Estate Tax... Again! Woo!!

[BigBallinStalin]

Our fellow ConquerClubb, thegreekdog, favors a 100% estate tax:

(3) Increase the estate tax to 100% of any liquid assets valued at over $5 million, adjusted for inflation, including stocks, bonds, and cash. This requires a complete overhaul of estate and gift taxes.

(and)

Coming into riches merely because one's ancestor dies is the antithesis of the American dream. It is repugnant for you two to even suggest that the money was earned in any capacity. Furthermore, we're a republic, not an aristocracy.

note: his position may become more clarified, but given that we're in the present, we'll deal with that later.


My position:
It may not be the case that a change in the rate of the estate tax will change the shape of the American, Modern aristocracy. The more intelligent will find substitutes to avoid the 100% estate tax, thereby maintaining the possibility of the status quo (i.e. the modern aristocracy). My concern is about the relatively poorer people and/or less intelligent who cannot easily find or afford such substitutes; therefore, the relatively disadvantaged will take a proportional hit to their wealth while the shape of the modern aristocracy remains more or less unchanged.

Even if a cap on the estate tax was imposed (e.g. <$1,000,000 in wealth will not be taxed), the modern aristocracy can still more or less maintain the status quo since they have the resources to circumvent a 100% estate tax + the $1 million exemption.

tl;dr. A 100% estate tax won't get what TGD wants.

[2dimes]

As far as inheritence or winning a lottery goes a million dollars is not like it used to be.

My feeling is anything you are putting in a will has been taxed and it should just go to your spoiled kids who never had to work for anything ever.

Like you say anyone with real wealth like into the billions got there by knowing how to operate and will probably figure out how to dodge the tax. This is just to make sure regular people that happened to save up enough to give their spoiled kids something can't.

[Lootifer]

Yeah I agree in principle, but impossible to enforce the principle (i.e. legal avoidance will ensue).

[Timminz]

I would argue that the idea that people will try to circumvent a law, is a weak argument against implementing that law.

That's not to say that I agree with this particular proposal. I support the goal behind the proposal, but I would need to do more research before I could fully support any particular method of addressing the problem.

[thegreekdog]

Our fellow ConquerClubb, thegreekdog, favors a 100% estate tax:

(3) Increase the estate tax to 100% of any liquid assets valued at over $5 million, adjusted for inflation, including stocks, bonds, and cash. This requires a complete overhaul of estate and gift taxes.

(and)

Coming into riches merely because one's ancestor dies is the antithesis of the American dream. It is repugnant for you two to even suggest that the money was earned in any capacity. Furthermore, we're a republic, not an aristocracy.

note: his position may become more clarified, but given that we're in the present, we'll deal with that later.


My position:
It may not be the case that a change in the rate of the estate tax will change the shape of the American, Modern aristocracy. The more intelligent will find substitutes to avoid the 100% estate tax, thereby maintaining the possibility of the status quo (i.e. the modern aristocracy). My concern is about the relatively poorer people and/or less intelligent who cannot easily find or afford such substitutes; therefore, the relatively disadvantaged will take a proportional hit to their wealth while the shape of the modern aristocracy remains more or less unchanged.

Even if a cap on the estate tax was imposed (e.g. <$1,000,000 in wealth will not be taxed), the modern aristocracy can still more or less maintain the status quo since they have the resources to circumvent a 100% estate tax + the $1 million exemption.

tl;dr. A 100% estate tax won't get what TGD wants.

$5 million cap (per my original post).

The law can be written so as to avoid the avoidance of the estate tax.

For example, the estate tax today is avoided through the use of trusts and gifts. If the legislators write out of the law the exemptions for trusts and gifts, we've eliminated the ability to avoid the tax.

[2dimes]

I would argue that the idea that people will try to circumvent a law, is a weak argument against implementing that law.

I think a problem we have now is people spend so much time and energy trying to circumvent laws that many have no respect for them. It gets to the point where people think obeying laws is for suckers. That leads to people not wanting to be thought of as stupid for obeying a law joining in, when in the past they would have just obeyed laws.

Not relivant maybe but perhaps a law like this which apears intended to stop aristocracy ends up supporting it.

[BigBallinStalin]

Hey BBS - I provided for a $5 million exemption. That should be enough to cover those who are not members of the modern aristocracy and those without intelligent tax advisors.

I'd imagine that the members of the modern aristocracy at the time of their deaths own assets valued at > $10 million or maybe even > $50 million, but that may be wrong. I'm not sure which percentage of the US population in terms of net wealth is part of the modern aristocracy. Also, I'm not sure if net wealth is an accurate enough proxy for modern aristocratic membership because political clout can be available to those who possess significantly less than $5,000,000 at the time of their death.

If we want to rob the modern aristocracy of their power, then we must address the fundamental provider of that power: the state--especially the US federal government. Ceteris paribus, giving the state more money through estate taxes only enlarges the politicized pool, which will still be susceptible to rent-seeking (e.g. from those with their hands in the state's coffers and from those with their hands in the politician's pockets). So, these costs of increased taxation may not offset the supposed benefits of a 100% estate tax + $5m or $50m exemption.

(I'll address "laws against tax avoidance" later).

[Lootifer]

$5 million cap (per my original post).

The law can be written so as to avoid the avoidance of the estate tax.

For example, the estate tax today is avoided through the use of trusts and gifts. If the legislators write out of the law the exemptions for trusts and gifts, we've eliminated the ability to avoid the tax.

Can you run through an example of how such a law might work? I am struggling to come up with devious ways in which to bend the rules; but I am sure that those sneaky rich basterds will find one.

Bear in mind that as soon as you have anything even remotely onerous in terms of process (collection, enforcement, etc) those same rich basterds (plus all the libs like BBS and all the anti-tax guys like PS/NS) will shoot any propostion to pieces [politically].

[thegreekdog]

Hey BBS - I provided for a $5 million exemption. That should be enough to cover those who are not members of the modern aristocracy and those without intelligent tax advisors.

If we want to rob the modern aristocracy of their power, then we must address the fundamental provider of that power: the state--especially the US federal government. Ceteris paribus, giving the state more money through estate taxes only enlarges the politicized pool, which will still be susceptible to rent-seeking (e.g. from those with their hands in the state's coffers and from those with their hands in the politician's pockets). So, these costs of increased taxation may not offset the supposed benefits of a 100% estate tax + $5m or $50m exemption.

(I'll address "laws against tax avoidance" later).

I don't disagree, obviously. The largest impediment to my estate tax plan is the rent-seeking element. Clearly, this proposed rule, complete with "closing" the "loopholes" would be promulgated despite the rent-seekers. A difficult proposition, if not impossible.

[Baron Von PWN]

Tax it as regular income. So if I cash in on a 1,000,000,000 dollar investment. Tax me as if I made 1,000,000,000 dollar that year. No special tax, just a tax on income.

Of course people can likely find loopholes for that too, but at least it's a simpler tax code.

[2dimes]

But they allready taxed your grampa on that income.

[Baron Von PWN]

But they allready taxed your grampa on that income.

So? They taxed my employer on their income too. Doesn't mean I get a free pass when I file income taxes.

To expand on this. Grandfather was taxed on his income. Inheritance is my income, I should be taxed on that income at the regular rates for income tax.

[Night Strike]

They taxed my employer on their income too. Doesn't mean I get a free pass when I file income taxes.

Actually, no. Employers are taxed on profits, not gross sales.

Now, if your money comes from dividends/capital gains, those get double taxed.

[Night Strike]

A 100% estate tax would cause severe damage to charities that receive large donations from estates, especially colleges and universities. Many of these estates that are donated to schools have enough money to fund scholarships and teaching positions for years to come. Some are large enough to fund those things based on its continued interest earnings.*




*Which is actually a major criticism of colleges: continually raising prices when they're rarely dipping into the capital of their endowments.

[Baron Von PWN]

They taxed my employer on their income too. Doesn't mean I get a free pass when I file income taxes.

Actually, no. Employers are taxed on profits, not gross sales.

Now, if your money comes from dividends/capital gains, those get double taxed.

That depends on how you figure it, and also on tax laws wherever you are. Regardless it's likely safe to assume an employer is paying some sort of tax at some point. pedantry aside, just because whoever is giving me money was once taxed doesn't and shouldn't exclude me from being taxed.

[thegreekdog]

A 100% estate tax would cause severe damage to charities that receive large donations from estates, especially colleges and universities. Many of these estates that are donated to schools have enough money to fund scholarships and teaching positions for years to come. Some are large enough to fund those things based on its continued interest earnings.*




*Which is actually a major criticism of colleges: continually raising prices when they're rarely dipping into the capital of their endowments.

Exemption for charitable contributions. Problem solved. And it wasn't hard.

I'm sure you and BBS can think of more reasons why rich people should be able to ensure their children are also rich through aristocratic means.

[thegreekdog]

They taxed my employer on their income too. Doesn't mean I get a free pass when I file income taxes.

Actually, no. Employers are taxed on profits, not gross sales.

Now, if your money comes from dividends/capital gains, those get double taxed.

That depends on how you figure it, and also on tax laws wherever you are. Regardless it's likely safe to assume an employer is paying some sort of tax at some point. pedantry aside, just because whoever is giving me money was once taxed doesn't and shouldn't exclude me from being taxed.

Let's take $100 and see what happens through the tax system (we could make this choose your own adventure!)

The federal government gives $100 to Jim Smith. Let's assume that income is exempt.
Jim goes to the store and buys $100 worth of condoms, but really $94 since he pays 6% sales tax to the state.
The store gets $94 and the state gets $6.
The store uses $50 to pay its one employee and retains the remaining $44.
The employee pays federal, state, and local income taxes amounting to approximatley 25% of his or her income, keeping $37.50.
The store pays 35% federal income tax and 10% state income tax on the $44 (let's say that's $20). The remaining $24 is distirbuted to the store's sole shareholder who pays a tax on the dividend in the amount of 15% ($3.60).

In the scenario above, the government has dolled out $100 and received back $6 (sales tax) + $12.50 (payroll taxes) + $20 (corporate taxes) + $3.60 (dividend tax) = $42.21

[PLAYER57832]

This is really an ideological issue more than anything else.

Does it really make sense to tax someone, again, on money that has already been taxed? Sort of. Your sales tax payments, for example, are from money on which you generally pay income taxes. (there are exceptions, but unless the amounts are high, rarely employed). Money tends to be taxed when it is exchanged.

On the other hand, it impacts relatively few people and therefore is a sort of "easy" way for politicians to extract more taxes.

Per the "I earned it, I deserve to pass it on..". Maybe, but at the same time, giving your kids or grandkids a lot of money at once is generally a bad idea. It tends to result in bad consequences more often than good ones.

What I really like about greekdog's proposal is that he distinguishes between immaterial and material assets. I would keep estate taxes, or reinstate them to prior levels, but give exceptions for businesses and some homes. (note, I say "home", not "house" to clarify that I mean a place where the deceased actually lived, at least prior to being in a nursing home or such).

That said, if my folks could avoid paying estate taxes... I don't think its that difficult to do. Mostly, it involves creating a trust with all the parties signatories.

[thegreekdog]

This is really an ideological issue more than anything else.

Does it really make sense to tax someone, again, on money that has already been taxed? Sort of. Your sales tax payments, for example, are from money on which you generally pay income taxes. (there are exceptions, but unless the amounts are high, rarely employed). Money tends to be taxed when it is exchanged.

On the other hand, it impacts relatively few people and therefore is a sort of "easy" way for politicians to extract more taxes.

Per the "I earned it, I deserve to pass it on..". Maybe, but at the same time, giving your kids or grandkids a lot of money at once is generally a bad idea. It tends to result in bad consequences more often than good ones.

What I really like about greekdog's proposal is that he distinguishes between immaterial and material assets. I would keep estate taxes, or reinstate them to prior levels, but give exceptions for businesses and some homes. (note, I say "home", not "house" to clarify that I mean a place where the deceased actually lived, at least prior to being in a nursing home or such).

That said, if my folks could avoid paying estate taxes... I don't think its that difficult to do. Mostly, it involves creating a trust with all the parties signatories.

My point in that example was that the same money gets taxed multiple times regardless of whether there is an estate tax or not. Pretty much every time money changes hands it gets taxed at least once (e.g. a dividend) and sometimes twice (e.g. corporation's income tax and dividend or personal income tax and sales tax).

[PLAYER57832]

I think I mentioned that, too (in fact, I think I mentioned it in either my first post on the subject or in response to your first post)

Even so, there is the "moral" or "philosophical" bit about whether someone should be able to pass on wealth and how much. My stance is that, personally, I would never pass on significant chunks of cash (that is, more than a million or two... excepting a disabled dependent, of course), but I am not comfortable with people losing businesses and the like.

Of course, when it comes to a business, it is pretty easy to avoid paying estate taxes with just a bit of planning. And, maybe completing those steps is a sort of "fitness" test?

A different issue is historic homes, but that impacts a relatively few people. A truly historic home, aka the Biltmore or such, tends to offer itself opportunities.

[thegreekdog]

I think I mentioned that, too (in fact, I think I mentioned it in either my first post on the subject or in response to your first post)

Even so, there is the "moral" or "philosophical" bit about whether someone should be able to pass on wealth and how much. My stance is that, personally, I would never pass on significant chunks of cash (that is, more than a million or two... excepting a disabled dependent, of course), but I am not comfortable with people losing businesses and the like.

Of course, when it comes to a business, it is pretty easy to avoid paying estate taxes with just a bit of planning. And, maybe completing those steps is a sort of "fitness" test?

A different issue is historic homes, but that impacts a relatively few people. A truly historic home, aka the Biltmore or such, tends to offer itself opportunities.

Any valid concerns anyone has regarding a 100% estate tax can be resolved. Historic homes, farm property, small businesses, charitable contributions, etc. can all be addressed. The philosophical bit is something that is out there and obviously we can discuss. I think rich people can pass on the benefits of their wealth throughout their lives without relying upon their death to pass on that wealth. This can be a direct passage (buying a car) or indirect passage (paying for college), without the death of the wealthy person.

[PLAYER57832]

I think I mentioned that, too (in fact, I think I mentioned it in either my first post on the subject or in response to your first post)

Even so, there is the "moral" or "philosophical" bit about whether someone should be able to pass on wealth and how much. My stance is that, personally, I would never pass on significant chunks of cash (that is, more than a million or two... excepting a disabled dependent, of course), but I am not comfortable with people losing businesses and the like.

Of course, when it comes to a business, it is pretty easy to avoid paying estate taxes with just a bit of planning. And, maybe completing those steps is a sort of "fitness" test?

A different issue is historic homes, but that impacts a relatively few people. A truly historic home, aka the Biltmore or such, tends to offer itself opportunities.

Any valid concerns anyone has regarding a 100% estate tax can be resolved. Historic homes, farm property, small businesses, charitable contributions, etc. can all be addressed. The philosophical bit is something that is out there and obviously we can discuss. I think rich people can pass on the benefits of their wealth throughout their lives without relying upon their death to pass on that wealth. This can be a direct passage (buying a car) or indirect passage (paying for college), without the death of the wealthy person.

Let me clarify, I tend to agree with your position on this.. that children have no inherent right to inherit. Or rather, perhaps better said that one of the best gifts we can give our kids is the ability to be self-sufficient, self-made.

That said, when talking about laws, which impose will on all, it is important to address and consider other people's views, not just our own. Any seeming "argument" should be taken in that light.

[Baron Von PWN]

This is really an ideological issue more than anything else.

Does it really make sense to tax someone, again, on money that has already been taxed? Sort of. Your sales tax payments, for example, are from money on which you generally pay income taxes. (there are exceptions, but unless the amounts are high, rarely employed). Money tends to be taxed when it is exchanged.

On the other hand, it impacts relatively few people and therefore is a sort of "easy" way for politicians to extract more taxes.

Per the "I earned it, I deserve to pass it on..". Maybe, but at the same time, giving your kids or grandkids a lot of money at once is generally a bad idea. It tends to result in bad consequences more often than good ones.

What I really like about greekdog's proposal is that he distinguishes between immaterial and material assets. I would keep estate taxes, or reinstate them to prior levels, but give exceptions for businesses and some homes. (note, I say "home", not "house" to clarify that I mean a place where the deceased actually lived, at least prior to being in a nursing home or such).

That said, if my folks could avoid paying estate taxes... I don't think its that difficult to do. Mostly, it involves creating a trust with all the parties signatories.

My point in that example was that the same money gets taxed multiple times regardless of whether there is an estate tax or not. Pretty much every time money changes hands it gets taxed at least once (e.g. a dividend) and sometimes twice (e.g. corporation's income tax and dividend or personal income tax and sales tax).

Which is my point. Why treat an estate windfall as different from anything else?

Why should the government tax income which is inherited at a far higher rate than income that was worked for? Does the US government tax people who won the lottery at a different rate?

I don't see why it shouldn't be treated as any other income and taxed as such.

[thegreekdog]

This is really an ideological issue more than anything else.

Does it really make sense to tax someone, again, on money that has already been taxed? Sort of. Your sales tax payments, for example, are from money on which you generally pay income taxes. (there are exceptions, but unless the amounts are high, rarely employed). Money tends to be taxed when it is exchanged.

On the other hand, it impacts relatively few people and therefore is a sort of "easy" way for politicians to extract more taxes.

Per the "I earned it, I deserve to pass it on..". Maybe, but at the same time, giving your kids or grandkids a lot of money at once is generally a bad idea. It tends to result in bad consequences more often than good ones.

What I really like about greekdog's proposal is that he distinguishes between immaterial and material assets. I would keep estate taxes, or reinstate them to prior levels, but give exceptions for businesses and some homes. (note, I say "home", not "house" to clarify that I mean a place where the deceased actually lived, at least prior to being in a nursing home or such).

That said, if my folks could avoid paying estate taxes... I don't think its that difficult to do. Mostly, it involves creating a trust with all the parties signatories.

My point in that example was that the same money gets taxed multiple times regardless of whether there is an estate tax or not. Pretty much every time money changes hands it gets taxed at least once (e.g. a dividend) and sometimes twice (e.g. corporation's income tax and dividend or personal income tax and sales tax).

Which is my point. Why treat an estate windfall as different from anything else?

Why should the government tax income which is inherited at a far higher rate than income that was worked for? Does the US government tax people who won the lottery at a different rate?

I don't see why it shouldn't be treated as any other income and taxed as such.

I think it should be taxed at a higher rate (100% in fact). But yeah, there is nothing special about an inheritance that makes it more worthy of not being taxed.

[Baron Von PWN]

This is really an ideological issue more than anything else.

Does it really make sense to tax someone, again, on money that has already been taxed? Sort of. Your sales tax payments, for example, are from money on which you generally pay income taxes. (there are exceptions, but unless the amounts are high, rarely employed). Money tends to be taxed when it is exchanged.

On the other hand, it impacts relatively few people and therefore is a sort of "easy" way for politicians to extract more taxes.

Per the "I earned it, I deserve to pass it on..". Maybe, but at the same time, giving your kids or grandkids a lot of money at once is generally a bad idea. It tends to result in bad consequences more often than good ones.

What I really like about greekdog's proposal is that he distinguishes between immaterial and material assets. I would keep estate taxes, or reinstate them to prior levels, but give exceptions for businesses and some homes. (note, I say "home", not "house" to clarify that I mean a place where the deceased actually lived, at least prior to being in a nursing home or such).

That said, if my folks could avoid paying estate taxes... I don't think its that difficult to do. Mostly, it involves creating a trust with all the parties signatories.

My point in that example was that the same money gets taxed multiple times regardless of whether there is an estate tax or not. Pretty much every time money changes hands it gets taxed at least once (e.g. a dividend) and sometimes twice (e.g. corporation's income tax and dividend or personal income tax and sales tax).

Which is my point. Why treat an estate windfall as different from anything else?

Why should the government tax income which is inherited at a far higher rate than income that was worked for? Does the US government tax people who won the lottery at a different rate?

I don't see why it shouldn't be treated as any other income and taxed as such.

I think it should be taxed at a higher rate (100% in fact). But yeah, there is nothing special about an inheritance that makes it more worthy of not being taxed.

What is the rational for taxing it at a higher rate?

I don't think it should be exempt, but I also don't see why it should be taxed at 100%. It's not like we tax people at 100% for making more than X amount of money.