Because the person who had the money is dead. So they don’t need it any more.
Here’s one for you: why not try to explain why because your daddy was rich you should be?
There’s probably no unarguable reason. However, here’s a couple. As a broad rule people get care from family in their aged years and they tend to leave their estate to their family. The family therefore “deserves” the money. However, the same logic does not support receipt of $20m.
Another one: There is some human emotional logic in allowing people to pass on the basic family property (the family house, heirlooms etc). That logic gets a bit tired when we are talking about Mumsie’s learjet.
None of the foregoing is definitive in any way. But don’t pretend that your POV is the only one with any logic or justice to it.
Well, a quick Google indicates it’s a rare occurence, but they estimate maybe 15/year might be affected. But I’m having trouble understanding why you’d consider it unlikely that a family farm or a large family property would have to be subdivided. Around these parts, real estate is horrendously expensive. As I read it, the exemptions are only for working farm land. Right now, a local 40 acre property is on the market for $2.5 million plus. It’s old family land – no one in this town flies Lear Jets. If it becomes an estate, that parcel is going to become McMansions.
I dunno – because it’s Dad’s money, he worked for it, and has a right to leave it to whomever he wants? The flipside of the question is, who is the government to decide that he can’t do that without giving them a big piece of it? You can’t go around saying “Why shouldn’t the government take the money?” You have to make a damn good case why they should.
The only mildly persuasive argument I’ve heard that would justify the government levying an estate is the “large inherited fortunes are toxic to Democracy”. If that could be proven, I suppose you could make an argument for estate taxes. But the estate tax was only imposed in the early 1900’s, after the days of the Robber Barons, and yet Democracy survived. The 39% maximum estate tax wouldn’t make much of a dent in a fortune like Bill Gate’s or Warren Buffett’s, and a (say) $6,000,000 estate really isn’t big enough to give you much political power. So from that standpoint, the estate tax is of limited utility.
(I’m also having trouble buying “the very rich have all the political power” argument. If that were true, why would we have an estate tax at all? In some sense, it’s a level playing field – we have all the people who are not rich who are voting to screw the rich, and we have the rich who are spending money to make sure that doesn’t happen. It’s like capitalism in action.)
I don’t find the “social classes” argument very persuasive, because the money isn’t going to the lower classes, it’s going to the Feds. And as P.J. O’Rourke puts it, giving more money to Congress is like giving liquor and guns to teenage boys.
As for the “level playing field” – not seeing a problem here. Bill Gates, Steve Jobs, and the hosts of lesser Silicon valley millionaires indicate to me that this is still pretty much the land of opportunity.
Frankly, the only social benefit I see from estate taxes is that it conceivably encourages the rich to indulge in Philanthropy – donating land to conservation trusts and contributing to charities.
On the flip side, estate law (based on some more Googling) is so complex and currently so changeable that estate planning is horrendously difficult. That’s a nice burden to put on the aged and ailing.
You’re correct. My apologies. Of course, then, that makes the mention of trickle down in the OP its own red herring. Unless col_10022 included it there as a separate item in a laundry list of gripes and did not mean to associate trickle down with the estate tax. Which seems likely upon another reading of the OP. I withdraw my objections and thank you for your obsevation.
Notably though, the Economist does not agree. At least not judging by the story in their publication just a couple weeks ago.
You’re asking entirely the wrong question. Using logic, it becomes acceptable for the government to confiscate all kinds of assets. Rather, the question should be, what rights does the government have to appropriate legally held assets? The usual and most defensible answer is, “The greater public good.” But given the many ways in which our federal government has found to inefficiently spend its revenues, I believe the “greater public good” would be better served by a government with fewer dollars to spend - no matter what the source of those dollars might be - income taxes, tarriffs, estate taxes, etc.
You’re right, I guess I should have said that several plantations were sold off due to the estate tax but they might not have been sold off if we had lost the Civil War. I was just trying to be cute and smarmy, it didn’t go over well I guess.
http://www.faireconomy.org/estatetax/ETMythsFacts.html
Myth: The estate tax must be repealed because it forces family farms to sell.
Fact: As with family businesses, this issue has been distorted. Only 3 of every 10,000 people who die leave a taxable estate in which a farm forms the majority of the estate. On April 8, 2001, the New York Times reported that the pro-repeal American Farm Bureau Federation could not cite a single case of a family farm lost due to the estate tax. Like businesses, family farms can be protected by raising exemption levels.
And lets us see why it’s none, and why I am not going to let Finagle do my Income taxes.
The current exemption is $2,000,000. (BrainGlutton left this very critical figure out of his otherwise fine cite up above) . In other words, first we lop off the 1st 2 MILLION dollars of the Estate, then we start figuring out the taxable portions the gains, and the tax. Next- the Spouse has an unlimited Exemption. Yes- that’s right- widows dont owe estate tax.
Then Family owned farms (and family owned businesses) get special treatment.
Family-owned farms and closely held businesses receive especially generous treatment under the estate tax.2 Farmers and small business owners may reduce the value of their real estate using a special formula as long as their heirs maintain its use as a family-owned farm or business and do not sell it to a nonrelative for at least 10 years. Special use valuation can reduce the value of the real property portion of most farms by 40 to 70 percent of its market value. In addition, estates in which farm and business assets make up more than 35 percent of the gross estate may pay their estate tax in installments over 14 years at reduced interest rates. Only interest is due for the first five years. In 2003, the interest rate on the first $493,800 of estate tax was 2 percent; the interest rate on amounts above that was 45 percent of the interest rate that applies to underpayment of tax (which was 4 percent for the third quarter of 2004).
So, let us take that farm for sale at $2.5 Mill. Let us assume that the farm qualfies for the lowest reduction- 40%. That leaves 1.5 million to be taxed. Minus the exemption of 2 Million, and that leave no Estate tax at all. The “Family Farm” will have to be worth something over **7 Million ** dollars before it’s taxed- and that assuming Daddy didn’t do **ANY FUCKING THING ** in the way of estate planning (a decent estate planner could get at least half of an estate that size free of estate taxes by use of trusts, etc- if not all). I mean after all, if Daddy is that stupid and figures he’s never going to die and doesn’t have to plan his estate, his moron genes are likely going to be passed to his children, and do we want morons inheriting lots of money? OK, but then, if the Family farm does happen to have a tiny amount of estate tax (and is any of us going to really cry when the kids inherit 7 MILLION $$ and have to pay some back?) then they get to pay off what they owe at an unbeleivebly great interest rate. Thus, sorry- no “Mc Mansions” due to the “family farm being forced to sell for estate taxes”. Hasn’t happened, doesn’t happen, can’t happen.
But here’s the thing- Dad didn’t work for it. Most Estate taxes are on unrealized Capital gains. Dad worked hard to buy a farm worth $50000. The real estate market made that same land now worth 2.5 Mill. The $2,450,000 difference has never been taxed (and likely never will be).
Another cite about no farms being “sold off”: http://democrats.senate.gov/~dpc/pubs/107-2-176.html
*Despite the fact that the argument has been made over and over again for years, no one has found an example of a farm that was lost because of estate taxes. Last year, a New York Times article cited the unsuccessful search of an Iowa farm economist for one family farm that was lost because of the estate tax. That same April 2001 article notes that the American Farm Bureau Federation could not cite a single example.
That shouldn’t be a surprise. Very few farms are affected by the estate tax.
In 1998, less than six percent of all farms had a net worth of $1.3 million, the amount of an estate that is completely exempt if it includes a family-owned farm. By 2009, estates of up to $3.5 million will be completely exempt. Less than one percent of all farm estates would be subject to estate tax at that point.
Farms are a small portion of taxable estates, about one-quarter of one percent of all assets in taxable estates in 1997. Farm and family-owned business assets accounted for less than four percent of all assets in taxable estates of less than $5 million.
Relatively few taxable estates are primarily made up of family-owned businesses or farms.
In 1998, only 1.6 percent of taxable estates (776 estates) had at least half their assets in family-owned businesses. Only 1.4 percent (642) had at least half their estates in farm assets and farm real estate. Thus, in 1998, farms and family businesses made up the majority of only 1,418 taxable estates, out of 2.3 million deaths that year.
Most of the relatively small number of taxable estates which include family-owned farms and businesses have more than enough other assets to pay estate taxes without selling the farm or business. Further, special rules for family farms and businesses exempt more of these estates from tax and allow them to take up to 14 years to pay any taxes that are due. *
No, I’m willing to concede that farms don’t necessarily get broken up. But do your stats include the old family property that’s not a working farm? Land rich but otherwise not wealthy? As I said, in my area, a rural town north of Boston, there are lots of largish properties. Put a large tax burden on the estate and there’s an increased chance of them going to become McMansions. So much for “small rural town”. (Admittedly, it’s more likely property taxes and sheer economic opportunity will force this conversion.)
Or dies suddenly in an accident at the age of 40? Or do you have all your ducks in a row estate wise?
“In 2003, the interest rate on the first $493,800 of estate tax was 2 percent; the interest rate on amounts above that was 45 percent of the interest rate that applies to underpayment of tax (which was 4 percent for the third quarter of 2004).”
Maybe that’s a great interest rate, but tell it to someone who’s inherited property and has to cough up $10K+/year in order to not sell it.
I think the $7million sneer is pretty telling. Again, it’s screw the rich. (Although nowadays, $7 million is a respectable sum of money, but hardly puts you in the category of stinking, step-on-the-faces-of-the-peasants rich.)
Yes, but that’s only if the family * wants * to sell it. If they want to keep it, it’s valued at the 2.5 mill, and they have to pony up the taxes. It’s a question of timing. If you want to modify the tax laws so that they pay the basis when they want to sell it, that’s fine. Same thing with any stocks associated with the estate. The time of death might not be the best time to liquidate. How much latitude do current estate taxes give you?
And the “Dad didn’t work for it” only (questionably) applies if you’re talking capital gains. If Dad has a pot of cash in the bank, you can’t argue that.
Well, yes, I do. And I am only in my late 40’s. But I admit that’s likely 'cause my Bro is a tax expert. Still, Life Insurance is pretty well known, so why no Life Insurance?
Yabut- it’s 7 Million in GAINS before you even START paying Estate taxes. Then, it’s 18% to 39%- after all the other exceptions and deductions. No small family farm has been sold off to pay Estate taxes- hasn’t happened, won’t happen, can’t happen.
From your post “Right now, a local 40 acre property *is on the market * for $2.5 million plus”. The “on the market” thing is generally an indication of “wants to sell” eh?
I think once we acknowledge that our government need tax revenue to fulfill its role. There are several ways we could raise that tax revenue: we could tax income, we could tax consumption, we could tax wealth, we could tax commerce, imports, we could tax any number of things (and we do). The question is how should the tax burden be distributed. Taxing large estates comports with the principle of tax progressivity (tax the people who can best afford to pay the tax).
I don’t know how convincing this argument will sound to anyone but George Washington abhorred the notion of a hereditary noble class. He likened dynastic wealth to the same thing.
Its interesting that you pick Bill Gates and Warren Buffett as examples because they are both leaving much of their wealth to a charitable foundation.
I don’t anyone said that “the very rich have all the political power” I did hear “the rich have political power out of proportion to their numbers.” I don’t think it is a matter of everyone trying to screw the rich and the rich trying to defend themselves from the onslaught, it seems to me that it is a matter of equity and equity demands more from those who have more than from those who have less.
The progressive nature of the tax system means that the lower classes get to keep more of what they have.
The level playing field doesn’t mean that you provide an opportunity for extraordinary people to achieve extraordinary success. IMO a level playing field means that there is a roughly comparable opportunity for success whether your last name is Bush or you don’t lave a last name. We will never get there but dynastic wealth creates a permanent overclass. There is a somewhat common sentiment I pick up from some people that rich people somehow deserve their wealth and that the poor somehow deserve their poverty, while I do not buy into this, even people who believe this crap must draw the line at attributing any virtue to inherited wealth.
There are no estate taxes for estates below 2 million dollars. spend a little money and hire an estate lawyer, it is not likely to cost very much unless you are extremely rich.
Starving the beast doesn’t work so long as our government has the ability to borrow money. Otherwise I totally agree with you, I don’t mind taxews as long as i feel they are reasonably well spent. If you want the government to spend money efficiently then why not focus on how efficiently they spend money not on cutting their allowance and hoping that the most deserving and efficient programs end up with the most money. Give the GAO some teeth (you would be surprised at how much crap and inefficiency these guys uncover but are told to do nothing about… it used to be welfare and social programs but these programs received so much scrutiny over the last couple of decades that they are running relatively lean, these days the fat is in the military spending and the Department opf Homeland Security).
That’s actually the second farm in this area that’s been sold in the last couple of years, both for huge amounts of money. I don’t know why people think land isn’t worth very much, around here in the DC area it’s very expensive. I’ve seen plenty of farms go in the last ten to twenty years, all because the cost is too much for them.
I think if they don’t raise or get rid of the estate taxes plenty of people will start to get hurt. I know that just my mother was worth 200K when she died and I paid people to take away her stuff. What happens to the people who’s parents bought a house in the 60s for $20,000, typical around here, lived there for the past 40 years, then dies. The house is going to be worth 600-700,000 with ease, then add on 401s, stocks, bonds things like that and with ease you can get well over 2 million. I know of a number of people like this, so instead what you’ll get is parents selling houses to their kids for next to nothing just so they don’t have to pay taxes on it.
Well at least you came up with an example. A 137 milion dollar example but an example nonetheless. I don’t think this is what people are thinking of when they imagine people selling the family farm to pay estate taxes.
As for parents selling their home for next to nothing, I have suggested to quite a few parents that they sell their home to their children for their basis plus $500K (if they have that much gain) and enter into a 30 year triple net lease so that their kids own the house but they get to live in it (and the first 500K of gain on a pirmary residence (by a couiple) is excluded from tax). There is so many things like this that you can do, we really want to catch the really rich folks.
To explain this- you are asked “why are you selling this great old family farm?” Now, think- you want a lot of dudes to show up and pay scads of cash for your stuff. So are you going to say “We’re a bunch of greedy bastards who couldn’t say NO to $137 million dollars” OR will you blame it on the Tax-man? Of course, you’ll make up a lie and blame it on the Tax man. Dudes will be sympathetic and you’ll get even more $$.
So, sorry, this story hasn’t been fact checked. It’s just what they said.
Nor does it make sense - how does “a death in the family” mean you owe Estate taxes on your farm? If the “member of the family” who died owned the property, it can NOT be sold by the family to pay off the estate tax, it’ll be sold by the ESTATE- which it wasn’t.
What the hell are you talking about? If the person who owned the farm left it to their family who has the money to pay the taxes on it without selling the land? Do have scads of money just laying around?
Do you know how an estate works in Maryland? Cause I do first hand, including selling land. Everything, and I mean everything is cataloged, given a value, then added together. The “family” sold the land the same way I did, via the estate, just because you read family doesn’t mean that it wasn’t sold by the estate. Hell I said I sold my mother’s house.
then they’re up shit creek when their kid dies at the ripe old age of 40 in a car accident and they have to pay taxes on their home just to live out their lives in and better hope that the kid didn;t cause the wreckor the house might get liquidated to pay a PI claim-- better idea to put it into an irrevocable trust, eh? .
then they’re up shit creek when their kid dies at the ripe old age of 40 in a car accident and they have to pay taxes on their home just to live out their lives in and better hope that the kid didn;t cause the wreckor the house might get liquidated to pay a PI claim-- better idea to put it into an irrevocable trust, eh? .
They have a 30 year lease, selling the property or even losing it in a PI claim doesn’t interfere with that lease.
I don’t know enough about how trusts and estates work to have a conversation about this but I have yet to hear soemone say that taking advantage of the 500K exclusion is a bad thing because you can still take advantage of all sorts of trust and estate planning techniques. But WTFDIK.
