It was perfectly legal to do so, and do so year after year. Few took advantage of it. Even when the ET was at it’s highest. You can also transfer Real Estate in many instances- by adding their name, and ther was also MANY ways of “giving” the estate away while you were still alive to your heirs. Few did so.
Inheritance is, IMO, a socially inequitable mechanism of acquiring great wealth. It is truly an accident of birth that you happen to be occupy such an upper percentile. Indeed, it is arguably a factor in social immobility, which should surely not characterise a land of genuinely equal opportunity. Is it understandable that one might wish to make one’s progeny underservedly rich at a stroke? Of course. But governments are invested to view such evolutionary urges dispassionately, for the good of all.
I consider that the UK’s 40% tax is a fair balance: one can still make one’s children enormously wealthy, but they can’t do the same to theirs without some of the hard work that the ability to amass such fortunes is meant to reward in the first place: no unmeritocratic (and undemocratic IMO) dynasties are allowed to form. For example, your kids might control a 60% stake in your mansion, but your grandkids will be left with only 20% of it unless your kids worked to buy back the other 40% off the state (ie. everyone else).
As for the loopholes, well, I’m all for a honey-trap approach. What is left of the British aristocracy plays a good trick of leaving their estate to the heirs at least 7 years before they expect to die, since if they do die within those 7 years, it is taxed at full whack retrospectively. Increasing that time to 15 or 20 years, out of the blue, puts the giver in a position of grave risk, with everyone else reaping the winnings from those lost bets. For sheltered assets, I’m all for a similar tactics: “you have two weeks to declare such and such assets before they are returned to what will then be their rightful owners (ie. everyone else)”.
Well, with nobility officially abolished in the United States for well over 200 years and aiding and abetting having been a crime at least that long, these examples aren’t particularly convincing. It’s unclear that wealth alone is antisocial, though it can certainly be used antisocially, as can any possession. You’ll have to make a much stronger argument that inherited wealth somehow hurts society before advocating punitive taxes in the name of protecting society.
Because whoever earned the million before leaving it to Jones presumably paid income or capital gains taxes on it already.
As a minor note, is the million-dollar inheritance a big pot of cash, or can it be in property? I can imagine a large family farm, whose main asset is a hundred square miles of rich fertile land worth, say, $10 million. If there’s a big inheritance tax at each generation, how long before the entire farm belongs to the government? I think there’s too much of an impression that the wealthy have big hoards of cash that they swim backstrokes in, a la Scrooge McDuck, and inheritance tax is just a matter of grabbing a few truckloads while everybody’s at the wake.
That presumption is incorrect. If the estate tax is eliminated, many capital gains will never get taxed once, let alone twice. And any time anyone makes money, they get taxed. It doesn’t matter if the person that pays them “already paid taxes on it” or not. If I’m charitable and decide to give you a million dollars, the notion that you should get it tax free because I already paid taxes on it falls apart. The recipient gets the money for the first time, he pays taxes on it when he gets it. It is not double taxation.
Well, I doubt that the goverment will keep the land - they’ll probably sell it off to someone else, but that’s not really the point.
How about, just off the top of my head, we include an exemption, or a much lower estate tax rate, for any property on which the estate tax was paid when the bequeathor inherited it?? or the value of such property. That would slow the shrinkage of your family farm, at least.
It might get very complicated in other situations… a retail mogul dies, and his estate includes several businesses that he inherited from HIS father, but most of them have increased in value since then. (Pay low rate on the value that they were inherited at, adjusting for inflation perhaps, and high rate on the added value.)
Proceed to poke holes in this suggestion.
Sounds to my like more sour grapes and rich-people bashing. I am of the opinion that you should keep as much as possible because that the government will mismanage my tax dollars far worse than I ever could.
No one has made a credible argument for increased estate taxes. “Because they’re richer than me and can afford to” is not a valid reason.
Income disparity is not due to inherited wealth. It is the result of a wide and complex range of other socio-economic issues. Estate taxes are just a “feel good” to make people think they are stickin’ it to the man.
Well, it isn’t if the money was accumulated through normal income, taxed accordingly.
In that case, have the person inheriting a property pay the capital gains tax the dead person would have paid had he sold it at the moment of death. As a result, if the inherited property does not continue to appreciate, it won’t be taxed again (or at least not significantly). Tax wealth only on its growth - don’t penalize it for stability.
That’s already covered for gifts over $10,000. What I’m objecting to is a worst-case scenario where two or more generations of a family rapidly die of following some epidemic illness, setting off a chain of inheritances with the government grabbing a big cut at each step. A surviving grandchild could very rapidly be left with nothing, or an estate that is so burdened with tax claims that it may as well be nothing.
Doesn’t the current exempted amount prevent any possibility of someone being left with nothing? I’m no CPA, but isn’t the exempted amount in 2006 $2 million? So how is it possible to get left with nothing?
Like any other victim of misfortune, from New Orleans to New Delhi, surely? The grandchild has nothing anyway - it all belongs to his grandparents, and we are debating what portion is socially equitable for them to shower upon him as a gift.
I sincerely hope so. It’d be a shame if someone inheriting a family farm has to instantly mortgage it just to pay the inheritance tax. Personally, I’d be fine with eliminating (or hugely reducing) inheritance taxes on land completely, on the basis that the existing property tax is enough of a bite.
Though I have a business degree, I’d have to do a lot more reading before engaging in a detailed analysis of inheritance tax reform. I have a number of basic objections to punitive taxes of any kind, or efforts to use taxation to “smooth” society. I’d prefer taxes to never rise above the level of “nuisance”, though naturally the wealthy can tolerate much larger nuisances than anyone else.
I’m considering the possibility where the family’s wealth is mostly in one large immovable asset, like a plot of farmland or a factory. A major tax bill suddenly requires a big cash payment, which could force the inheritor into debt or a rushed sale of the asset. Unless the IRS is willing to be a lot more understanding and patient than its reputation indicates, I can see an inheritor getting seriously clobbered, especially if the parent who was the key manager of the asset died without any warning (even worse, intestate).
I don’t think taxation is supposed to considered a misfortune, randomly devastating people. And India has its own problems, which I think are outside the scope of a discussion on inheritance taxes of the U.S. and U.K. (and Canada, which I, being Canadian, expect to reference by and by).
I’m definitely not going to debating anything with an eye on what is socially equitable as a factor. Sorry, Karl.
I must be getting sleepy, or just indecisive. What I meant was:
I’m definitely not going to debate anything that keeps an eye on what is “socially equitable”.
Virtually all cash transfers are taxed, I don’t see what makes estate transfers different. The idea that the wealthiest americans should experience not only unprecedented growth in income combined with lower tax rates is unfair to the rest of society. Taxes are a responsibility you pay to have a society that provides education, protection, social mobility and a social safety net. If the wealthy are experiencing rapid economic growth it is irresponsible to shift the tax burden off of them and onto middle class people who are experiencing far less economic growth.
Could you use some specific examples in which you used your personal wealth to build roads, defend our country, conduct medical research, inspect food for microscopic diseases, or imprison lawbreakers? Seems to me that these are all essential government services that require taxes, and I’d be interested to know if you do all of them better than the government does.
I have zero problem with taxing the transferrance of wealth. What is being taxed in an estate tax is not death, but the transfer of wealth to another person. If I just up and gave someone $5 million in cash, that person would have to pay taxes on it, even if I already did when I earned the money. Does my untimely demise and the transfer of the $5 million in my personal vault mean that nobody should pay taxes on that transfer?
(Side note: I believe the transfer of farms and related property are handled somewhat differently than other estate assets. Factcheck.org says that of the 440 farm estates that were taxed in 2004, roughly 40% paid an estate tax valued at 1.6% of the estate. Plus, common sense should tell us that if Bryan’s point about government slowly taking over all farms through the use of the estate tax, that takeover should have already been complete decades ago.)
But in that example it wasn’t the taxation which was a misfortune but the sudden family-killing epidemic. If the natural misfortune had somehow wiped out the *wealth[/]i of the grandparents rather than their actual lives, the grandchild would deserve no more sympathy than the rest of us who are born without a fortune.
No apology necessary, Pinochet.
Really? If my parents bought a house for $100K and leave it to me when they die, don’t I inherent that $100K basis also, so when I evenetually sell it, I have to pay taxes on the gain. If the current system doesn’t work that way there is no reason it couldn’t be made to do so. That way, if the house is worth $1M when I inherit it, I won’t have to sell the house just to pay the capital gains tax.
My concerns about the gradual confiscation of family farms isn’t based on the current laws, but the OP’s proposed increase to “a very large amount”. The OP had UK levels in mind, which are not crippling, but there are quite a few people in this thread with much higher levels in mind. I’m pointing out that in a rush to punish the plutocrats, extremely high inheritance taxes could easily clobber farmers out of existence.
Heh, Pinochet. No need to be formal; call me “Gus”.
Good question for the accountants among us. I’m not qualified to answer but surely there’s a CPA among us.
Er…yeah. I know. I was addressing the OP. Read the title: What if, instead of trying to remove the estate tax, it were increased? My assumption was that by ‘increased’ the OP meant to lower the current cap (as it would kind of be unfair to tax at a higher rate if its currently between 45-47% according to 19ForMe and kicks in after $1,500,000). Assuming the cap would be lowered I’d say it definitely WOULD impact the middle, upper middle and lower upper classes more that it would the super wealthy (who presumably are already above the cap).
I guess I don’t understand the underlieing problem here. If I inherit a chunk of money (whether or not taxes were paid on it previously) I will still pay taxes from USING the money…unless I simply stuff it into a mattress forever…won’t I? If I purchase a new house, a car, a big boat, etc, I have to pay taxes on all that stuff (and luxury taxes can be pretty damn high…least they were when I lived in Virginia). If I inherit a house then eventually I’ll pay taxes on the sale of the house…unless I keep it forever of course. SOMEONE will eventually sell it though so in the end the government will get its pound of flesh…won’t it?
-XT