NY Times Editorial on Changes to Estate Tax

[ERD50]

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]

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]

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.

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]

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]

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]

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.

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/uscode26/usc_sec_26_00001022----000-.html

 

[Independent]

Getting back to the point in the OP:

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]

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..

 

[Martha]

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

What justification are you talking about? SamClem mentioned small businesses and the difficulty of paying the tax. I said that the evidence of this being the case is not there. He argued about the difficulty of paying over 14 years. I questioned that.

Anyway, we have chose who and what to tax and we base those choices on a variety of factors. The estate tax is a no-brainer for me. I do not value the ability of the super rich to pass wealth on to the next generation tax free. I do not think that there is a basic human right to pass on what you have tax free.

Given that we as a society taxes transfers I see no reason to exempt transfers on death. And if you believe there are too many loopholes, close them. The biggest loophole is an exemption of a certain dollar amount. I am OK with something of an exemption. I would probably put it lower than most people. The other big loophole is charitable giving. Most people seem fine with that one, though I have no strong feelings about it. (Some of the structures used though I think we should garbage as simply tax avoidance schemes.) We did a bunch of loophole closing with the 1986 tax code. Maybe it is time for a clean up again.

 

[SunsetSail]

The biggest loophole is an exemption of a certain dollar amount. I am OK with something of an exemption. I would probably put it lower than most people. The other big loophole is charitable giving. Most people seem fine with that one, though I have no strong feelings about it. (Some of the structures used though I think we should garbage as simply tax avoidance schemes.) We did a bunch of loophole closing with the 1986 tax code. Maybe it is time for a clean up again.

To the OP's point about language, how is a deduction for charitable giving a loophole? How is the unified credit a loophole? Is the annual gift exclusion a loophole? These are statutory exclusions from the tax base and work as intended. The tax reform act of 1986 did in fact close loopholes - which were (and still are today) ways to avoid tax when tax was intended to apply - through poor drafting of statutory language or unintended consequences of complex laws. Just because you disagree with the tax policy doesn't make it a loophole.

I think most people won't argue with you that there is not a basic human right to pass on what you have tax free. However, at the same time there it is not a baseline of the government taxing every thing or transaction with all exceptions being loopholes in the system.

 

[samclem]

We did a bunch of loophole closing with the 1986 tax code. Maybe it is time for a clean up again.

Call it loophole closing or simplification--I'd be in favor of that (at least in principle). Still I don't think our legislative branch will be dealing with any large, broad issues unless they absolutely have to for the next 2 years.

 

[youbet]

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.

Our gov't at work! That's the way Congress wanted it and that's the way Congress made it be. I can hardly wait to see what plan they come up with next!

 

[youbet]

Call it loophole closing or simplification--I'd be in favor of that (at least in principle).

Amen to that. The various devices and methods to reduce estate taxes that have existed over the years is proof positive that the lawyers who make up Congress exist primarily to pass legislation that benefits their professional brothers and sisters in the private sector. Those Congress-critters wanna make damn sure there is plenty of legal work to do if they don't get elected next time 'round.

 

[Danmar]

Wow. You guys got real worked up on this one. I think the Canadian system works better. No estate or gift taxes. On death accrued cap gains are deemed to occur and tax is owing (about 20%on the gain). Only taxed once. Obviously other income attracts tax as you would expect in the year of death(eg salary, divs, interest, etc).

 

[harley]

Wow. You guys got real worked up on this one. I think the Canadian system works better. No estate or gift taxes. On death accrued cap gains are deemed to occur and tax is owing (about 20%on the gain). Only taxed once. Obviously other income attracts tax as you would expect in the year of death(eg salary, divs, interest, etc).

That does sound better, at least on the surface, eh?

How does it work as far as a small business person passing on their busines to the kids?

 

[haha]

That does sound better, at least on the surface, eh?

How does it work as far as a small business person passing on their busines to the kids?

I think you will find that many of the people lined up in favor of high estate taxes have no kids. When they die they expect to have no further concern or responsibilities in this world, except perhaps a spouse who will of course get the estate tax free.

This thinking is anathema to me.

Ha

 

[harley]

I think you will find that many of the people lined up in favor of high estate taxes have no kids. When they die they expect to have no further concern or responsibilities in this world, except perhaps a spouse who will of course get the estate tax free.

This thinking is anathema to me.

Ha

I'm not quite sure what point you're making, Ha. Can you clarify? I personally think that most people in favor of high estate taxes don't have a significant estate, whether they have kids or not.

 

[haha]

I'm not quite sure what point you're making, Ha. Can you clarify? I personally think that most people in favor of high estate taxes don't have a significant estate, whether they have kids or not.

Yes, I wasn't clear. No estate or no kids, either one makes a person more supportive of estate taxes. If you have no stake, you are naturally for grabbing it from those who do. But it is a deep desire for many parents to give their children and grandchildren a leg up.

Andrew Carnegie set up the system of free public libraries across the US. Many other wealthy donors have funded art museums and collected and donated the paintings within them, and funded great orchestras and opera companies. The Rockefeller foundation has funded health related and other research for many years.

I think we all know (though some would deny this knowledge) what would have happened to this stored wealth had the government been able to get hold of it.

Poof!

Ha

 

[Martha]

To the OP's point about language, how is a deduction for charitable giving a loophole? How is the unified credit a loophole? Is the annual gift exclusion a loophole? These are statutory exclusions from the tax base and work as intended. The tax reform act of 1986 did in fact close loopholes - which were (and still are today) ways to avoid tax when tax was intended to apply - through poor drafting of statutory language or unintended consequences of complex laws. Just because you disagree with the tax policy doesn't make it a loophole.

I think most people won't argue with you that there is not a basic human right to pass on what you have tax free. However, at the same time there it is not a baseline of the government taxing every thing or transaction with all exceptions being loopholes in the system.

My description of charities and the unified credit as loopholes was intentional. What is fair to one person may be a loophole to another.

 

[Martha]

I think you will find that many of the people lined up in favor of high estate taxes have no kids. When they die they expect to have no further concern or responsibilities in this world, except perhaps a spouse who will of course get the estate tax free.

This thinking is anathema to me.

Ha

You imply that because some of us have no children we do not have responsibilities or people that we care about. Watch the mindreading.

It isn't like I favor a 100% tax with no exemptions.

 

[ERD50]

When they die they expect to have no further concern or responsibilities in this world, except perhaps a spouse who will of course get the estate tax free.

Ha

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.

-ERD50

 

[ERD50]

It isn't like I favor a 100% tax with no exemptions.

But why should you be able to set a limit on how much of the money someone has accumulated gets to be passed on? They (or someone) earned it, they (or someone) paid taxes on it along the way, if it is now legally theirs, let them decide.

I can picture a case where an individual wants to apply the money towards a number of needy individuals that are not associated with any specific charity. I can also picture a case where the person just blows it. So what? That's what I call freedom, and freedom means you don't always need to do what others would want you to do (within the law).

-ERD50

 

[ERD50]

What justification are you talking about? SamClem mentioned small businesses and the difficulty of paying the tax. I said that the evidence of this being the case is not there. He argued about the difficulty of paying over 14 years. I questioned that.

I included the quote for reference, I thought I was clear. Again - Martha said:

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.

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.

The estate tax is a no-brainer for me. I do not value the ability of the super rich to pass wealth on to the next generation tax free. I do not think that there is a basic human right to pass on what you have tax free.

A few million years of evolution would disagree with you. It is very basic for a parent to try to pass on strength and security to their offspring. I'd call it absolutely fundamental to life.

OK, you can argue that $X is 'enough' to pass on, but I still say it is a basic human concept and those who respect that (even if they don't have > $X), will fight to protect the concept. I think it really comes back to the wording pointed out in the OP. Does one view the accumulation as the property of the accumulator, or the property of everyone else. You cannot giveaway something unless it is yours to give away.

-ERD50