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Old 02-23-2011, 11:40 PM   #161
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That doesn't seem unreasonable to me.
Of course not, you don't have a dog in the fight........
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Old 02-23-2011, 11:46 PM   #162
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Isn't it the same as the justification for all taxes? the government needs a certain amount of money to maintain society/ the country. That money has to come from it's citizens and necessarily from those who have an ability to pay. People receive a large inheritence obviously have the ability to pay taxes on that windfall.
Actually, FIRE'd folks have the resources to pay taxes to keep the politicians going. Those assets should be taxed and used for "the greater good!"

Why be a hypocrit? Turn your FIRE portfolio over to the gov't ASAP!
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Old 02-24-2011, 12:53 AM   #163
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Actually, FIRE'd folks have the resources to pay taxes to keep the politicians going. Those assets should be taxed and used for "the greater good!"

Why be a hypocrit? Turn your FIRE portfolio over to the gov't ASAP!
There have been undercurrent hints from unions and politicians implying that sort of thing will be done: using things like 401ks to bail out failing union pensions. Some of the political speeches are down right scary when you read between the lines!
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Old 02-24-2011, 08:22 AM   #164
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Let me see if I can come at this topic from another direction. Say you have a sub s family business and the 1st generation decedents estate is worth 7 million. Say there are 7 heirs to the estate who are not considered "wealthy" and own fractional shares of the business and want the business to continue.
Because the estate is worth 7 million, the IRS is owed close to a million in estate taxes. That one million comes out of the decedents estate (sub s corp). So that is 1 million his heirs did not get. That 1 million could have helped the 7 heirs feel more wealthy - in the very least give them some breathing room. If the heirs who own fractional shares in the business feel more wealthy - they are more inclined to "leave money" in the business for continued growth...creating more jobs and growing the business. As long as owners do not feel personally wealthy, they are more inclined to take money out of the business ...out of profits each year.
In this type of situation...the estate tax...stifles entrepreneuship.
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Old 02-24-2011, 12:02 PM   #165
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Isn't it the same as the justification for all taxes? the government needs a certain amount of money to maintain society/ the country. That money has to come from it's citizens and necessarily from those who have an ability to pay. People receive a large inheritence obviously have the ability to pay taxes on that windfall.
To me this is just different. Let me first say that I will be upfront and say that I would prefer to have better services and higher taxes. I am OK with taxes being increased. I do think there is unnecessary spending in the budget but by and large would prefer to raise taxes than do draconian cuts to services I think are needed.

But, I have just never thought the inheritance tax was fair. The money was already taxed and I just don't think there should be tax on leaving your money to others.
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Old 02-24-2011, 12:43 PM   #166
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Let me see if I can come at this topic from another direction. Say you have a sub s family business and the 1st generation decedents estate is worth 7 million. Say there are 7 heirs to the estate who are not considered "wealthy" and own fractional shares of the business and want the business to continue.
Because the estate is worth 7 million, the IRS is owed close to a million in estate taxes. That one million comes out of the decedents estate (sub s corp). So that is 1 million his heirs did not get. That 1 million could have helped the 7 heirs feel more wealthy - in the very least give them some breathing room. If the heirs who own fractional shares in the business feel more wealthy - they are more inclined to "leave money" in the business for continued growth...creating more jobs and growing the business. As long as owners do not feel personally wealthy, they are more inclined to take money out of the business ...out of profits each year.
In this type of situation...the estate tax...stifles entrepreneuship.
I look at this as a trade-off. That $1 million of taxes is going to be collected from somebody. If not the heirs of this business, then somebody else will pay it. I have no reason to believe these heirs will "create more jobs" than the other people who would pay taxes if the heirs don't.

On a separate thread, I got into a discussion of the whole "create jobs" claim. It seems to be the standard line for anybody pushing some gov't policy, but I don't think it stands up to careful thought.
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Old 02-24-2011, 01:08 PM   #167
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To me this is just different. Let me first say that I will be upfront and say that I would prefer to have better services and higher taxes. I am OK with taxes being increased. I do think there is unnecessary spending in the budget but by and large would prefer to raise taxes than do draconian cuts to services I think are needed.
I can see that. My question to you is do you think the government provided good enough services in 2008 or do you think the extra trillion in spending has been a trillion dollar improvement in services?
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Old 02-24-2011, 01:12 PM   #168
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To me this is just different. Let me first say that I will be upfront and say that I would prefer to have better services and higher taxes. I am OK with taxes being increased. I do think there is unnecessary spending in the budget but by and large would prefer to raise taxes than do draconian cuts to services I think are needed.

But, I have just never thought the inheritance tax was fair. The money was already taxed and I just don't think there should be tax on leaving your money to others.
The Tax and Spend mentality is why we are facing a budget crisis today. The party's over, folks.
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Old 02-24-2011, 03:13 PM   #169
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The Tax and Spend mentality is why we are facing a budget crisis today. The party's over, folks.
I believe you are correct Westernskies.

One last attempt. These are not my numbers. They are to make a point.

Estate is worth 7 million.
Of that 7 million, 5 million is the family business value. Another million for house, cars..etc. 1 million in liquid investable assets.

The decedent is going to pay "income tax" on all income every year including the year he/she passes away. That includes income tax on the "income, dividends and cap gains" generated by the liquid asset portion.
So income taxes have already been taxed on the liquid portion of the estate. Agree?

In addition to having already paid "income and cap gains", the value of the liquid portion is now taken into the calculation to determine the gross value of the estate. It is taxed twice... immediately. Whoopsie....thank god there is a million in liquid assets...because...it all goes to the Federal government to keep the business in the family.
So this liquid portion is taxed twice...by the very nature that it generates income and is also subject to estate tax. Agree?

Oh... But...there is no guarantee the business will continue to generate income. So ..the heirs "hope" they make the right call by trying to hang onto the business, save their employees jobs and their stakeholders interest. Otherwise selling the business would have been the better decision for them...personally.
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Old 02-24-2011, 04:02 PM   #170
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I believe you are correct Westernskies.

One last attempt. These are not my numbers. They are to make a point.

Estate is worth 7 million.
Of that 7 million, 5 million is the family business value. Another million for house, cars..etc. 1 million in liquid investable assets.

The decedent is going to pay "income tax" on all income every year including the year he/she passes away. That includes income tax on the "income, dividends and cap gains" generated by the liquid asset portion.
So income taxes have already been taxed on the liquid portion of the estate. Agree? no, the income produced by the "liquid asset portion" has been taxed. that doesnt mean the "liquid asset portion" has been taxed

In addition to having already paid "income and cap gains", the value of the liquid portion is now taken into the calculation to determine the gross value of the estate. It is taxed twice... immediately. Whoopsie....thank god there is a million in liquid assets...because...it all goes to the Federal government to keep the business in the family.
So this liquid portion is taxed twice...by the very nature that it generates income and is also subject to estate tax. Agree? no

Oh... But...there is no guarantee the business will continue to generate income. So ..the heirs "hope" they make the right call by trying to hang onto the business, save their employees jobs and their stakeholders interest. Otherwise selling the business would have been the better decision for them...personally.
see my embeded comments.

in this country all transfers of money (or monetary assets) from 1 person (or corp) to another that increases the monetary assets of the 2nd person is taxable. for example, in repayment of debt, the principle isnt taxable since it is already an asset of the person receiving the repayment but the interest is taxable. another example is wages; when someone receives a paycheck that person's monetary assets were just increased by the size of the wages so the wages are taxed. all inheritance is an increase of monetary assets to the ones receiving said inheritance so it stands to reason that it would be taxed also. even gifts are taxable, it just so happens that for gifts the tax code has some big exemptions (yearly, life time and to nonprofit orgs). the estate tax shares the gift tax life time exemption. if anything the unfair part of the estate tax is the sizeable exemption, maybe the exemption should be eliminated for fairness sake.
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Old 02-24-2011, 04:31 PM   #171
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Once again I see members in other threads here broadly proposing we first tax the rich more to solve our federal/state deficit problems. The rich already pay more taxes than most while getting fewer benefits (by design and universally accepted), the days of paying little to no taxes due to tax loopholes ended long ago.

So most here are very good with numbers, just exactly what would YOU propose for marginal rates for the top income level, or as many income levels as you care to modify?

If it's not obvious, while DW and I are nowhere near rich, I don't agree with the rich bashing. If you took 100% from everyone in the top bracket it would hardly make a dent in the deficit. Like some others, I'm afraid we are going to have to share the pain with considerably less spending (meaning fewer services & public benefits) AND considerably higher taxes for everyone.

It will be interesting to watch the reply to viewed ratio on this thread...
ok, how bout this:
1) repeal the Bush tax cuts for incomes over $200k for singles and $250k for married
2) a new bracket at $600k income with a rate of 47%
3) a new bracket at $1M income with a rate of 55%

and while we are at it lets remove the cap on FICA and put another knee in the the computation of benefits formula: only 5% of the average monthly wages above the $9k/mo level get added in the benefits formula
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Old 02-24-2011, 04:41 PM   #172
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ok, how bout this:
1) repeal the Bush tax cuts for incomes over $200k for singles and $250k for married
2) a new bracket at $600k income with a rate of 47%
3) a new bracket at $1M income with a rate of 55%

and while we are at it lets remove the cap on FICA and put another knee in the the computation of benefits formula: only 5% of the average monthly wages above the $9k/mo level get added in the benefits formula
Well lets look at that plan.

In my state very high incomes like your #3 are taxed at 10.55 % income plus a few percent extra for state disability etc. ==> ~12.55%

So they would pay 55% federal + 12.55% state + 7.65% FICA = 75.2 %

if they are self employed they would pay another 7.65% ==> ~83%

Now is that an invitation to not work (or What) ?

Often these people have the businesses that allow the rest of us to have a job. Do we really want these people to not work ?

Have you really thought this through ? Are you setting up poverty for everyone ?

When you take away the income you take away the incentive to work.

In my opinion your plan will acheive the opposite effect of what you want. And that is to create more government tax income.
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Old 02-24-2011, 04:58 PM   #173
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I believe you are correct Westernskies.

One last attempt. These are not my numbers. They are to make a point.

Estate is worth 7 million.
Of that 7 million, 5 million is the family business value. Another million for house, cars..etc. 1 million in liquid investable assets.

The decedent is going to pay "income tax" on all income every year including the year he/she passes away. That includes income tax on the "income, dividends and cap gains" generated by the liquid asset portion.
So income taxes have already been taxed on the liquid portion of the estate. Agree?

In addition to having already paid "income and cap gains", the value of the liquid portion is now taken into the calculation to determine the gross value of the estate. It is taxed twice... immediately. Whoopsie....thank god there is a million in liquid assets...because...it all goes to the Federal government to keep the business in the family.
So this liquid portion is taxed twice...by the very nature that it generates income and is also subject to estate tax. Agree?

Oh... But...there is no guarantee the business will continue to generate income. So ..the heirs "hope" they make the right call by trying to hang onto the business, save their employees jobs and their stakeholders interest. Otherwise selling the business would have been the better decision for them...personally.
There's only one thing I can say about the "taxed twice" argument, I know that I pay taxes twice or three times on the "same money". It happens.

But regarding the last paragraph. I don't know why the rest of us should care whether the heirs sell the company or keep it.

If somebody else is more optimistic about running it for a profit, let the heirs sell and the new owner will try some changes that may improve things. The heirs will take the sale proceeds and recycle them into the economy where they will "create jobs" one way or another.

If nobody believes the company can be run profitably, then it's time to close it down. The heirs will sell the hard assets and recycle the proceeds. The employees will have to find jobs with other firms with better profit prospects. That's unpleasant for everybody involved, but it happens every day somewhere in our economy. I can't see why the fact the company is changing hands due to a death means that the government should somehow try to keep it going if it doesn't look profitable to anyone.
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Old 02-24-2011, 04:58 PM   #174
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Well lets look at that plan.

In my state very high incomes like your #3 are taxed at 10.55 % income plus a few percent extra for state disability etc. ==> ~12.55%

So they would pay 55% federal + 12.55% state + 7.65% FICA = 75.2 %

if they are self employed they would pay another 7.65% ==> ~83%

Now is that an invitation to not work (or What) ?

Often these people have the businesses that allow the rest of us to have a job. Do we really want these people to not work ?

Have you really thought this through ? Are you setting up poverty for everyone ?

When you take away the income you take away the incentive to work.

In my opinion your plan will acheive the opposite effect of what you want. And that is to create more government tax income.
are you so sure? maybe people making that much money arent working for the money anymore, maybe they are working because they love to work or love the power.
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Old 02-24-2011, 05:00 PM   #175
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ok, how bout this:
1) repeal the Bush tax cuts for incomes over $200k for singles and $250k for married
2) a new bracket at $600k income with a rate of 47%
3) a new bracket at $1M income with a rate of 55%

and while we are at it lets remove the cap on FICA and put another knee in the the computation of benefits formula: only 5% of the average monthly wages above the $9k/mo level get added in the benefits formula
I appreciate the suggestion, but it won't make much of a difference. Numbers to the best of my ability;

In 2010 the federal government took in $2,163B and spent $3,456B - for a deficit of $1,294B. $899B were individual income taxes ($192B Corp income tax BTW).

The top 20% had an average salary of $231,300/yr, with a 25.5% effective tax rate, paying 68.7% of all income taxes (the other 80% of us paid only 31.3%). So the top 20% paid $618B.

If you increased effective income taxes on the top 20% by 25% (approx what you're suggesting) - you reduce the deficit by $155B or about 12%. If you doubled their taxes, about 24%.

If the top 20% were made to balance the budget, you'd have to tax them at an effective rate of 79%. Clearly outrageous IMO...

And if you instead chose to increase taxes on all levels to erase the deficit, you'd have to increase taxes by 169% or more than 2.5X. Ouch?
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Old 02-24-2011, 05:07 PM   #176
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are you so sure? maybe people making that much money arent working for the money anymore, maybe they are working because they love to work or love the power.
Well I'm sure there are some of those, and for those you can take their money.

For everyone else though, I kind of doubt that there would be much commerce at such a disincentive to work.

For a very real example of what extortionary tax rates do just look at Britain before Margarette Thatcher and how they struggled. Look at how their prosperity compared to ours.
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Old 02-24-2011, 05:43 PM   #177
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see my embeded comments.

in this country all transfers of money (or monetary assets) from 1 person (or corp) to another that increases the monetary assets of the 2nd person is taxable. for example, in repayment of debt, the principle isnt taxable since it is already an asset of the person receiving the repayment but the interest is taxable. another example is wages; when someone receives a paycheck that person's monetary assets were just increased by the size of the wages so the wages are taxed. all inheritance is an increase of monetary assets to the ones receiving said inheritance so it stands to reason that it would be taxed also. even gifts are taxable, it just so happens that for gifts the tax code has some big exemptions (yearly, life time and to nonprofit orgs). the estate tax shares the gift tax life time exemption. if anything the unfair part of the estate tax is the sizeable exemption, maybe the exemption should be eliminated for fairness sake.
My point was that all taxes typically owed "in life" have been paid. So the estate tax is nothing more than a "death tax". Actually exactly what it is and exactly what the purpose was for anyway.
But like another said...unless you own your own business or have been affiliated with one...it is difficult to understand the shoes of family business owners.
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Old 02-24-2011, 05:50 PM   #178
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I appreciate the suggestion, but it won't make much of a difference. Numbers to the best of my ability;

In 2010 the federal government took in $2,163B and spent $3,456B - for a deficit of $1,294B. $899B were individual income taxes ($192B Corp income tax BTW).

The top 20% had an average salary of $231,300/yr, with a 25.5% effective tax rate, paying 68.7% of all income taxes (the other 80% of us paid only 31.3%). So the top 20% paid $618B.

If you increased effective income taxes on the top 20% by 25% (approx what you're suggesting) - you reduce the deficit by $155B or about 12%. If you doubled their taxes, about 24%.

If the top 20% were made to balance the budget, you'd have to tax them at an effective rate of 79%. Clearly outrageous IMO...

And if you instead chose to increase taxes on all levels to erase the deficit, you'd have to increase taxes by 169% or more than 2.5X. Ouch?
You didn't provide a link for your numbers. I can match the 2010 deficit using table 1.1 here Historical Tables | The White House
and I can match a couple of the tax numbers using the xls appendix here Congressional Budget Office - Historical Effective Federal Tax Rates: 1979 to 2005

Note that the budget link says that about 60% of the 2010 deficit should be closed under current policies by 2015, presumably due to projections of an improved economy. So the deficit hurdle isn't as large you are using.

On the tax side, you seem to be mixing individual FIT and total tax collections - the 25.5% is total, the $899b is individual income only.

I see the top 1% paying about 19% in individual income taxes in 2005 (table 1A). If I do: number of families * (average income - minimum income) for the top 1% I get about $1.4 trillion in income. If we added an extra 10% onto their tax rate (which might mean raising the 15% cap gains rate to 30% and not changing the rate on ordinary income, I haven't done the math) that would generate $140 billion in revenue from just that 1%, while increasing their average individual FIT rate to about 27%.

Now $140 billion doesn't close the deficit. But it's not trivial either.
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Old 02-24-2011, 05:54 PM   #179
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My point was that all taxes typically owed "in life" have been paid. So the estate tax is nothing more than a "death tax". Actually exactly what it is and exactly what the purpose was for anyway.
...
i disagree, as my previous post point out, it is very appropriate since the receiver is getting an increase in monetary assets. all other such transfers are taxable, why not this 1?
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Old 02-24-2011, 08:20 PM   #180
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see my embeded comments.

in this country all transfers of money (or monetary assets) from 1 person (or corp) to another that increases the monetary assets of the 2nd person is taxable. for example, in repayment of debt, the principle isnt taxable since it is already an asset of the person receiving the repayment but the interest is taxable. another example is wages; when someone receives a paycheck that person's monetary assets were just increased by the size of the wages so the wages are taxed. all inheritance is an increase of monetary assets to the ones receiving said inheritance so it stands to reason that it would be taxed also. even gifts are taxable, it just so happens that for gifts the tax code has some big exemptions (yearly, life time and to nonprofit orgs). the estate tax shares the gift tax life time exemption. if anything the unfair part of the estate tax is the sizeable exemption, maybe the exemption should be eliminated for fairness sake.
You wouldn't happen to be drawing government wages or a government pension would you?

Ha
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