NY Times Editorial on Changes to Estate Tax

[SunsetSail]

Coming at this from a different angle, the following is a quote from a study performed by the Tax Policy Institute in the late 90s:

"Estate taxes also affect the heirs' work effort and savings. Recent evidence suggests that large inheritances may speed up the retirement decision. Even for those who remain in the labor force, one may also observe a reduction in labor supply. However, labor supply effects are generally small. Similarly, consumption is also observed to rise in the aftermath of inheritance. But, again, these effects are small." (emphasis added)

Logic dictates that if you are for an estate tax you are against early retirement....so put that in your tax pipe and smoke it.

Obviously I kid, but the information about consumption and retirement is interesting albeit noted to only have a small affect.

 

[MichaelB]

What kinda question is that? Of course we don't have jobs. I mean..... I mean..... geeeze, what a mean spirited thing to even bring up!

 

[MichaelB]

Would you also tax life insurance money paid to the beneficiary as unearned income? I see little difference between being the beneficiary of an inheritance or a beneficiary of life insurance. In either case, someone dies and you get something you didn't earn.

Good question. I never thought about it.

OTTOMH, an insurance payout is the result of a premium having been paid to compensate for a risk and the payout is for damages, so it doesn't represent any type of economic gain, and therefore wouldn't be taxed. If there were insurance paid that represented something other than damages, yes. So, if the insurance recipient incurred damages (like a spouse or minor child) than it would not be taxed, if the beneficiary is someone else - adult child or extended family, perhaps it should be taxed. Gotta think about this one.

 

[clifp]

I'd be in favor of eliminating the estate tax as long we tax inherited money. If I win the lottery, or the World Series of Poker, I have to be tax on all the money. However, if I win the genetic lottery my winnings are tax exempt. Why is that fair?

 

[Texas Proud]

No problem TP. You would have had to read my comments in light of the quote which was included in my post. Taken out of context, as you did, naturally you misunderstood my point.

I do it all the time... so why not now

 

[Texas Proud]

This is unearned income. Everyone is subject to paying it. It doesn't matter if tax was paid previously - when my after-tax income is paid to a lawyer she pays tax on it.

Double taxation applies to the same income and the same individual, not the same income and another individual.

Why should one person be allowed to receive income and pay no tax while another receives and pays - when neither earned it?

Is there a lawyer joke in there

 

[Texas Proud]

I'd be in favor of eliminating the estate tax as long we tax inherited money. If I win the lottery, or the World Series of Poker, I have to be tax on all the money. However, if I win the genetic lottery my winnings are tax exempt. Why is that fair?

Interesting about lotto.... I do not think you pay state taxes on lotto winnings... but I do not know

If you win the lotto over in Europe, you do not pay taxes (at least the ones I know about)...

 

[clifp]

Interesting about lotto.... I do not think you pay state taxes on lotto winnings... but I do not know

If you win the lotto over in Europe, you do not pay taxes (at least the ones I know about)...

Generally states don't tax the winning on their own state lotteries, but do owe them on other state. So a CA residence won't owe taxes on the CA lottery, but would on the multi-state megalotteries. US citizens owe taxes on things like Irish Lottery.

 

[Nords]

Generally states don't tax the winning on their own state lotteries, but do owe them on other state. So a CA residence won't owe taxes on the CA lottery, but would on the multi-state megalotteries. US citizens owe taxes on things like Irish Lottery.

I wonder if Hawaii residents are even eligible to collect lottery winnings. I guess it'd be treated as "out of state" income and taxed voraciously. Just like the way all us Hawaii residents rigorously report our Vegas gambling income...

 

[Independent]

Hmmmm, we seem to have these discussions about "luck," "fairness" and "wealth re-distribution" every year or so. I don't intend to hi-jack this thread into a philosophical discourse about those notions, but I think we'd all benefit from this informative lecture by Professor Sandel: Justice with Michael Sandel - Episode Eight.

By the way, I read his recent book on Justice and it's fast reading and a very good primer on some of the essential readings on moral philosophy.

I happened to catch this particular lecture on our public television station. I thought it was good and looked for more. I discovered that this was a type of online course, but it was only open (at least the original discussion forum) to Harvard alums and parents.

I'll see if I can take your advice and do some more reading.

 

[Danmar]

no taxes on lotteries in Canada. If there was was people would want to deduct the cost of tickets as a business expense right? Seems to me to make much more sense just to tax income (including cap gains) rather than estates. otherwise a real disincentive to save?

 

[kcowan]

... otherwise a real disincentive to save?

I don't think so. Everyone needs to look after themselves. To create enduring value for offspring, there are established techniques to preserve estates. The same techniques used to dodge capital gains also help with estate taxes.

If the exemption level is set large enough, it will not impact the average family.

 

[ERD50]

Originally Posted by Danmar :
... otherwise a real disincentive to save?

I don't think so. Everyone needs to look after themselves. To create enduring value for offspring, there are established techniques to preserve estates. The same techniques used to dodge capital gains also help with estate taxes.

If the exemption level is set large enough, it will not impact the average family.

In other words, it's not REALLY a tax, it's a work program for some lawyers and accountants and insurance people.

-ERD50

 

[kcowan]

In other words, it's not REALLY a tax, it's a work program for some lawyers and accountants and insurance people.

-ERD50

Yup and there is no way around it as long as there is a capital gains tax. Estate taxes just add insult to injury...

I wonder how many estates actually pay any taxes?

 

[ERD50]

Yup and there is no way around it as long as there is a capital gains tax. Estate taxes just add insult to injury...

I wonder how many estates actually pay any taxes?

The number is posted in this thread, 14,700, I assume that is correct.

A much more interesting number (that we cannot google) would be how much Estate Tax was not paid, due to hiring lawyers, accountants, etc.

-ERD50

 

[youbet]

A much more interesting number (that we cannot google) would be how much Estate Tax was not paid, due to hiring lawyers, accountants, etc.

-ERD50

+1

At the risk of sounding like a one note song, I'll again say that my opposition to the estate tax is that it's a tax so obviously established by lawyers in the public sector to provide work for lawyers in the private sector.

I again refer everyone to the concurrent thread where the OP asks about reducing estate taxes on his friends $10 million estate. The popular advise: "see a good lawyer."

If we're going to have an estate tax, then so be it. But make it simple and unavoidable regardless of the amount you pay to lawyers, CPA's, etc.

I can't understand those who want an estate tax but also want work-arounds. Is a matter of wanting others to pay the tax but feeling you'll be smart enough to avoid it?

 

[Texas Proud]

+1

At the risk of sounding like a one note song, I'll again say that my opposition to the estate tax is that it's a tax so obviously established by lawyers in the public sector to provide work for lawyers in the private sector.

I again refer everyone to the concurrent thread where the OP asks about reducing estate taxes on his friends $10 million estate. The popular advise: "see a good lawyer."

If we're going to have an estate tax, then so be it. But make it simple and unavoidable regardless of the amount you pay to lawyers, CPA's, etc.

I can't understand those who want an estate tax but also want work-arounds. Is a matter of wanting others to pay the tax but feeling you'll be smart enough to avoid it?

I agree with this thinking.... but this kind of thinking also applies to income taxes... We spend BILLIONS of dollars to people trying to avoid taxes.. it will not change anytime soon as the lawyers that make the laws also know that they will have a job when they leave public service...

 

[Martha]

Lawyers or no lawyers, people try to avoid taxes.

The estate tax isn't complicated. What is complicates things is giving stuff away before you die.

 

[SunsetSail]

+1

At the risk of sounding like a one note song, I'll again say that my opposition to the estate tax is that it's a tax so obviously established by lawyers in the public sector to provide work for lawyers in the private sector.

I again refer everyone to the concurrent thread where the OP asks about reducing estate taxes on his friends $10 million estate. The popular advise: "see a good lawyer."

If we're going to have an estate tax, then so be it. But make it simple and unavoidable regardless of the amount you pay to lawyers, CPA's, etc.

I can't understand those who want an estate tax but also want work-arounds. Is a matter of wanting others to pay the tax but feeling you'll be smart enough to avoid it?

I'm against an estate tax also but for different reasons. No one with an estate under $1 million will pay Federal Estate tax next year. With very simple and relatively cheap planning (under $5K for highly competent attorneys in the Los Angeles area) that exclusion can be effectively doubled to $2 million for a married couple (living trust with a credit bypass provision). There is essentially no federal level estate tax for most people. (This is under a whole bunch of assumptions such as a fully preserved unified credit, etc. but it still applies for most people). This expansion of the exclusion isn't a pay $5K save tax deal; the tax savings is a relatively minor adjustment for an estate plan that was made for non-tax reasons.

Most of the cost of estate plans for estates worth under $5 million are provisions not related to tax - avoidance of probate, how the estate should be distributed, limitations on distribution of the estate, preservation of wealth to biological children in the event of re-marriage, guardianship, etc.

I don't disagree that the system is too complex, but it doesn't really apply to the tax aspect until you get into large estates. Once you get into large estates, a major component of the complexity of tax planning involves maintaining control and avoiding tax. It isn't that complicated to plan for the tax part alone if one is willing to give up control of their money before they die.

I think the problem is that there is so much more involved in estate plans that just the tax aspect.

 

[ERD50]

I agree with this thinking.... but this kind of thinking also applies to income taxes... We spend BILLIONS of dollars to people trying to avoid taxes.. it will not change anytime soon as the lawyers that make the laws also know that they will have a job when they leave public service...

Two wrongs don't make a right (and I don't think you were saying they do) - at the minimum, let's simplify taxes to the point that if someone makes $X, we have a fairly good idea that they pay taxes within a fairly narrow range. With nothing that any lawyer or accountant could do about it.

Lawyers or no lawyers, people try to avoid taxes.

The estate tax isn't complicated. What is complicates things is giving stuff away before you die.

I started to reply, but it didn't come out very nice - I guess I'll use some restraint and maybe think it over and post later...

-ERD50

 

[ERD50]

Once you get into large estates, a major component of the complexity of tax planning involves maintaining control and avoiding tax. It isn't that complicated to plan for the tax part alone if one is willing to give up control of their money before they die.

And this where all the hypocrisy slips in, IMO. Those in favor of Estate Taxes talk about how we need to redistribute wealth, how the rich can afford it, it was just luck anyhow, and they shouldn't be allowed to pass much to their kids because that just creates modern monarchies.

Yet, the richest (who would contribute the most to our deficit) are the ones that can pay to avoid a large part of it. It's actually quite a contradiction (though legally correct) to say they "gave up control" of their money, if it is eventually getting used just as they wished (passed onto others through irrevocable trusts, etc). Why pay someone to set it up so that you "give up control" when the govt will do that for you free of charge?

IOW, they didn't give up control in a practical sense, only in a legal sense. edit/add: And that is not a 'loophole' it is how Congress wrote the law. Writing laws happens to be their job, they ought to pay attention to it (and I think they do, these rules have a purpose, they are not 'unintended consequences', they are the 'consequences'.)

-ERD50

 

[Texas Proud]

Lawyers or no lawyers, people try to avoid taxes.

The estate tax isn't complicated. What is complicates things is giving stuff away before you die.

But that is the point... why would I want to give things away before I die Only to avoid the estate tax... if there is no estate tax your complication goes away...

 

[Texas Proud]

I don't disagree that the system is too complex, but it doesn't really apply to the tax aspect until you get into large estates. Once you get into large estates, a major component of the complexity of tax planning involves maintaining control and avoiding tax. It isn't that complicated to plan for the tax part alone if one is willing to give up control of their money before they die.

Just like I said to Martha... why should I give up control In this discussion the ONLY reason I am giving up control is to AVOID TAXES... remove the tax and I do not have to give up control...

Sure, there are other reasons to give up control, but they would still be there with or without a tax....

 

[youbet]

I agree with this thinking.... but this kind of thinking also applies to income taxes...

Yep, no argument from me on that. I was just trying to keep on point......estate taxes.......with my comments. Income taxes also fall into the category of "why do we legislate a tax and also include a work-around if you have the right legal and accounting help to get you through the mountain of paperwork?"

It's such a waste of resources that could be applied to helping the poor or disadvantaged.

 

[Martha]

Clearly I was too flip. I wasn't making a policy argument, just stating where the complications are. The complicating factors are not the tax but the efforts to minimize the tax. Most of those efforts involve gifting programs. Some of this is perfectly hunky dory, but some are questionable. For example, forming limited partnerships to hold your assets and then giving away shares to family. The shares are valued low because they are not marketable. The issue is whether this is just tax avoidance or has other planning purposes. (I don't know the status of the law on these family limited partnerships). Others give non-voting shares in their businesses as the non-voting shares also are valued less than voting shares. Somewhat complicated ways to move things to the next generation, without changing control, and fix the value at a certain point in time.

So, the issues are whether these ways of minimizing taxes include loopholes that should be closed, whether these are perfectly fine gifting programs, or whether you even want a estate tax at all, and what people believe is fair based on their own values.

Work for estate planners and insurance salesmen? So what? You already need the will and maybe a trust. When you get in the top 5 percentile of wealth your life may be made more complex when estate planning. Lots of things complicate life. You own rental property, your tax situation suddenly is a lot more complicated. You own a business, there are many things that will complicate your life. Estate planning just isn't that big of a deal in the scope of the many things that complicate one's life.

Could resources be put to help the poor and disadvantaged? I wish. No one ever commits to doing that. Exactly how much resources are we talking about and from whom? OK, say we eliminate the estate tax. How is that going to help the poor and disadvantaged? I agree that we waste resources. That may be the nature of any society with competing and diverse interests. If we tax, people will want to avoid being taxed. Don't bet that simplicity will make things better. I don't.