NY Times Editorial on Changes to Estate Tax

[keegs]

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]

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.

...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]

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]

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]

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.

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]

. 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]

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.

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]

The sixteenth amendment isn't part of the constitution?

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]

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]

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]

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/doc10841/12-18-Estate_GiftTax_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!

 

[Martha]

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]

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/doc10841/12-18-Estate_GiftTax_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]

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]

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]

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

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]

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]

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/taxes/estate-tax-elimination-could-cost-heirs-1.aspx

 

[ERD50]

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.

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]

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