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Old 11-09-2010, 07:40 AM   #81
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So that's an interesting point to ponder. We do occasionally turn over something new in these old discussions. So this leads to...

The people in favor of these Estate Taxes don't seem to like the idea of people being free to take the money they earned and that has already been taxed and pass it on to others. So to avoid hypocrisy, they should be in favor of taxing half the estate when one spouse dies. Why should that be different than leaving it to the kids or anyone else?

There are certainly cases where a child is more needy than a spouse. Why the distinction?

Yet, I've never heard a call for that.

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First, when an estate passes to a surviving spouse it does not eliminate estate tax liability, it simply postpones it until the surviving spouse dies.

Second, assets in an estate may have substantial unrealized gains. This is money that has not already been taxed.

Third, both earned and unearned income to individuals is taxed - but not inheritance. If we eliminate the estate tax we should therefore tax that income to the recipients. It would otherwise be unearned income to individuals that is unfairly not taxed.
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Old 11-09-2010, 07:47 AM   #82
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As samclem pointed out, those payments may have to come out of cash flow unless they are going to sell off some of the assets of the business. I don't see that as a good thing to force a successful business to do. That would probably lead them to cutting jobs, but some (probably the ones in favor of these taxes) will then put the blame on "those greedy business owners". Most businesses aren't making huge % profits, doesn't take much to drop it to zero and need to dip into assets.



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You are speculating. The CBO has found no evidence that this is the case.
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Old 11-09-2010, 07:49 AM   #83
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From the CBO

According to the CBO, only 138 people did not have enough liquid assets to pay the estate tax. The opinions of 138 inheritors of small business shouldn't be worth more that the opinion of a few billionaires - with the exception that the billionaires are talking about their own money, while all others are talking about someone else's money.

I like the estate tax because it is simple and straightforward, and it encourages charitable giving. Do away with it if you will, but it would then be replaced by something much more complex that would still tax a considerable part of the estates - and the real losers would be the beneficiaries of charitable causes.
The liquidity issue likely has even less of an impact as the CBO did not consider assets held in trust that could be used to pay taxes, like life insurance trusts.
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Old 11-09-2010, 07:51 AM   #84
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So, I wonder how many farm families had to sell "just" 90% of all their liquid assets to pay the tax bill? Or how many farms were sold preemptively to avoid the bill? Or how many whacky trusts were established to beat this tax?
No evidence of any farms that were sold.
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Old 11-09-2010, 07:53 AM   #85
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Morning ERD,

You're apparently assuming that profits on estate assets have already been taxed. That would have to depend on the assets of an estate. If they're real estate or bonds or stocks or an art collection, the profits on any gains of those assets may well not have been taxed.

I guess by some logic you could say that taxes should be paid on the assets of a deceased member of a partnership. ...
Agree somewhat - To be more in line with "equal" (I won't get into "fair", and even "equal" is fuzzy due to the complexity of tax code), if there is no estate tax then property should have its cost basis carried forward. That would tend towards making a death a non-event relative to taxation.

It's another topic that we've discussed before, but I don't like capital gains taxes either. I think I said in this thread, when you tax a single event that can carry a high price tag, there is added motivation to be "creative". And cap gains can require records going back to who knows when. Then the issue that the cap gains may have never exceeded inflation, yet they get taxed as a 'gain', largely independent of inflation. There are some super-crude attempts at leveling this out with long term gains, which I take as an acknowledgement of the problem, but a grossly poor "solution". Maybe someone can find a link to that thread, I can't recall key words that would bring it up right now.

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Would I characterize the spouse exemption as hypocrisy? It's certainly not anymore hypocritical than advocating for tax cuts and fiscal prudence with borrowed money.
Getting rid of a bunch of convoluted tax code is independent of how much tax we collect. That is a separate discussion. For the sake of this discussion, let's assume a tax neutral approach - those (largely evaded) Estate Tax dollars could be collected in other ways. So no hypocrisy there - try again.

Not gonna look it up now, but what is it, a single % of tax collections? Not too hard to shift to something else. Eliminate a few of the mistakes/bribe-pay-offs*(see note) that Congress has made.

It would be interesting to find out how many dollars are spent each year by people trying to avoid paying this tax. There seems to be a large supply of firms who specialize in this process. A lot of lawyers and accountants and insurance people are making a lot of money helping people dodge this tax, they sure don't want to see it go away. And that's just more money that isn't going towards the deficit. I'd like to see that brain power go to productive, value added work.

*NOTE: I've decided to try to refrain from using or recognizing the word "loopholes" as it is applied to our laws. The term seems to let Congress off the hook for responsibility for the law that they wrote. They either made a mistake by not covering all the bases, or they intentionally left an out for a supporter. Thats incompetence and graft, and "loophole" is too mushy a word for it. I'm taking the same approach with the term "unintended consequences". There are only "consequences", and it was their job to consider the consequences. The term is OK if the consequences were really unforeseeable, but that's not the case 99% of the time.

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Old 11-09-2010, 07:58 AM   #86
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I misspoke in one post above. For 2010 the step up in basis rules changed with the eliminated of the estate tax for this year. There is still a step down in basis for assets that lost value. The step up is limited in dollar amount. Details summarized in this article: Estate tax elimination could cost heirs
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Old 11-09-2010, 08:03 AM   #87
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No evidence of any farms that were sold.
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You are speculating. The CBO has found no evidence that this is the case.
OK, I'm speculating. I really don't care if there is evidence that it happened or not, it's clear that it could happen, and this tax creates an opportunity for it to happen. And I don't know that the "evidence" tells us the whole story. I think samclem was saying that you can't tell from that data how much "pain" was endured in trying to avoid selling the farm/business. If they got rid of 90% of their liquid assets to do it, that could have caused all sorts of problems and maybe even caused the business to fail a few years down the road with lack of liquidity. That is not going to be captured in your data, is it?

It's a little like saying that I shot into a crowd, but missed everyone. No evidence of harm done, carry on.

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Old 11-09-2010, 08:13 AM   #88
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No evidence of any farms that were sold.
I don't know if we'd be able to find hard facts on a topic like this, but here's a link to some letters that are claimed to be from family farmers affected by the estate tax.

Sample:
Quote:
Richard Ruddick, Mendocino County
I have been an heir as a result of death. We had to sell half of the farmland to come up with enough money to pay the estate tax. There is no feasible way that our farming children can pay the estate taxes that will be due and have the ability to continue to farm. The estate tax/death tax will be the demise of our family farming company!
. . .

Jeff Page, Napa County
My family was hit twice by the estate tax: once on my grandfather's death in 1972 and again in 2000. The first tax took most of our cash and investments, forcing my grandmother to lease out her land for cash flow and sell all our pasturelands except the home ranch in preparation for her own passing. How's that for a bucolic farm story? The estate tax threat is always on my mind.
I guess technically nether of these folks had to entirely sell their farm (well, at least one kept the farmhouse), but the trend is clear.

Family farms are especially affected because of the high land appreciation in many parts of the country. But I'm sure other types of businesses are also put in a bind.

As there are effective (but expensive) ways to avoid the tax, it does seem in many ways like a "lawyer full employment program" that serves primarily to enrich accountants and attorneys, allow politicians to claim to be hitting those "fat cats", and ultimately to heighten public cynicism toward government taxation schemes.
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Old 11-09-2010, 08:34 AM   #89
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After looking through / reading 87 posts in this thread, I find the whole conversation somewhat humorous. Those of us with estates large enough to suffer an adverse death tax will turn to our accounting and legal advisers to find ways to avoid or minimize the impact. To us the bigger "cost" of the government's desire to invoke an estate tax is paying our advisers to identify ways to avoid the tax. Believe me, if you hire the right firm(s), there are many ways to avoid (and in some cases, safe ways to evade) the estate tax. The irony of the estate tax is that the more the government tries to take the money from the rich, the more the rich will spend on strategies to protect their assets, because we can afford the cost - it's simple economics. Will I tell you how I'm avoiding estate taxes? Hell no, I've paid too much for this information.
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Old 11-09-2010, 08:40 AM   #90
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Family farms are especially affected because of the high land appreciation in many parts of the country. But I'm sure other types of businesses are also put in a bind.
The pain level of family farmers trying to pass family land onto the next generation is heightened when cultural and sentimental factors get involved. Family farms escalated in value as the Chicago urban sprawl approached their fences. Land value shot up. Families who wanted to stay anyway, despite having small farming profits which did not reflect the escalated value of their land, found themselves in a pickle at estate tax time. Their barely break-even income did not come close to allowing them to pay hefty amounts of estate tax. So, no choice but to sell to land developers and move on. The estate tax probably forced the right business decision but also forced an unwanted culture change down the family's throat. Of course, Congress-critters could care less about that.
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As there are effective (but expensive) ways to avoid the tax, it does seem in many ways like a "lawyer full employment program" that serves primarily to enrich accountants and attorneys, allow politicians to claim to be hitting those "fat cats", and ultimately to heighten public cynicism toward government taxation schemes.
If our lawyer-Congress critter folks really believe in the estate tax, why do they provide work-arounds that are available if you pay big bux to law firms?
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Old 11-09-2010, 08:51 AM   #91
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My family was hit twice by the estate tax: once on my grandfather's death in 1972 and again in 2000. The first tax took most of our cash and investments, forcing my grandmother to lease out her land for cash flow and sell all our pasturelands except the home ranch in preparation for her own passing. How's that for a bucolic farm story? The estate tax threat is always on my mind.
That'll teach him to die twice!

Carry on...
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Old 11-09-2010, 09:08 AM   #92
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After looking through / reading 87 posts in this thread, I find the whole conversation somewhat humorous. ... The irony of the estate tax is that the more the government tries to take the money from the rich, the more the rich will spend on strategies to protect their assets, because we can afford the cost - it's simple economics.
Yep, 55% (or whatever) of a big chunk of money is just waving a big flag - how can I avoid this?

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The pain level of family farmers trying to pass family land onto the next generation is heightened when cultural and sentimental factors get involved. .... Land value shot up. Families who wanted to stay anyway, ... So, no choice but to sell to land developers and move on. The estate tax probably forced the right business decision but also forced an unwanted culture change down the family's throat.
Thanks, you beat me to the punch on that angle, I was about to type much the same thing. More irony - I'll speculate that the cross section of people most in favor of an Estate Tax are the same people who bemoan the decline of the family farm and demonize big agribusiness (another place the small farmers will sell to).


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If our lawyer-Congress critter folks really believe in the estate tax, why do they provide work-arounds that are available if you pay big bux to law firms?
I don't believe anyone has ever answered this question, despite how many times this has been bandied about.

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Old 11-09-2010, 09:13 AM   #93
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That'll teach him to die twice!

Carry on...
Thanks - we need some of that kind of humor in this thread

Now, more seriously folks, I hadn't considered this point that a farm or other business being handed down generation after generation is being taxed at these high rates again and again. Geez, I already consider taxing money that was earned to be double taxation, this makes it even worse.

Three men walk into a bar.... (umm, OK, I'll leave the humor to others!)

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Old 11-09-2010, 09:19 AM   #94
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As there are effective (but expensive) ways to avoid the tax, it does seem in many ways like a "lawyer full employment program" that serves primarily to enrich accountants and attorneys, ...
And I'll just add that I personally knew a bunch of these grizzled old rugged-individualist farmers. Most of them just were not the type to sit down with a team of lawyers and accountants to map out complex strategies to avoid taxes. It just wasn't how they did things.

But the young MBAs in a new business would do it in a heartbeat if it made economic sense. So who ends up getting 'targeted' here, and why?

Gawd it's a lousy law, and the more people defend it the stronger my feelings get on the matter.

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Old 11-09-2010, 09:25 AM   #95
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As for losing the farm to estate taxes, I will one day inherit what remains from my grandparents' farm. Part of it had to be sold by my dad and uncle to pay the estate tax when my grandmother passed away (she had few liquid assets but the farm was worth a pretty penny). Since then, my dad has tried to maintain enough life insurance so that my sister and I won't have to sell any more family land to pay estate taxes when he passes. Problem is, the value of the land has risen considerably in the last few years and my dad, at his age, can't afford to buy more life insurance coverage. So we will probably have to sell another chunk of my grandparent's farm anyways to pay our share of the estate tax. I have heard it said once that the estate tax ensures that assets change hands every few generations. It's supposed to be a good thing apparently.
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Old 11-09-2010, 09:32 AM   #96
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Let me see if I understand. The estate tax rules create a problem for 0.2% of the people that die each year (taxable farm estates w/o liquid assets to pay the tax). Even though there are legitimate ways to assist the tax burden, the concerns about this 0.2% should determine the estate tax policy for the entire country.

In addition, all US taxpayers are obligated to pay tax on unearned income. You are proposing to allow an exception for a small group of individuals and enable them to receive unlimited unearned income without tax obligation because they had the wisdom to choose the right parents, while all other US taxpayers must pay taxes on all unearned income?

Is this what you are proposing?
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Old 11-09-2010, 09:48 AM   #97
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As for losing the farm to estate taxes, ...
FD, according to some of the posters here, you don't exist and they have the data to prove it. So just stop posting right now young man!

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I have heard it said once that the estate tax ensures that assets change hands every few generations. It's supposed to be a good thing apparently.
Apparently some feel that way. I'm sure a lot of work and sacrifice went into building up that farm over the years. In my view, now that there are some rewards, the people who reap those rewards ought to be able to do with it what they want. Others seem to think that it is unfair that there are rewards for hard work, and those rewards need to be shared with those without such rewards. That seems like small thinking to me.

I know there are a few tired old parables floating around cyberspace that present the story of grades in college. In one form or the other, the people who work for their high grades need to share their grade with others. Heck, some of those people were just 'lucky', they were born with good brain power, they came from a family that valued education and made the kids study hard and took an interest in their schooling. It ain't fair - so share!

I also keep hearing (have no idea if it's true), that most wealth doesn't last past a few generations anyhow. Supposedly, the idle rich waste it away. Why not just let nature take it's course? The smart ones will survive, and we should encourage that. Who's gonna build the factories if we all have the same amount of money. Like the other old saw " I never got a paycheck from a poor person".

We need wealthy people. We need to motivate people to work hard - how many kids dream of owning a mansion, or fancy vacation place, or private jet or to retire early or whatever. Maybe they're just dreams, but I bet it plays a part in motivating kids to do well in school and in life. And didn't we all have some dream like this? Let's not take that away. We should have safety nets, but let's not demonize the accumulation of wealth.

Oh boy, I better take a break from the computer ; ....

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Old 11-09-2010, 09:49 AM   #98
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Let me see if I understand. The estate tax rules create a problem for 0.2% of the people that die each year (taxable farm estates w/o liquid assets to pay the tax). Even though there are legitimate ways to assist the tax burden, the concerns about this 0.2% should determine the estate tax policy for the entire country.
No, the estate tax creates a "problem" for everyone who has to either pay it or jump through expensive no-value-to-society hoops to avoid it. It creates a problem for workers employed by businesses that are taken apart to pay this tax. I don't have numbers for their population, and I doubt anyone does.

We have the rule of law and a Constitution to prevent the tyranny of the majority. Let's respect that. It doesn't matter if the minority is just one person.
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Old 11-09-2010, 09:54 AM   #99
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First, when an estate passes to a surviving spouse it does not eliminate estate tax liability, it simply postpones it until the surviving spouse dies.

Second, assets in an estate may have substantial unrealized gains. This is money that has not already been taxed.

Third, both earned and unearned income to individuals is taxed - but not inheritance. If we eliminate the estate tax we should therefore tax that income to the recipients. It would otherwise be unearned income to individuals that is unfairly not taxed.

But if one spouse dies and passes assets to the other in a community property state ALL assets get a step up in basis... then when the other spouse dies there might not be all that unrealized gains... it just went away...

in a separate property state, the assets do get a step up, but since they were 100% owned by the one spouse the living spouse does not get a step up on their assets... but, a lot of unrealized gain might have gone 'poof' also...
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Old 11-09-2010, 10:00 AM   #100
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My description of charities and the unified credit as loopholes was intentional. What is fair to one person may be a loophole to another.
At the risk of appearing petty and difficult - it has nothing to do with fairness. Loophole is a term of art and you used it incorrectly. I understand that you are opposed to these exclusions for many reasons and I respect your reasoning even if I disagree with it. My point is that they are simply not loopholes. They may be horrific exclusions from the tax base that stand to rip the very fabric of society, but they are not loopholes. A loophole is a legal way to avoid tax that was unintended by the legislature or drafting body.

From my short time here I know you are a highly respected and influential member of this forum. I just want to make sure that people understand that there are no deceptive practices going on with these exclusions and your opposition is from a policy standpoint.
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