Of course they could. But they’ll likely not agree on such a sharing because what matters is the actual current value. That’s just common sense. If there’s a disagreement about an estate and the case go to court, the court isn’t going to use the value of the elements of the estate in 1920 as a reference. “I agreed, but they had lied to me in this document mentionning the value of the house” “No, they didn’t lie, 20 000 $ was indeed the real value 80 years ago”. Dubious.
What I meant by “random point in the past” is that the reference point in the past isn’t fixed and will vary for each element of the estate. It will be the value of this piece of land in 1923, of the house last year, of the diamond ring 25 years ago, and so on… And besides no making much sense, it would extremely inconvenient. Each asset would have to be presented with an evidence of its price when bought, or to be apraised by some retired expert who was familiar with the relevant market 34 years ago.
There’s no loss involved. You had nothing, then you inherit and get something.
And what you get isn’t a 20 000 house in the middle of nowhere but a 1 million dollar one in a now urbanized area. It’s not a brand new car but a 12 year old one, and so on…
What you’re proposing is to inherit something and then pay tax on the lowest of two values : the current value and value at the time it was bought. On the basis that somehow you’d “lose” something both if the value of the estate has increasd and if it has decreased.
The motivation is punishment arising out of jealousy.
I don’t understand this “equal opportunity” argument. If it’s valid, then we should limit the ability of parents to help their children while the parents are still alive.
Income, perhaps. Capital gains, nope. The way US inheritance law works right now is that inherited property (house, stock, whatever) is valued at its present value for estate tax purposes, but there’s no automatic capital gain payment.
If I buy 10,000 worth of stock, and it’s worth 1 million when I die (that is, I think, under the current cutoff threshold), there are no capital gains paid on that million, ever. If I sold it a week before I died, I’d have to pay income tax on the 990,000 increase in value. If I leave it to my heir, and he sells it a week later for 1 million, his “basis” is whatever it was worth the day I died. In this scenario, the gummint makes not a dime on that increase in value.
I’d love to see that changed - the estate should pay capital gains on things that the person would have been tax for had they been sold during his lifetime. It’s quite a nice little loophole, and one that anyone with any investments (including houses) benefits from.
The loss of possession isn’t voluntary. But the transfer is. And actually, I have a way to “take in with me”. I can be buried in a gold casket buried in a marble vault, for instance.
It’s purely on a voluntary basis that I will decide to make you my heir (providing that the local law doesn’t prevent me from freely disposing of my esate by will, which would be the case in France). Hence it’s a voluntary transfer.
I don’t understand this argument. Valuing assets, while not simple, is not rocket science, and accountants do this every day of the week.
No more inconvenient than if the original owner were to sell the assets. There is no added complexity.
Again, I don’t understand what you are saying. I’m advocating that the tax rules stay exactly the same before and after the inheritance. There is nothing complex or tricky about this.
Then, show us that it’s indeed a “punishment” of the heir, and that it’s "arising out of jealousy.
Let’s assume a veteran is awarded a pension. The pension is passed onto his heirs and onto the heirs of his heirs, and so on. Basically, it’s the same as a priviledge based on nobility.
Now, someone is arguing that such pensions shouldn’t be hereditary. The veteran earned his pension, but the heirs certainly didn’t.
In this case too you could argue that this is “punishing” the heir and assume it’s motivated by jealousy. Such a statement doesn’t tell us if abolishing hereditary pensions is the way to go or not.
And if I understand correctly the previous posts, it’s already the case, since hand-outs from parents above a given amount are taxed.
Besides, there’s a very important difference. As long as you’re alive, you can argue that your freedom to freely dispose of your wealth is infringed by preventing you from giving it to whomever you want. But once dead, you don’t have any “freedom” that ought to be respected.
We traditionnally acept the concept that your will is to be respected, but we could as well decide that your will becomes completely irrelevant once you’re dead because, not being a living human any more but a mere piece of meat, you don’t have any “right”. So, it’s up to the living to decide what to do with this huge stack of bills you hide under your mattress, which has no owner and isn’t different from cash abandonned on the pavement.
The problem with such a statistic is that it convolves two things: the share of income earned by these people and the rate of taxation on that income. As it turns out, the huge lion’s share of the disproportionality in the amount of taxes these groups pay is due to the vast inequality in income, with progressivity in the tax rates contributing a much lesser amount. (And, this progressivity is further reduced once one considers state and local taxes, which tend to be regressive.)
What this does illustrate though is that because the income distribution has become so skewed, the most effective way for the government to increase its revenue is to tax the upper incomes more than they do now…If you try increasing taxes further down the ladder, you have to do it some combination of very broadly and very steeply in order to gain a significant amount of revenue. Our society has reached a point of inequality where a statement analogous to “I rob banks because that is where the money is” applies to whose taxes must be increased to actually give the government a decent additional amount of revenue.
But western societies are not solely based on merit, nor do I recall at any time saying that they were or should. “Merit” is too subjective a term.
But in societies where feudal systems of nobility have been abolished or marginalized (and for hundreds of years, no less), the notion is irrelevant. Aside from your genetic legacy and whatever positive or negative environmental influence you’ve had, what you leave your child is wealth, and not much else.
Umm, it’s relevance to this discussion? Ideally, citizens will receive equitable treatment before the law and have inviolable civil rights, including the vote. While it might be feasible to edge up taxation on the wealthy during this recent period of economic expansion, I don’t see the value in pursuing economic equality for its own sake, considering how destructive such a quest has proven to be time and again.
No, I’m not going to debate in this thread the merits of creeping socialism. If you want to debate how much taxation the wealthy can comfortably bear in order to get better government programs and reduce the tax burden on other citizens, fine. If you want to tax the wealthy radically in order to make them not wealthy because you view the existence of wealth as inherently unfair, talk to someone else.
And how do they value them? The answer is: at their current value. The argument is that only the current value is relevant for all involved.
Nope. If the riginal owner were to sell the assets, he would sell them at their current value. You’re not going to convince someone to buy a house worth 100 000 for 1 million because it’s the price you bought it.
The complexity added is that you have to evaluate each element at the price they were worth at various times in the past instead of just looking at the current market price or just selling them.
You don’t get taxed for a loss, because you dont make any money on a loss. But by inheriting something you’re making money. There’s no “loss” involved at all.
If you want simple, here’s simple : you receive an income, that can be money or stocks, or houses, or bags of beans. You’re taxed on this income, in the same way you’d be taxed on the income received in payment for your work. And simply on the basis of the actual and current value of whatever you received.
Let’s assume you’ve been working for me and I can’t pay you. I offer to instead give you my old car as payment and you agree. Now, the IRS wants to know how much you made this year. What value do you think they will assign to the car I gave you? The price I bought it for 20 years ago? I don’t think so. It will be valued at its current market price that can be higher or lower depending on it being an historical car or not.
Shodan, although I virtually always disagree with you, I appreciate the gentlemanly way in which you conduct yourself. You’re a classy guy. And you might still be right, who knows if the MSN site is correct?
I actually just got back from Hawaii on a trip financed by a bequest from my deceased great-aunt, who had a taste for wealthy men. And we are engaged in near hand-to-hand combat with the IRS over how much tax must be paid on a big whack of stock that she inherited from her last husband, but which cannot be sold (?). So the whole topic is near and dear to my heart.
Anyway, I have no doubt that your cite is the Straight Dope. Now, if you can advise me on how to convince the feds that the stuff we rolled over in 2003 was really on the Schedule C, and we don’t really owe them as much as they claim…
clairobscure: I can’t make sense out of what you are posting, so I’m going to just re-iterate what I originally said and leave it at that. I am simply proposing that the heirs inherit the original cost basis of an asset and that they pay taxes only at the time of sale of that asset. The tax is computed on the difference between the sale price and the purchase price (the original cost basis). I don’t understand why you want to make it more complicated. If the assets were never passed on to heirs, but were sold by the original owners, the exact same tax compuatation would be made.
I don’t think an inheritance should be treated as a sales transaction, and while I have no problem with using taxes to give disadvantaged people a “leg up”, I strongly object to using the tax code to inhibit wealth acquisition. That’s where the “jealousy” comes in. Income equalization is a destructive goal, as has been shown over and over again throughout history. I short, I have no problem trying to raise people up, but I do have a problem with trying to cut people down. We can do the former w/o doing the latter.
The MSN quote is correct. There is a “step up.” It does work the other way as well. You could have a “step down.”
Basically, the Estate Tax hits “fair market value” at the date of death (or six months later by election). Try to imagine the troubles if you were to reconstruct the cost basis of all the assets the deceased acquired over their lives. Did the mint Babe Ruth card come in a 5 cent pack of gum or from a $50,000 auction bid. No one is alive to answer. This rule is supposed to ease the compliance burden on the relatives.
There have been pushes in congress to treat a death as a taxable disposition instead of the current estate tax. In that case, everything the deceased owns would be taxed as gain between the fair market value and the historical cost basis. This has appeal but in many situations the records could be a problem.
I don’t really have much of an opinion on this other than to agree with the idea that raising taxes increases incentives to spend economically valueless time and energy trying to avoid them… but this is not necessarily a very strong reason to avoid raising those taxes.
Bu I do wish there were some way to help all the poor little rich kids in their travails. I grew up with a lot of these kids, and let me tell you: their suffering at having to grow up rich is truly heartbreaking: http://www.hbo.com/docs/programs/born_rich/index.html
This is one of those great points of conflict. I assume the stock is either restricted or part of a private company. Establishing fair market value is always a trick.
As a hypothetical, what happens when Sam Walton or Bill Gates die? The stock they own is theoretically valued based on the closing price of the stock on the public market. Given the size of the blocks of stock they own, it really isn’t all that meaningful. No one has the $50,000,000,000 needed to purchase. Maybe a discount should be given to entice a buyer. Maybe it should be valued at $40,000,000,000. On the other hand, maybe the ability to gain control of the company in one shot is worth something. Maybe someone would gladly pay $60,000,000,000 for control of a monster public company. Hard to say. Taxpayer will say discount for large sale. IRS will insist on premium for control.
That is the easy case where the public markets already provide some starting point for negotiation.
What is a private company worth that owns 40% of the parking garages in Phoenix?
What if the Google founders died in 2002? The business loses money but looks promising.
Heh, just kidding. One of the major requirements for not living in fear, I find, is protection against the casual seizure of your property, be it by roving brigands, the King’s taxmen, or the secret police. The idea that property is yours to be disposed of at your pleasure (or, after your death, in accordance with your last wishes) and cannot be casually stolen, seized or nationalized is critical to a free society’s long-term stability. History is full of people who fell out of favour with the state, which had no problem killing or exiling the victim and seizing his property, for the personal enrichment of the local despot, or to prop up a failing dictatorship or whatever. I don’t see how seeking to protect (as much as legally possible) one’s property for eventual transfer to one’s children can be seen as unfair.
