I was merely poiting out the fact that “parent are going to wish the best for their kids” though perfectly understandable, isn’t really a relevant argument in this debate.
That was basically my point. That the argument should be focused on the positive or detrimental results inheritance could have on society, whether it’s equitable or not, possibly on general principles but not on the wishes of parents, since going this way, we could justify pretty much anything.
If you inherit the money and spend it, you pay sales tax where applicable. If you earn the money and spend it, you pay tax when you earn it and when you spend the rest. You’re still giving a huge break to inherited wealth if they get to skip paying taxes when they receive the money. If the principle is that eventually paying one tax makes you immune from other taxes, I don’t see the logic.
Why isn’t it? It explains the motivation to exploit various legal strategies that will definitely be explored following a dramatic hike in inheritance taxes. The wealthy won’t be seeking to save money out of extreme greed (as has been stated by DrDeth) or by some compulsion to keep society inequitable (as has been implied by SentientMeat) but out of a legitimate concern to preserve what they’ve accumulated for the benefit of the their children.
I mean, if we’re going to characterize people, let’s at least be evenhanded about it.
But why would you want to make an exception for a specific kind of wealth? For instance, me and my brother inherited each half a farm from our parents. My brother kept his half of the farm, while I sold mine and put the money under my matress. For what reason exactly should my children pay a tax on my estate, while my nephews wouldn’t have to on their father’s estate?
I would hope that jealousy is not what informs our tax policy. I’ve always thought that tax policy should be formed with one objective in mind-- to raise the money needed by the government in the most even handed way possible. I don’t think it’s good public policy to use the tax code to punish someone whose parents are wealthy. No need to knock them down a few rungs on the socio-economic ladder in the interest of “equality”. That is simply not the kind of society I want to live in.
If someone inherits cash, that cash should be taxed the same as any other cash that person receives (as income). Assets should be taxed at the time of sale, not at the time of inheritance since inheritance is not a voluntary transfer and a taxation can often lead to liquidation of that asset. As long as the heirs inherit the original basis (see my house inheritance example above), then the full tax will be paid once the asset is sold.
Taking the original value of the property as reference would cause some problems. For instance, two children inherit from their recently deceased father a house that was bought for 20 000 in 1920 and 20 000 in cash. Do you think that if one was saying “I’d like to keep the house, and you could keep the cash”, it’s going to fly? Whether or not you’re going to tax it, you’ve to take into account the actual value of the estate not it’s value at some random point in the past.
Also, you didn’t consider the case when the house actually lost value. Your parents bought a house during a bubble and in a neighborhood that degraded a lot. Or maybe they just didn’t take any care of the house, and it’s about to collapse. It’s now worth half the price they originally paid for it. Are you willing to pay a tax on its original value? Are you willing to pay taxes on the basis of the original value of your mother’s 12 yo car? Of her Enron’s stocks?
Yes, but it’s exactly the same if you get the money by being paid for your hard work or because a random benefactor gave it to you. In all these cases, you’ll get taxed when you’ll receive the money and you’ll get taxed again when you’ll spend it. There’s no difference.
I don’t think anyone is suggesting eliminating capital gains taxes on inherited assets. So there isn’t any break involved.
Thus, when the heirs receive the shares and then sell them and realize the profit, they pay capital gains taxes. It would therefore be unfair to proactively tax them on the assets before they realized the gains, and then tax them again when they realize the gains.
Regards,
Shodan
Why not? They both know the rules, so they can make an informed decision. And it’s not a “random point in the past”, so calling it that is intellectually dishonest-- it’s the value at the time of purchase. There is absolutely nothing “random” about that.
That would be a loss, not a gain. You don’t pay tax on a loss.
I’m not positive you’re wrong. Off to do more research.
Yes, but you didn’t originally mention this because it could a motivation to exploit legal stategies and would defeat the purpose of higher taxes, but in response to a statement regarding whether or not inheritance made sense in a society (allegedly) based on merit. “Parents are going to want their kids to get their hard earned money” doesn’t answer this question. Of course, they will. Whether or not it’s just. Just like they’ll want them to inherit the priviledges of nobility they won for themselves on a battlefield.
CPAs, please advise if this is correct:
From this, it appears that current estate law does indeed exempt asset appreciation from being taxed at all.
You’re not “punishing” him. The money isn’t his own, and he didn’t earn it. He’s not “punished” anymore than someone who doesn’t inherit because his parents were poor or disowned him. He’s not punished anymore than I am when I don’t win the lottery.
The only ones for whom you could make this argument are the parents, who aren’t grantedd the right to dispose of their money in the way they see fit.
Of course it’s a voluntarily transfer. I’m not obligated to choose you as my heir, and you’re not oblgated to accept my heirlom.
Thanks for the research. I think this is a bad feature. Not only is there no reason for the preferential treatment, it’ll most likely lead to some other adjustment to make the whole thing more “fair” and thus more complicated.
But the fact of the transfer is not voluntary, unless you know of some way to “take it with you.” 
There is no way to not transfer it, so it cannot be called voluntary.
If I tell you that you must sell your house tomorrow, doesn’t matter whom you sell it to, would you call that a voluntary transfer?
Some people are making that argument. Re-read post #8.
What part of “unlevel playing field” don’t you understand?
No, it’s class warfare, and the middle class is fighting back after the upper class ripped them off, and continues to attempt to rip them off. Frex, the Republicans in Congress backed off from their budget cuts to Medicare and school lunches because they’d just voted to extend the tax hiatus on the estate tax, and they didn’t want Dems to be beating them about the head and shoulders for giving to the rich and taking from the poor so blatantly. But rest assured, the Repubs will be going after those programs full throttle in 2007.
Just as a thought experiment, is there any reason you would ever find valid for increasing estate taxes?
Perhaps because … they’re sticking it to the man?
So, you’re not going to debate anyone who disagrees with you? I guess that IS an easy way to win all your arguments, and it keeps 'em real short, too.
That doesn’t talk about punishment. It talks about not giving people random rewards just because they were born into wealth. Look, the point is that one can look at the estate tax from two angles. From the angle of the person who earned the money, it seems reasonable that he should be able to pass on some of this to his loved ones when he dies. However, from the angle of the person who inherits the money, it seems to pretty much make a mockery of the idea of equal opportunity. In fact, things are already unequal enough between the lives of people growing up in rich or poor families without adding inheritance into the mix.
It seems to me that the estate tax is some sort of compromise between the two points of view…i.e., the point of view of the dead-and-rotting and that of the living. And, if anything, it currently errs far more toward the side of the dead-and-rotting. I.e., we have decided that we don’t really believe in “equal opportunity” in any legitimate sense of the words but that we will at least take a portion of the money for the government so it can be used (among other things) to at least help provide some very bare minimum to those who are on the short end of the born-into-money lottery. We’ve gone from “equal opportunity” to “everyone is at least entitled to some bare minimal amount of opportunity”. For some reason, the rich are supposed to be up-in-arms about this.