I don’t think you’re gonna be able to make an ethically impeccable Principle of Proper Taxability out of the system as it now stands. And I don’t think you’re gonna be able to theorize a new system that conforms to your PPT and still manages to generate the needed revenue. So I don’t think there’s really going to be an adequate moral critique of the estate tax any more than there’s an adequate pragmatic critique of it. In short: sucks to be dead.
Nope. The value of life insurance is included in the value of your estate (unless they’ve changed the law since my paralegaling days), and thus is taxed, or not, depending on whether your estate meets the threshold value for taxability or not.
Because life insurance (with a named beneficiary) passes outside of probate, it’s true that the executor will rarely tap that specific chunk of money to pay the taxes with. But it counts as part of the estate for tax purposes.
Au Contraire, mon frere.
If I own life insurance on myself with somebody else as my beneficiary and die, then the cash value of the contract is a part of my estate, even though the proceeds transfer tax free. The estate will still have to pay taxes on the cash value of the insurance when I die, but not the proceeds.
My apologies, Scylla.
You leave a field for 20 years, and they change all the rules on ya. Sheesh.
I spoke too soon - the second time, that is.
According to the Form 706, on the instructions for Schedule D, under “Insurance receivable by beneficiaries other than the estate,” it says: “Include on Schedule D the proceeds of all insurance on the life of the decedent not receivable by or for the benefit of the decedent’s estate if the decedent posessed at death any of the incidents of ownership…”
In other words, if the person who died owned (or in any number of ways, had full or partial control of) the policy before he kicked, the proceeds are in the estate for Federal tax purposes.
Well, I’m confused actually. I don’t really see how you can claim that breathing, sex, etc. are not value-added. After all, breathing definitely adds value to me…It supplies me with the oxygen I need to metabolize food, create energy, etc. Obviously, besides the intangible ways, sex adds value if it produces the union of an egg and sperm and the subsequent development of a little being. So, I don’t see how your principle rules out taxing these things. (As for changing money, certainly there has been talk of taxing exchanges between different currencies which right now aren’t taxed, although you do usually pay some fee to the company who does it for you.)
I think as a practical matter, we tend to make a distinction between transfers involving money or things that can easily be assigned a monetary value and those that don’t. And, we also tend to tax where it is in some sense the least painful, as others have been pointing out. But, I don’t think there is any overarching principle.
By the way, I was reading in an article on the estate tax that the U.S. is one of few Western countries that has it. However, we are also one of the only ones that does not have a “wealth tax”. That is not even a tax on an exchange at all!