NY Times Editorial on Changes to Estate Tax

[Martha]

Quote:

Originally Posted by samclem I think there are a few highly publicized cases of people saying they favor it. I'm not sure that those who stand to lose their family businesses are clamoring for a continuation of this tax.

You can pay the estate tax over a 14 year time period. Or mortgage the family business to pay the tax. Or get some life insurance to help pay the bill. Or use other liquid assets. There is and was no reason to lose the family business. The loss of the family farm or family business due to estate taxes is a myth.

[Texas Proud]

Quote:

Originally Posted by M Paquette The nice folks at the Congressional Budget Office have put together a brief on the estate and gift tax. http://www.cbo.gov/ftpdocs/108xx/doc...tTax_Brief.pdf On page 11 there is a table that describes the change from current law if the tax is repealed permanently, or set to the 2009 level (3.5 million exemption, 45% top rate) It's more fun to argue with actual data!

Who is going to let a few facts stand in the way of a good argument

Just saying...

PS... I will read it later... to find out what it really says.. might be interesting... I just think that the rate is to high... and as mentioned before, all existing special loopholes that were put into law should be repealed... the Gallo family should not get away with paying no tax when someone with a $10 mill estate has to pay...

[SunsetSail]

Quote:

Originally Posted by stephenandrew A quote of a portion of an editorial from today's (11/7/10) NY Times: " That would be a huge break for mega estates, an unconscionable giveaway (emphais mine) that would cost $130 billion more than the Democrats’ plan over 10 years." I think we can have a reasonable discussion about what appropriate tax policy is. What I find troubling though, is the language used by the Editorial writer. To claim that a lower tax rate and a higher exemption is a "giveaway" pre-supposes that the money in question belongs to the government (which it does not). The government is not giving anything away--it is just taking less of what was earned (and saved) by those individuals over the course of a lifetime. The editorial writers could just have easily said, "The higher rates proposed by most Democrats would cost the families of those who worked and saved all of their lives $130 billion more than Republicans' plan over 10 years."

I was at a tax conference last week and one session was dedicated to a discussion of a split roll CA real property tax system. The proposed system would be a partial repeal of CA's limited tax base increase for commercial property (prop 13). An elected official was on the panel and put together a presentation in support of the system entitled "Closing the Loophole" (emp. added). Many of us took issue with this language and asked how a popularly passed Constitutional amendment could be a loophole when it was working as intended. His response was that it is a loophole because the people of California didn't really understand the consequences of prop 13 when they passed it in 1978. I sometimes wonder if these people don't actually believe their own BS.

Calling an estate tax reduction a giveaway is just a way to use semantics to manipulate the ignorant and uninformed to agree with the author's agenda.

[samclem]

Quote:

Originally Posted by Martha You can pay the estate tax over a 14 year time period. Or mortgage the family business to pay the tax. Or get some life insurance to help pay the bill. Or use other liquid assets. There is and was no reason to lose the family business. The loss of the family farm or family business due to estate taxes is a myth.

These options would all work well if you've got the kind of a business that's got room for the expenses they all entail. That 7% pa tax bill (100% spread over 14 years) on the valuation of a business would be a fairly big chunk of the cash flow for many businesses.

[MichaelB]

Quote:

Originally Posted by samclem I think there are a few highly publicized cases of people saying they favor it. I'm not sure that those who stand to lose their family businesses are clamoring for a continuation of this tax.

From the CBO

Quote:

A commonly expressed concern is the effect of the estate tax on family farms and small businesses, including the possibility that heirs may be forced to liquidate the business to pay the estate tax. As with the general public, most owners of family farms and small businesses are unlikely to owe estate tax. About 2.1 percent of farmers (1,137) and 2.4 percent of small-business owners (8,291) who died in 2005 had to file estate tax returns.9 The vast majority of estates, including those of farmers and small-business owners, had enough liquid assets to pay the estate taxes they owed in 2005.10 However, estates involving farms or small businesses are slightly less likely than other estates to have sufficient liquid assets to cover their estate taxes. In 2000, when the effective estate tax exemption amount was $675,000, 138 (or about 8 percent) of the estates of farmers who left enough assets to owe estate taxes faced a tax payment that exceeded their liquid assets, compared with about 5 percent of all estates that owed taxes. Those numbers are upper bounds, however, because the definition of liquid assets used on estate tax returns excludes some money held in trusts, which could also be used to pay estate taxes. The increase in the exemption amount since 2000 probably further mitigated the impact on small businesses. Moreover, the estate tax currently includes several provisions that owners of family farms and small businesses can use to mitigate its effect. For example, heirs are allowed to pay the tax in installments over 15 years at low interest rates, and several special valuation provisions allow some assets to be assessed at less than their market value.11

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.

[samclem]

Quote:

Originally Posted by MichaelB 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 way the CBO throws around the term "liquid assets" like maybe this is "extra money." "Liquid assets" would include a very big chunk of what most of us own. The CBO implies that heirs only have a problem if they can't pay the tax bill after cleaning out all their accounts, selling all their stocks, etc. I've heard that farmers sometimes need a few bucks on hand for when the crops don't do well--cleaning out all the liquid assets might strike a farmer as imprudent.

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?

[Martha]

Quote:

Originally Posted by samclem These options would all work well if you've got the kind of a business that's got room for the expenses they all entail. That 7% pa tax bill (100% spread over 14 years) on the valuation of a business would be a fairly big chunk of the cash flow for many businesses.

If a business that is valued in the multimillion dollar range can't afford estate tax debt attributable to the value of business over 14 years than maybe the business was overvalued. And the tax isn't close to a 100%. In any event, even when the estate tax was high studies showed that people were not losing or even selling businesses because the estate could not pay the tax.

[Martha]

The absence of an estate tax in 2010 has allowed the late George Steinbrenner to pass over 1 billion dollars with no federal estate tax to his heirs. Good year for the rich to die.

EDIT: Step up in basis is limited: http://www.bankrate.com/finance/taxe...t-heirs-1.aspx

[ERD50]

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Originally Posted by Martha Of course, I favor an estate tax. You are dead. Death creates a transfer and we tax transfers.

That is very circular.

If there were no Estate/Gift tax, I could decide to transfer $10 Million to someone for whatever (legal) reason I choose and the transfer would not be taxed. But since we do have an Estate/Gift tax, the transfer is taxed. So you are saying the Estate Tax justifies itself, because it taxes transfers and taxing transfers is OK because we already tax transfers with the Estate Tax?

We don't tax transfers to approved charities.

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Originally Posted by MichaelB I like the estate tax because it is simple and straightforward, and it encourages charitable giving.

It is neither simple nor straightforward, and I'd be interested in your reasoning as to how it 'encourages charitable giving'? Consider this scenario (using round numbers and not accounting for the exclusion and a bunch of other 'simple and straightforward' details):

Rich Guy: Gee, I sure would like to transfer $10M of my accumulated fortune to some people I know and love. But my tax guy tells me about half of that will go to Estate Taxes, leaving $5M to those people.

Oh, but charitable contributions are exempt from Estate Tax, so let's see, I'll just give $5M to charity, leaving $5M to my friends, part of which will still be taxed, so..... wait a minute, the charitable contribution means I left LESS to my loved ones! Wow, some 'encouragement'.

You try an example, but giving away 100% to save 50% just ain't gonna work with the arithmetic I know.

If people want to give to charity, they should just do it.

-ERD50

[ERD50]

Quote:

Originally Posted by Martha If a business that is valued in the multimillion dollar range can't afford estate tax debt attributable to the value of business over 14 years than maybe the business was overvalued.

These justifications are getting odder and odder to me.

I say we should put some huge annual tax on attorneys. After all, any attorney worth his/her salt would be able to find the loopholes to exempt themselves. So what if it takes 40 hours to research, document and fill out the paperwork - lawyers love that stuff! /satire

But really, that justification is just as poor (IMO) as "it only affects about 14,000 estates a year" (which could be far more people).


-ERD50

[ERD50]

Quote:

Originally Posted by Martha The absence of an estate tax in 2010 has allowed the late George Steinbrenner to pass over 1 billion dollars with no federal estate tax to his heirs.

To turn this back to the OP, we could rephrase that - in every year other than 2010, money that was earned and taxed was taken from the people who earned it, and their decision of what to do with the money at their death was taken from them.

-ERD50

[Texas Proud]

Quote:

Originally Posted by Martha The absence of an estate tax in 2010 has allowed the late George Steinbrenner to pass over 1 billion dollars with no federal estate tax to his heirs. With a stepped up basis. Good year for the rich to die.

See.... excellent estate tax planning...

[MichaelB]

Quote:

Originally Posted by ERD50 It is neither simple nor straightforward, and I'd be interested in your reasoning as to how it 'encourages charitable giving'? Consider this scenario (using round numbers and not accounting for the exclusion and a bunch of other 'simple and straightforward' details): Rich Guy: Gee, I sure would like to transfer $10M of my accumulated fortune to some people I know and love. But my tax guy tells me about half of that will go to Estate Taxes, leaving $5M to those people. Oh, but charitable contributions are exempt from Estate Tax, so let's see, I'll just give $5M to charity, leaving $5M to my friends, part of which will still be taxed, so..... wait a minute, the charitable contribution means I left LESS to my loved ones! Wow, some 'encouragement'. You try an example, but giving away 100% to save 50% just ain't gonna work with the arithmetic I know. If people want to give to charity, they should just do it. -ERD50

The estate tax is indeed much simpler and more straightforward than Federal income tax – what I meant. Apologies if this led to misunderstanding.

As to charitable giving, some people chose to give to charitable causes not to offset taxes but for more altruistic reasons. The alternative of high taxes motivates some to say – “I’d rather give it away than pay taxes on it.” I’m not suggesting this represents a majority of people – just that the alternative of a high tax motivates some.

Quote:

Originally Posted by ERD50 To turn this back to the OP, we could rephrase that - in every year other than 2010, money that was earned and taxed was taken from the people who earned it, and their decision of what to do with the money at their death was taken from them. -ERD50

OTOH, tax the unrealized gain on the asset and then tax the net unearned income to the recipient - just like any other income would be taxed. Whoever earned it allocated it. Whoever received it paid tax like any other income. It'll bring in less but it's really not that different - except now it's not a death tax, just another line item on the 1040.

[keegs]

There are 2,886,200 millionaires in the US and only 14,700 estates paid an estate tax.

[MasterBlaster]

Quote:

Originally Posted by keegs There are 2,886,200 millionaires in the US and only 14,700 estates paid an estate tax.

What's your point here ?

I suspect that almost all of those millionaires are still alive.

[Zathras]

Quote:

Originally Posted by keegs There are 2,886,200 millionaires in the US and only 14,700 estates paid an estate tax.

How many of those were both single and has an estate worth more than the exemption? Then, how many of those also died in the year 'only' 14,700 estates paid a tax?

[ERD50]

Quote:

Originally Posted by keegs There are 2,886,200 millionaires in the US and only 14,700 estates paid an estate tax.

Quote:

Originally Posted by MasterBlaster What's your point here ? I suspect that almost all of those millionaires are still alive.

That was my first thought (took about 0.0168 seconds)

keegs, you really ought to think this stuff through before posting.

There are 307,006,550 millionaires people in the US and only 16,929 estates paid an estate tax were murdered.

-ERD50

[ronin]

§ 1022. Treatment of property acquired from a decedent dying after December 31, 2009
(a) In general
Except as otherwise provided in this section—
(1) property acquired from a decedent dying after December 31, 2009, shall be treated for purposes of this subtitle as transferred by gift, and
(2) the basis of the person acquiring property from such a decedent shall be the lesser of—
(A) the adjusted basis of the decedent, or
(B) the fair market value of the property at the date of the decedent’s death.

I may be misunderstanding what has been said, but this year there is no step-up in basis. There is a $1.3 million allocable basis increase and an additional $3 million allocable basis increase for a surviving spouse.

http://www.law.cornell.edu/uscode/us...2----000-.html

[Independent]

Getting back to the point in the OP:

Quote:

Originally Posted by stephenandrew I think we can have a reasonable discussion about what appropriate tax policy is. What I find troubling though, is the language used by the Editorial writer. To claim that a lower tax rate and a higher exemption is a "giveaway" pre-supposes that the money in question belongs to the government (which it does not). The government is not giving anything away--it is just taking less of what was earned (and saved) by those individuals over the course of a lifetime. The editorial writers could just have easily said, "The higher rates proposed by most Democrats would cost the families of those who worked and saved all of their lives $130 billion more than Republicans' plan over 10 years."

I'll agree that "giveaway" is a loaded word. However, your proposed wording has a problem, too.

I have trouble with the idea that a $3.5 million or $7.0 million estate comes because someone "worked and saved". The median annual income in the US is about $40k. Someone who works 40 years and saves every dime will save $1.6 million. I'm sure that no human can save 100%. In order to get up to the minimum threshold for an estate tax with these exemptions you have to have something else going for you beyond the willingness to work and save.

[keegs]

Quote:

Originally Posted by ERD50 That was my first thought (took about 0.0168 seconds) keegs, you really ought to think this stuff through before posting. There are 307,006,550 millionaires people in the US and only 16,929 estates paid an estate tax were murdered. -ERD50

That's what I get for posting at work..