Inheritance Tax Should be Abolished

[VaCollector]

Now back to bowing out of this discussion. Bad Martha! Bad!

 

[bright eyed]

Well, avoiding the estate taxes by setting up foundations perpetuates the wealth hoarding - foundations are only required to distribute 5% of their endowments - this includes what they spend on administration (ie building, salaries etc) - so charities while we do benefit - in the grand scheme of things, not much.

that is why some in philanthropy have been urging foundations to spend down their endowments...

 

[bright eyed]

That is not the real 'unfairness' I speak of. The major 'unfairness' that I speak of is how the very rich evade the estate tax altogether. I said I'm OK with the idea of some wealth redistribution. I happen to think the idea of an estate tax is not a good way to do it, and I think the current system of loopholes make it an abominable way to do it.

This is one of the inconsistencies I just don't get. Why support a 'tax on the rich', that is evaded by 'the rich enough to hire people to help them evade it'?

thanks for the clarification erd i did misunderstand what you were saying...

ok, then why not get rid of the loopholes?

We've had the $x limit per person discussion this year already didn't we? Danny?!

 

[RetireeRobert]

I'm not convinced it's unfair...The $2 mill is going up in 2009...to $3.5 million - which means $7 mill for a couple!

Until 2011 when the exemption goes back down to $1 mil.

The battle over the unfair death tax will be looming the next few years.

2011 and later, 55% confiscation of everything over $1 mil unless Congress acts to extend the 2010 rules.

 

[bright eyed]

Until 2011 when the exemption goes back down to $1 mil.

The battle over the unfair death tax will be looming the next few years.

2011 and later, 55% confiscation of everything over $1 mil unless Congress acts to extend the 2010 rules.

And you think they won't? Everyone w/ net worth of at least $1million and their "friends" will be writing/wining/dining their congress person

 

[Gumby]

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[TickTock]

Well, avoiding the estate taxes by setting up foundations perpetuates the wealth hoarding

Why the heck shouldn't a person who worked hard, saved, and wisely managed the money that flows through his life leave it to his family if he so chooses? Some people are going to win the womb lottery, the looks lottery, the intelligence lottery, the athletic ability lottery, the state lottery, and so on. Why is it better that the federal government decide what to do with the money?

 

[TickTock]

I find it fascinating that the dyed-in-the-wool libertarian, rugged individualistic, John Galt loving, "I stand on my own two feet, I did it myself and need no one else" types are supportive of inherited wealth.

Better that the person who did it himself and created the wealth decide how it be distributed after his death than the government, I say.

I see no conflict between being libertarian (minimal government interference) and opposing estate tax.

Saying, "I will accept no help" and opposing estate tax, yes, I see a conflict.

Saying "It's better to do it on your own with no help, but still better to accept an inheritance from someone than let the government have the money" I see no conflict.

 

[ERD50]

thanks for the clarification erd i did misunderstand what you were saying...

ok, then why not get rid of the loopholes?

We've had the $x limit per person discussion this year already didn't we? Danny?!

[-]Get rid of the loopholes?! Then what would I complain about??!![/-]

Getting rid of the loopholes would go a very, very long way in helping me to accept the Estate Tax (see, I'm not so unreasonable - am I?).

But here is something that has become clearer to me as I post my thoughts here:

Whenever you have a BIG tax amount due from one event, you create a motivation and a financial payback incentive to circumvent that tax. Intelligent, clever people find ways to 'utilize the tax code' (we call these 'loopholes') to minimize their taxes.

You probably don't hire a lawyer and a planner and pay them $10,000 to circumvent a $100 annual tax. You consider it for a one-time $1,000,000 tax. Who benefits? Not the poor.

So from a strictly pragmatic view, I am opposed to the Estate Tax (and Capital Gains tax), because they can create these big taxable events. As sure as the Sun rises in the East, people with a big, single-event tax bill due will look for ways to minimize it.

To whatever extent we decide to re-distribute wealth - I say do it efficiently and effectively. Take it a little at a time, with simple tax plans, so that evasion is neither easy, nor cost-effective. The Estate Tax, AFAIAC, fails on all counts.

$X per person - yes, I think that was the danny thread - or was it the milk thread?

-ERD50

 

[ERD50]

RE: avoidance by the rich -

This keeps coming up, but is this a truth or an urban myth?

Well, I'd love to see some numbers on it - I think I stated earlier that 'avoidance' numbers, by definition are tough to come by.

But I do know that I could open my phone book, and have no problem finding people who dedicate their business to helping someone with a big estate minimize that tax, or maybe even avoid them altogether. That tells us something. Let's see... seven of them in my local little yellow pages (Estate Planners on the same page as Escort Services - had to explain THAT to Mrs ERD! ).

The article quoted earlier had wealthy families donating millions towards eliminating the estate tax. Gates and Buffet are giving their $ away.

Sure, I can avoid taxes by giving away everything, there's just not much future in it.

Exactly - this is another one of those inconsistencies from supporters that I just don't get. The 'but it encourages the rich to give it to charity' approach is not consistent with 'but we do not want them to pass it to their little undeserving brats' approach.

ahhh, found my earlier post on this subject:

http://www.early-retirement.org/forums/showpost.php?p=580517&postcount=53

If someone is super-rich and the goal is to pass the maximum to their heirs, charitable donations would be discouraged by the rules you point out. How about a simple example with simplified rules just to get the point across?

Assume the estate tax exclusion is $1M and everything above that is taxed at 50%.

Mr MoneyBags has an $11M estate. One heir; a brat daughter that he wants to leave as much as possible to, because he thinks she is an angel.

A) Bequeaths no money to charity. The $1M exclusion passes to the brat tax free. 50% of the remaining $10M goes to estate taxes, leaving brat with $5M and the $1M exclusion. Brat gets $6M.

B) Bequeaths $10M to charity. The $1M exclusion passes to the brat tax free. None of the remaining $10M goes to estate taxes or to the brat, it all went to charity. Brat gets $1M.

The choice is really, 'do I give half to the govt and half to heirs OR all to charity and none to heirs' (or some blend of the two). I guess there are more advanced strategies around this, but now we are back to loopholes for the super-wealthy, with that 'strategy' money going to the financial planners instead of to social programs which is where I thought you wanted it to go? And the more modestly rich get hit with the full bill.

So yeah, I think the estate tax is lousy policy.

-ERD50

 

[ERD50]

What good does using labels like liberals add to this discussion.

Oh well, 'liberal' is a no-good label, but 'dyed-in-the-wool libertarian' isn't. There's that old 'consistency' thing I keep bringing up.

But I'll address the question - I have no problem with it.

To be honest, I am not 'supportive' of inherited wealth - I simply think it is none of my business. If you earned it, paid taxes along the way - do with it as you see fit. At any rate, I've already pointed out the flaws in the Estate tax that don't really make it do what you want anyhow.

There are so many ways to look at this. How about this one:

Person A earns tons of money each year. Lives extravagantly, spends every penny, dies broke. No Estate Tax paid.

Person B earns exactly the same amount. Saves all he can. He wants to leave as much as he can to some needy family members. Half of it (above the exclusion) goes to Estate taxes.

Does that make sense? Do you really support this kind of taxation? I don't.

Seems like an NST would have been much more 'fair'?

-ERD50

 

[work4beer]

To be honest, I am not 'supportive' of inherited wealth - I simply think it is none of my business. If you earned it, paid taxes along the way - do with it as you see fit.

"Paying taxes along the way" is a major fallacy in the estate tax debate. 401(k)'s and IRA's have never had income taxes paid on either the contributions or the capital gains. Same for those inherited shares of Microsoft bought for 40 cents in 1985. Ditto for most businesses and farms. Unless we're talking about A-Rod's estate, which will probably mostly come from his taxed income, I'd venture most portions of large estates would never be taxed if it weren't for the estate tax.

There are lots of problems with the way the estate tax is implemented, but that doesn't mean abolishing it is a great solution either.

 

[RetireeRobert]

And you think they won't?

If the Dems are still in control of both house of Congress, you think they are going to extend the evil Bush tax cuts?

 

[youbet]

"Paying taxes along the way" is a major fallacy in the estate tax debate. 401(k)'s and IRA's have never had income taxes paid on either the contributions or the capital gains.

I believe you are incorrect. My contributory IRA's are non-deductible and funded with post tax money due to IRS regulations. The IRS web site is very direct and clear on this. Hard to understand how you became confused.

Same for those inherited shares of Microsoft bought for 40 cents in 1985. Ditto for most businesses and farms.

Personally, I think it's the practice of adjusting the basis of equities up that should be eliminated. You inherit 100,000 shares of Jones Corp that dad bought for a nickle each and are now worth $100 each, you (actually dad's estate) should pay the capital gain on the $99.95!

There are lots of problems with the way the estate tax is implemented, but that doesn't mean abolishing it is a great solution either.

There are reasons why Congress doesn't fix the problems. They would distroy an entire industry made up primarily of their classmates.

 

[RetireeRobert]

Oh well, 'liberal' is a no-good label, but 'dyed-in-the-wool libertarian' isn't. There's that old 'consistency' thing I keep bringing up.


..............Seems like an NST would have been much more 'fair'?-ERD50

Liberals don't want to be known as liberals. They seem to think it is libelous.


NST--as soon as it goes on the ballot, I will vote early and often for it.

 

[RetireeRobert]

"Paying taxes along the way" is a major fallacy in the estate tax debate. 401(k)'s and IRA's have never had income taxes paid on either the contributions ..........

Check your facts before you make such assertions. How "untaxed" were contributions to Roth IRAs and Roth 401ks? How "untaxed" were contributions to "non-deductible traditional IRAs? The contributions to these plans were taxed in full (and likely up the kazoo).

 

[Gumby]

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[Gumby]

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[gandalf42]

What's most unfair about the estate tax is paying taxes on what has already been taxed.

Perhaps the middle ground approach is to eliminate the estate tax as is but require an accounting of assets with taxing of the gains i.e long term capital gains tax on stocks and other asset growth, allowing the home exemption if the home has been lived in. This would reset the basis but the adjustment would be taxed as others would experience it. It would also eliminate the retaxing of assets.

The allowance of passing on the full estate to the spouse without this tax and adjust should continue.

 

[armor99]

If you allow this massive accumulation of wealth forever, i don't quite see how that is "fair" since very quickly none of the recipients earned anything but by being born into the right family and then the vast majority of us are born into the wrong ones!

I guess the question that I would have is what does it matter to you, or to anyone for that matter how much money someone has? Do you, or do others believe that there is only a finite sum of money in the US? As in, if someone has more money than you it means there is "less" available for you? Does a family having great weath that was inherited somehow impede your ability, or anyone elses ability to do the same? This is a viewpoint I have never understood. I just cannot see how anyone elses wealth, or lack of it, prohibits me from achieving whatever financial goals that I might strive for. Just because my neighbor down the street might have a job making a higher salary than I do, does not mean that he "took" money away from me somehow.
I do believe that people should achieve things for themselves in life. But that does not mean I believe that everyone in life should be "forced" by the govt or anyone else to start off life with nothing either. As the saying goes... "life is not fair", and the idea that the govt should artificially try to start everyone in life economically equa,l is not only impossible, but immoral to even try. Once someone has built up their fortune, they should be free to spend, or not spend that fortune as they see fit. And if it makes that person happy to give it away as an inhertance to their children, then they should be free to do so.

 

[FinanceDude]

If the Dems are still in control of both house of Congress, you think they are going to extend the evil Bush tax cuts?

Absolutely not...........

 

[FinanceDude]

Aside from a general hostility to inherited wealth, I have a real problem with the step up basis on inherited assets. It is fundamentally unfair to those who have "paid along the way". But I suspect those who abhor the estate tax would also object vociferously to the elimination of this provision as well.

The only thing I have to add is it's easy to make these comments when the capital gain tax is the lowest it's been in our country's history.

"back in the day", capital gains rates were 40% or higher........would that change anyone's mind

 

[Rustic23]

I think the folks that post on this board should keep something in mind.

If the retirement outlook for the average baby boomer is as grim as some predict, then the members on this board are going to be considered 'lucky, rich, well off....'. Now just as you think the 'lucky, rich, well off...' have no right to hang onto their assets or pass them on to whom ever they wish, there will be a large part of the population the believe you have no right to have what you have, and you should be means tested, or taxed out of your savings. If you allow government to take Buffets and Gates assets, weather they like it or not, there is nothing to keep the same government from taking yours.

 

[samclem]

Amen. In fact, expect that there will be some sort of "wealth tax" or reductions in SS, etc in the future that would look at holdings rather than income. That way, the "rich" will get hit, not those hardworking folks who can hardly keep up the payments on the two Lexi. This is about the only course of events that might make me consider an annuity--to convert my holdings to a less conspicuous monthly check.

 

[bright eyed]

I guess the question that I would have is what does it matter to you, or to anyone for that matter how much money someone has? Do you, or do others believe that there is only a finite sum of money in the US? As in, if someone has more money than you it means there is "less" available for you? Does a family having great weath that was inherited somehow impede your ability, or anyone elses ability to do the same? This is a viewpoint I have never understood. I just cannot see how anyone elses wealth, or lack of it, prohibits me from achieving whatever financial goals that I might strive for. Just because my neighbor down the street might have a job making a higher salary than I do, does not mean that he "took" money away from me somehow.
I do believe that people should achieve things for themselves in life. But that does not mean I believe that everyone in life should be "forced" by the govt or anyone else to start off life with nothing either. As the saying goes... "life is not fair", and the idea that the govt should artificially try to start everyone in life economically equa,l is not only impossible, but immoral to even try. Once someone has built up their fortune, they should be free to spend, or not spend that fortune as they see fit. And if it makes that person happy to give it away as an inhertance to their children, then they should be free to do so.

I think there is a flow in the economy and as more money flows toward fewer, concentrated hands - and not more broadly distributed by whatever means (salaries, govmt services or whatever) that Yes - it will increase the concentration of wealth and power in the country...

Like my example of charitable foundations - if the $ was taxed at 55%, it would get "spent" via govmt programs (well, maybe war, but in the most twisted logic, that also fuels some economies)...but with a foundation only 5% leaks out to benefit society...it perpetuates the concentration of wealth.