NY Times Editorial on Changes to Estate Tax

[youbet]

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Originally Posted by 73ss454 Maybe we should have the people who have pensions or went to college pay more estate taxes.

I hear ya man! It's time for those darn pension recipients to pay their fair share!

[samclem]

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Originally Posted by keegs If the additional revenue can go to funding public pensions or to make college more affordable

Lottery proponents in Florida sold it as a way to boost funding for schools. "Every dime we raise will go to the schools". And, it did. And this allowed the government to reduce the amount spent from the general fund on education by a corresponding amount. So, the lottery didn't benefit the schools at all. Now, I'm not opposed to lotteries (I think lotteries are a great voluntary tax), but anyone who thought the schools would benefit learned a lesson about how government works.

Quote:

Fungible (adj)fuhn-juh-buhl - being of such a nature that one part or quantity may be replaced by another equal part or quantity in the satisfaction of an obligatio

As far as tax money making college more affordable, nothing has done more to make college unaffordable than the bucketloads of money Uncle Sam pumps into the system.

[youbet]

Quote:

Originally Posted by samclem Lottery proponents in Florida sold it as a way to boost funding for schools. "Every dime we raise will go to the schools". And, it did. And this allowed the government to reduce the amount the spend from the general fund by a corresponding amount. So, the lottery didn't benefit the schools at all. Now, I'm not opposed to lotteries (I think lotteries are a great voluntary tax), but anyone who thought the schools would benefit learned a lesson about how government works.

I think you have the states mixed up samclem. It was Illinois where lottery revenue was dedicated to schools but the state legislators simply reduced the general fund contribution to the schools by an equal amount. If you're trying to say that Florida politicians can be as deceitful as Illinois politicians.......ahhhhhh.......I don't think so. Not even close.

I also agree though that the lottery is a good tax. I've never purchased a ticket!

[samclem]

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Originally Posted by youbet I think you have the states mixed up samclem. It was Illinois where lottery revenue was dedicated to schools but the state legislators simply reduced the general fund contribution to the schools by an equal amount.

Then that makes at least two states where this happened. Google Florida "Education Enhancement Trust Fund" for more info.

But you are right, Illinois probably thought of this sell-and-switch first. You've got to get up pretty early to out-scam an Illinois politician.

[Animorph]

1. I already paid taxes on that money. Suddenly it becomes taxable again when I die?

2. It costs me plenty, $ and time, to tax plan and set up trusts just so DW and I can each leave an estate instead of having it combined into one estate for the surviving spouse, with one estate tax exemption applied.

3. It incentivizes me to spend the money before I die, rather than saving it in case I, or my family, need it late in life.

I have no problem leaving the tax basis of everything where it is, without the normal step-up. Although that does make it easier for the survivors. But this tax is just another money grab and a social wealth transfer.

[keegs]

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Originally Posted by ERD50 That makes it OK? I could make a long list of crimes that affect very few people, should we decriminalize those crimes? For 2007, United States Crime Rates 1960 - 2009 16,929 murders in the United States. How many people pay the estate tax? 14,700 estates had to pay any estate tax at all. Murder, estate tax, they only affect a small percentage, it's OK. Add me to the list waiting for your reply. -ERD50

Morning ERD,

Per the policy center piece you posted: In 2007 when the estate tax was 18% - 46% on estates exceeding $2 million, 14.7k estates paid a tax. This year the tax is 0%.

The NYT OP/ED indicates that Democrats are looking to have the tax apply to estates that exceed $3.5 million for individuals and $7 million for married couples after the tax cuts expire next year.

Now you should check me on this but my understanding is that if you died today or two years ago, or in ten years, your wife would be excluded from any tax liabilty on your shared estate. If you both died in a car crash two years from now, under the Democrat's proposal in the Times piece, your estate would pay a tax on amounts exceeding $7 million.

I have no inheritance in my future to be concerned with nor do I have an accountant or lawyer that could advise me about estate insurance vehicles or sheltered trusts or gifts or offshore tax accounts, but I'm sure, given the relatively small number of estates paying this tax, many if not most who face it do and will find ways around it.

The real point of the NYT editorial opinion though as I read it is that 2011 essentially provides us with a chance at a do-over of the Bush tax cuts. With the huge debt we've accumulated through off budget wars and tax cuts, and with the enormous SS and Medicare liabilites we face in future, will congress pay for whatever it is they decide this time or will we hear more about Art Laffer's curve?

[ERD50]

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Originally Posted by keegs The real point of the NYT editorial opinion though as I read it is .... With the huge debt we've accumulated through off budget wars and tax cuts, and with the enormous SS and Medicare liabilites we face in future, will congress pay for whatever it is they decide this time or will we hear more about Art Laffer's curve?

So I take it you accept my thoughts that "affecting only a few people" doesn't change something from wrong to right or vice versa?

I didn't read the article (it wasn't linked) just the quote, and I agree with the OP about using the term 'giveaway'.

I want more sensible tax and spend policy. I'm in favor of some degree of 'progressive' tax rates, however, I think this tax is a bad way to go about collecting money.

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...given the relatively small number of estates paying this tax, many if not most who face it do and will find ways around it...

And that is the biggest problem I have with it. If you set a specific tax rate at around 55% and that hits a large amount of money in one fell swoop, you create a huge incentive to avoid that tax. In step the lawyers, and who wins? Here's an unintended*(see note below) consequence - let's say someone has a child or grandchild with disabilities. It can easily cost millions to help provide a lifetime of high quality care. I'm no lawyer, but I assume that trusts could need to be set up and hoops jumped through to get this money to that child w/o hitting the Estate Tax limits. Should we put anyone through that for wanting to provide for a child with these needs, it is adding insult to injury? And, once you provide those hoops, lawyers will find ways to use them. Does Lindsey Lohan now have 'special needs' for her addictions, etc?

And if someone focused on their business rather than evading this tax, they should be penalized for that? That's crazy in my book. And don't tell me they can't be penalized because they are dead - if they wanted to leave that money to someone and they can't, they are being penalized.

* Note on "unintended consequences" - I'm going to try to stop using this term as it applies to legislation. Congress writes the laws, and laws have consequences. It is their job to consider those consequences when they write legislation. Calling them "unintended" is letting them off the hook for their responsibility to the citizenry, and I really don't know if they were intended or not w/o getting inside their heads(and maybe tapping their phone lines). They need to do their job. No excuses.

-ERD50

[ERD50]

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Originally Posted by keegs If progressive taxation offends the sensibilities then so be it....it's in the constitution.

keegs, I've answered your questions, we are still waiting for a reply on this one....


-ERD50

[keegs]

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Originally Posted by ERD50 keegs, I've answered your questions, we are still waiting for a reply on this one.... -ERD50

The sixteenth amendment isn't part of the constitution?

[MichaelB]

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Originally Posted by youbet I think you have the states mixed up samclem. It was Illinois where lottery revenue was dedicated to schools but the state legislators simply reduced the general fund contribution to the schools by an equal amount. If you're trying to say that Florida politicians can be as deceitful as Illinois politicians.......ahhhhhh.......I don't think so. Not even close. I also agree though that the lottery is a good tax. I've never purchased a ticket!

I think you underestimate Florida politicians.

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Originally Posted by ERD50 So I take it you accept my thoughts that "affecting only a few people" doesn't change something from wrong to right or vice versa? I didn't read the article (it wasn't linked) just the quote, and I agree with the OP about using the term 'giveaway'. I want more sensible tax and spend policy. I'm in favor of some degree of 'progressive' tax rates, however, I think this tax is a bad way to go about collecting money.

It’s hard to defend any specific tax because everyone has a different view of ‘fair”. The estate tax is really a wealth or asset tax, more like a property tax, but assessed only once. One unusual characteristic is that the people that have the greatest concentration of wealth in the US seems to support it in a very public way.

The alternative is to tax the capital gains on the assets and then the income to inheritors. There’s probably not much difference in $$ amounts but the administrative burden would be far greater.

[haha]

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Originally Posted by Animorph . But this tax is just another money grab and a social wealth transfer.

Which is why it is so popular with some of our posters.

[Texas Proud]

Just to chime in.... Texas also sold their lotto as funding for the schools.... even though it is used as a general revenue income source...


I know we were not first as there are a lot of people in the state who think gambling is a sin...

[ERD50]

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Originally Posted by MichaelB It’s hard to defend any specific tax because everyone has a different view of ‘fair”.

But I didn't use the word "fair". I agree, that is a tough one.

I said it is cumbersome and subject to cheating and/or legal avoidance and I think there are better ways to collect money.

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The alternative is to tax the capital gains on the assets and then the income to inheritors. There’s probably not much difference in $$ amounts but the administrative burden would be far greater.

There are many alternatives, including scrapping the idea of taxing assets altogether. I don't like to discuss "solutions" until someone defines what the goal is. The lack of that thinking is what has made our tax code the counterproductive mess it is. Unless you define the goal as "buying votes/favors".

I also don't like cap gains tax because of the record keeping burdens and the cheating potential. But I'll humor you - IF we want to tax assets (wealth), I'd say do a small % EVERY YEAR. There is less motivation to cheat on a (say) 1% tax that has to be justified each and every year as there is a one time 55% tax that you can hire lawyers to get around legally.


-ERD50

[ERD50]

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Originally Posted by keegs The sixteenth amendment isn't part of the constitution?

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Originally Posted by keegs The sixteenth amendment isn't part of the constitution?

I didn't see the word 'progressive' in there.

And I'll anticipate your next comment - the Amendment gives Congress the power to tax, so if they decide to tax progressively, then it is 'in the Constitution'.

I'll declare that a stretch so far that it snaps, esp since some of the laws Congress has passed have been deemed unconstitutional. No one would claim that every law on the books is "in the Constitution".

-ERD50

[Martha]

Right now, this year, people who inherit get a benefit others do not. A step up in basis. If t no estate tax is desired then we better eliminate the step up in basis.

Of course, I favor an estate tax. You are dead. Death creates a transfer and we tax transfers. I'd set the exemption at a million, but not many will agree with me. We need to tax, the issue is who and what and how much. Given the huge disparity in wealth in the US I have no problem with progressive income taxes and estate taxes.

[keegs]

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Originally Posted by Martha Right now, this year, people who inherit get a benefit others do not. A step up in basis. If t no estate tax is desired then we better eliminate the step up in basis. Of course, I favor an estate tax. You are dead. Death creates a transfer and we tax transfers. I'd set the exemption at a million, but not many will agree with me. We need to tax, the issue is who and what and how much. Given the huge disparity in wealth in the US I have no problem with progressive income taxes and estate taxes.

Amen

[MasterBlaster]

I have mixed feelings on estate taxes.

I like the fact that taxing dead people just may lower the overall tax burden for the living. I also like the idea of putting some brakes on the uber-wealthy dynasties.

Yet, I feel that the estate tax rates are outrageous and confiscatory. If I were King, then I would just let all of the recipients pay ordinary income tax rates on what they received.

[MichaelB]

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Originally Posted by Martha Right now, this year, people who inherit get a benefit others do not. A step up in basis. If t no estate tax is desired then we better eliminate the step up in basis. Of course, I favor an estate tax. You are dead. Death creates a transfer and we tax transfers. I'd set the exemption at a million, but not many will agree with me. We need to tax, the issue is who and what and how much. Given the huge disparity in wealth in the US I have no problem with progressive income taxes and estate taxes.

An estate tax with fully stepped basis is much simpler than income tax. I suspect that because the total amount is not that much and is relatively concentrated in few individuals, the lack of loopholes is because there hasn't been enough real interest.

Still, when comparing taxing an estate vs taxing unrealized capital gains + unearned income to the recipient, the difference is not as great as I first imagined. Without exemptions, 55% estate tax of $1M collects $550K in tax. The same $1M, assuming a long term asset with 25% cost basis, the subsequently taxed to the recipient at 35% marginal rate, would result in $423k tax. Less, but still a fair amount, and a very heavy burden of additional paperwork.

I still find it striking that the few people most dramatically affected - those that would pay the bulk of all estate tax, fully support the simple estate tax at it's previous high rate.

[samclem]

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Originally Posted by MichaelB I still find it striking that the few people most dramatically affected - those that would pay the bulk of all estate tax, fully support the simple estate tax at it's previous high rate.

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.

[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!