The estate tax (1 Viewer)

 Talk to me about the estate tax.  I know a lot of people want to repeal it.  I think it should be increased.  A few thoughts:

1) When money changes hands, it's a potentially taxable event.  That doesn't mean it should be taxed, but when you earn money, invest money, win money, or receive a gift, there are tax implications.  This is just another gift.

2) Small inheritances are not taxed as "estates".  There is an exemption intended to allow a parent to pass ownership of their farm or family business to their children.  The estate tax only applies to the largest inheritances.

3) people who receive large inheritances get a large amount of government services for free.  They get the protection of the military, police, and court system, including the laws that keep me from claiming a portion of their inheritance.  Yet they don't pay taxes on income unless they earn it.  If they invest it they will be taxed, but putting large sums of money in the hands of people who don't have the savvy or experience to invest it well doesn't make have much societal benefit.  

4) unlike taxes on earnings, there is no disincentive from a high estate tax.  If anything, it encourages top earners to continue to work, which is apparently very important to the people who want to repeal the estate tax, as they generally argue that high taxes on the wealthy are a disincentive.  If you want to pass on generational wealth, earn more.  

5) it encourages philanthropy over nepotism.  If you can give a lot to charity or a little to your kids you might give more to charity.

6) it creates an incentive for children of the wealthy to apply themselves.  People with good genes, no economic didadvantages, access to the best schools and access to networks of people who can help them succeed have little incentive to work if they receive an enormous tax free windfall.  This is why most inheritances - even the very largest - are gone in 3 generations.  But if instead you only inherit a comfortable life, you have incentive to put your gifts to productive use.  

7) an increased estate tax is one of the few viable ways to address the growing gap between the rich and poor in this country.

Some of the arguments against the estate tax

It's my money, i should be able to do what i want with it.  Yes, and you still can, like any other taxed transaction.  

But i already paid taxes on it.  Yes, you did, and for those taxes you received the protection of the military and the court system and police and all manner of government services.  The person inheriting the money also receives those protections and services, and is paying a tax to do so.

Why should my kids pay taxes when i die but not when i'm alive?  Actually, any substantial gift is a taxable event.  If you receive ten grand or more as a gift in one year you are supposed to pay taxes on it.  The threshold for the inheritance tax is thousands of times higher than that, and only on the money above that threshold.  

It provides a disincentive to work.  Actually, no.  You still have an incentive to maximize your earnings while you're alive. But even if that weren't true, it's better to increase taxes on the highest earners' estate than their income, because it's better to have more money in the hands of the most successful people while they're alive than after they're dead.  If you want lower taxes for the wealthy, a higher estate tax is the perfect compromise.  

putting large sums of money in the hands of people who don't have the savvy or experience to invest it well doesn't make have much societal benefit.

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In a lot of ways that is a very republican statement to make.

You nailed it, fred. 

Yes.  I would like to see the estate tax expanded and increased

bostonfred said:

But i already paid taxes on it.  Yes, you did, and for those taxes you received the protection of the military and the court system and police and all manner of government services.  The person inheriting the money also receives those protections and services, and is paying a tax to do so.

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Not sure I understand this part.

By my interpretation of this....everyone should pay X amount of money every year (regardless of income) to be protected by the military, court system, police, etc. Right?

I'm against expanding a tax only for the purpose of redistributing wealth. I don't think the government needs to be involved in the distribution of a rich persons assets any more than it should be involved when it's a poor person. 

KCitons said:

I'm against expanding a tax only for the purpose of redistributing wealth. I don't think the government needs to be involved in the distribution of a rich persons assets any more than it should be involved when it's a poor person. 

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Exactly.  Redistribution from a productive, tax paying citizen to an unproductive heir who receives ample protections and government services but doesn't have to earn money and thus may not pay taxes should be a taxabke event.  

I find it funny how this has become such a big issue since its applies to such a small amount of people.   Found this interesting.

The Largest Estates Consist Mostly of “Unrealized” Capital Gains That Have Never Been Taxed


Much of the money that wealthy heirs inherit would never face any taxation were it not for the estate tax.  In fact, that’s one reason why policymakers created the estate tax in 1916:  to serve as a backstop to the income tax, taxing the income of wealthy taxpayers that would otherwise go completely untaxed.

Under the current tax system, capital gains tax is due on the appreciation of assets, such as real estate, stock, or an art collection, only when the owner “realizes” the gain (usually by selling the asset).  Therefore, the increase in the value of an asset is never subject to income tax if the owner holds on to the asset until death.[12] 

These unrealized capital gains account for a significant proportion of the assets held by estates — ranging from 32 percent for estates worth between $5 million and $10 million to as much as about 55 percent of the value of estates worth more than $100 million.  (See Figure 3.)[13]

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#5

The fed estate tax starts at over 5 million, if you have this problem, good for you.

derek245583 said:

Not sure I understand this part.

By my interpretation of this....everyone should pay X amount of money every year (regardless of income) to be protected by the military, court system, police, etc. Right?

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No, there are more than enough taxable events.  Most of us do pay something annually between income tax, sales tax, real estate tax, and more.  The way the tax code is written, taxes are usually paid when money changes hands, and usually in a manner commensurate with the amount as a rough proxy for the amount of government we consume.  

99.2% of estates are below the $5.45M estate tax exemption. The rate is 40% above that - down significantly from the old rates of 55% & up. 35 states have no estate tax.

Anything under 3 racks is just a get together.

This was meant for b day thread.

Repealing the estate tax would result in an enormous tax increase for lower and middle income taxpayers under the current rules.  When someone inherits property, their tax basis is value on the decedent's date of death whether estate tax was paid or not.  That means that when the heir sells the real estate, stocks, etc. they only pay tax on any increase in value from date of death to date of sale. Without the step up in basis provided by the estate tax, the heir would pay tax on the appreciation from the date the property was purchased by the decedent until the sale date. 

This means if you inherit your parents home they bought in 1960 and sell it in 2016, you would would report the difference in value from 1960 to 2016 as a capital gain.  Same with GE stock bought 40 years ago. 

Repealing the estate tax would result in a huge tax increase on estates below the estate tax threshold as there would be no justification for maintaining step-up basis.

Put another way, middle class and lower class households benefit greatly from the estate tax, which allows for the avoidance of capital gains on inherited assets.

So if the estate tax were eliminated, only the very rich would benefit, and everyone else would likely end up paying more in taxes. 

Tom Hagen said:

Repealing the estate tax would result in an enormous tax increase for lower and middle income taxpayers under the current rules.  When someone inherits property, their tax basis is value on the decedent's date of death whether estate tax was paid or not.  That means that when the heir sells the real estate, stocks, etc. they only pay tax on any increase in value from date of death to date of sale. Without the step up in basis provided by the estate tax, the heir would pay tax on the appreciation from the date the property was purchased by the decedent until the sale date. 

This means if you inherit your parents home they bought in 1960 and sell it in 2016, you would would report the difference in value from 1960 to 2016 as a capital gain.  Same with GE stock bought 40 years ago. 

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Beat me to it. 

KCitons said:

I'm against expanding a tax only for the purpose of redistributing wealth. I don't think the government needs to be involved in the distribution of a rich persons assets any more than it should be involved when it's a poor person. 

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Agreed, it will just get blown on Obamacare or another money pit. 

I say they separate money which has been taxed before vs. not.  Only for $ in the untaxed bucket, the person receiving the benefit should be taxed at their income tax bracket or capital gains rate, whichever is higher.  This would be fair in my opinion.

bostonfred said:

Why should my kids pay taxes when i die but not when i'm alive?  Actually, any substantial gift is a taxable event.  If you receive ten grand or more as a gift in one year you are supposed to pay taxes on it.  The threshold for the inheritance tax is thousands of times higher than that, and only on the money above that threshold.  

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This comment is kinda misleading.  If a person makes a taxable gift to another, it is the person who makes the gift who is liable to pay the tax, not the recipient of the gift.  Also I don't think I'd paint gift and estate taxes as being separate, now that they are linked in the unified system. 

bostonfred said:

Exactly.  Redistribution from a productive, tax paying citizen to an unproductive heir who receives ample protections and government services but doesn't have to earn money and thus may not pay taxes should be a taxabke event.  

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Yeah, but it's my heir. If they want it, find a way to tax it while I'm alive. Ultimately it doesn't really matter. If they raise the estate tax, those effected will find a loophole. As someone already mentioned, it will only hurt the smaller estates.

Fact sheet about the estate tax

KCitons said:

Yeah, but it's my heir. If they want it, find a way to tax it while I'm alive. 

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I don't understand the it's my heir argument.  Yes, it's your heir.  You should have the right to give your money to them.  You earned your money and have every right to give it to someone or spend it and different things you do with it are taxed differently.  If you spend money and pay sales tax, or get a tax break for paying mortgage interest, or give a gift, there are tax implications.  Whenever people get large sums of money, whether through earnings, capital gains, lottery winnings, gifts, etc, there are tax implications.  

There's nothing magical about the fact you're leaving it to someone you love more than i do.  Calling it double taxation is just spin.  The goverment actually gives you a massive exemption of literally millions of dollars for your heir.  Why is that exemption not high enough?  Because there are multi multi millionaires and billionaires trying to get you to vote on their behalf.  

I mean, there are already plenty of ways around estate tax.  That's what people pay accountants for.

The estate tax should be kept, but a mandatory Brewster's Millions clause should be added.  Would be a great boon for the economy to get that money flowing in.

Steve Tasker said:

I mean, there are already plenty of ways around estate tax.  That's what people pay accountants for.

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Right. We should fix that.  

pure red herring

bigbottom said:

Repealing the estate tax would result in a huge tax increase on estates below the estate tax threshold as there would be no justification for maintaining step-up basis.

Put another way, middle class and lower class households benefit greatly from the estate tax, which allows for the avoidance of capital gains on inherited assets.

So if the estate tax were eliminated, only the very rich would benefit, and everyone else would likely end up paying more in taxes. 

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Tom Hagen said:

Repealing the estate tax would result in an enormous tax increase for lower and middle income taxpayers under the current rules.  When someone inherits property, their tax basis is value on the decedent's date of death whether estate tax was paid or not.  That means that when the heir sells the real estate, stocks, etc. they only pay tax on any increase in value from date of death to date of sale. Without the step up in basis provided by the estate tax, the heir would pay tax on the appreciation from the date the property was purchased by the decedent until the sale date. 

This means if you inherit your parents home they bought in 1960 and sell it in 2016, you would would report the difference in value from 1960 to 2016 as a capital gain.  Same with GE stock bought 40 years ago. 

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Learned something new today...no wonder some people are so intent on repealing it...

bostonfred said:

I don't understand the it's my heir argument.  Yes, it's your heir.  You should have the right to give your money to them.  You earned your money and have every right to give it to someone or spend it and different things you do with it are taxed differently.  If you spend money and pay sales tax, or get a tax break for paying mortgage interest, or give a gift, there are tax implications.  Whenever people get large sums of money, whether through earnings, capital gains, lottery winnings, gifts, etc, there are tax implications.  

There's nothing magical about the fact you're leaving it to someone you love more than i do.  Calling it double taxation is just spin.  The goverment actually gives you a massive exemption of literally millions of dollars for your heir.  Why is that exemption not high enough?  Because there are multi multi millionaires and billionaires trying to get you to vote on their behalf.  

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Yes, there is something different about leaving your assets to an heir (which you describe as someone you love more) vs winning the lottery.  Whether or not you think they should have different tax treatments is fine, but to say that calling those two events different is spin is just wrong.

bostonfred said:

I don't understand the it's my heir argument.  Yes, it's your heir.  You should have the right to give your money to them.  You earned your money and have every right to give it to someone or spend it and different things you do with it are taxed differently.  If you spend money and pay sales tax, or get a tax break for paying mortgage interest, or give a gift, there are tax implications.  Whenever people get large sums of money, whether through earnings, capital gains, lottery winnings, gifts, etc, there are tax implications.  

There's nothing magical about the fact you're leaving it to someone you love more than i do.  Calling it double taxation is just spin.  The goverment actually gives you a massive exemption of literally millions of dollars for your heir.  Why is that exemption not high enough?  Because there are multi multi millionaires and billionaires trying to get you to vote on their behalf.  

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I don't understand why my assets should be treated any different than someone that has a fraction of what I do. If you want to change it, change it across the board. Tax all estates at 15% whether they are $100 or $100 million. If you punish people for being smarter, or richer, or frugal it will lessen the desire to do so. 

KCitons said:

I don't understand why my assets should be treated any different than someone that has a fraction of what I do. If you want to change it, change it across the board. Tax all estates at 15% whether they are $100 or $100 million. If you punish people for being smarter, or richer, or frugal it will lessen the desire to do so. 

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Agreed. 

We've lived through this with a family business. It was when the exception was much lower and a real estate development company at the end of the bubble. When it burst and all our value was in real estate holdings we almost went under but I believe it's the code 6166 has allowed it to be paid over time. 

The level now is higher and I can see the argument but agree with the above, make it the same for everyone and don't punish those that manage $ well.