Politics/Publics Affairs (The road goes ever on...) [OT]

[German41]

Yes, you seem to be.

[julio]

Well, Beria is dead, so I should be OK.

[Austinfan]

Unless you find yourself photoshopped out of Executive Committee photographs.

[julio]

Unless you find yourself photoshopped out of Executive Committee photographs.

I haven’t maintained my membership in the Executive Committee…

[Jazzhead]

inheritance tax is different than estate tax.

Thanks for pointing out the difference between estate tax and inheritance tax. German41 is right to question the moral basis of the estate tax. No matter the amount of the exemption it's a tax levied on assets already taxed, while those assets still reside with the earner (that is, with his estate, which is responsible to settle the decedent's obligations.)

The inheritance tax is a tax on transfer, levied on the recipient of property distributed from the estate after all debts have been paid. It's hardly immoral to tax transfers, even gratuitous transfers.

But German 41 is right that income once taxed shouldn't be taxed again while still in the same hands. I share his objection to the estate tax.

That leaves, of course, the question of taxation of unrealized appreciation. That's the mother lode that progressives want to tap. But the Tax Code has always had a firm principle that income isn't taxed until realized. The holder of property for investment bears the risk of loss until a gain is realized. For the government to tax what one has the risk of losing - the government sure isn't offering to share that burden with me! - is immoral IMO.

But it is reasonable, I think, to either to tax the transferee of property from an estate (an inheritance tax), or require the transferee to assume the estate's basis in the property distributed, so the appreciation doesn't escape taxation altogether, such as when there is a "step up" in basis.

[Docs]

I don’t understand why, with all of the issues that are important and impact much larger percentages of the population, we are talking about this though. Tax on assets over 13m with a clear loophole that people with assets over 13m can afford to take advantage of with a trust. This is very very low on the priority list of issues that need to be fixed. Ethically, this sounds like a distraction.

[andyb]

It was more about the ethics of the estate tax. Which I am fine with. There is too much accumulation of wealth at the top (much from favorable taxation rates during their lifetime), but the system we have with a large exemption (and note that married couples can give twice as much untaxed and gifts throughout their lives) is fine. Tax rates should probably be higher on exceptionally large fortunes too (40% now - maybe rise to 50% or 60% for amounts over $100 million).

I don't agree with the Elizabeth Warren proposed wealth tax. It is just not enforceable and would give way to even more tax avoidance. But progressive income taxation, estate taxes, side by side with consumption taxes is not socialism. It is a wealthy society paying for things in their collective interest leaving plenty of room for capitalism.

[Austinfan]

It is also a simple historical fact that no one "earns" great wealth, all great fortunes are built on the human capital, inftrastructure and social cohesion (trying building a fortune in the Sudan or Somalia, or keeping it under Xi). Fortunes are built by the "rules of the game" (and often cheating those rules) which are established by society - they're not handed down by God. So it's rational to balance incentives to innovate and manage well with the desire to restrict great accumulations of wealth, which can then invest in distorting the system (tax code, enforcement) to maintain that position of wealth and power. CEO wealth has gone up ten fold, yet where is the increase in productivity that justifies such an increase? There is no evidnece that management has improved the last thirty years, so where's the social benefit?

The Republican opposition to financing improved IRS enforcement isn't to protect the little guy, it's to protect the trillion or so in tax evasion, from hidiing money abroad (Panama papers0 to inflating asset value or failing to report income.

[German41]

That's false, Austinfan. Wealth is built through hard work, taking risks and luck. People who create wealth also create jobs for others and should be rewarded for doing so compared to those who do not. This is where we fundamentally disagree. If I spend my adult life working 80+ hours per week doing something that is not fundamentally "fulfilling", but allows me to create wealth because of unique talents, then there should not be punitive taxation.

[BostonRoss]

I don't get how the estate tax punishes someone who earned money. The tax is paid by their heirs, who didn't earn the money and may not have worked at all. It seems to be a disincentive for the heirs to work hard.

[German41]

It punishes the earner who worked hard to allow them to provide for their heirs. What's the point of making money other than to help your family?

[bkox]

What's the point of making money other than to help your family

Many people give to charity. Make their kids earn their own money

[German41]

You can do both.

[andyb]

The current estate tax exemptions allow plenty of money to go to heirs tax-free (who can also be getting $17,000 gifts from each parent every single year too). Plus there are various trusts to get money to heirs.

The heirs of these wealthy families are going to be doing just fine. Remember the tax is in lieu of the capital gains tax, so incrementally it is not that much. Inequality is a huge issue in our country now. Rich people will still have plenty of money even with an estate tax that went up to 50% for larger estates.

[Austinfan]

Wrong. Most wealthy people are lucky, Buffett has been explicit about his luck, and he's probably the smartest investor out there. Thing is we only hear about those who are successful - all the people who worked their butt off and ended up broke are invisible. Bill Gates tried to sell MS-DOS to IBM and was rebuffed, had he been successful in that sale, no Microsoft.

[German41]

We fundamentally disagree, which is fine.

[BostonRoss]

It punishes the earner who worked hard to allow them to provide for their heirs. What's the point of making money other than to help your family?

I don't see how it punishes the earner, who would be dead by the time the tax is assessed. And I don't think it punishes heirs who pay the tax, who never earned the money and are still getting most of it.

But that's just a difference of opinion, which is fine. The current tax was put into place by a vote of our elected representatives. You can certainly lobby them to change it if you don't like it. But I suspect that a majority of the public disagrees with you, leaving no incentive for Congress to change the tax.

To answer your question "What's the point of making money other than to help your family?": I find it hard to believe that most people feel that way. They make money to support themselves and their dependents, to provide things that they like to do or have, and to help out others in the community. I also think that my family members don't need millions of dollars to help, regardless of how much I have. In fact, there's good reason to think that some scions of wealthy families are often worse people because they didn't have to work hard themselves.

[allentown]

You may have paid tax when earned, but a ton of inherited wealth never was taxed AND the inheritors today often get an excellent deal with the basis step-up of inherited assets. Also, there is a very generous allowance ($13 million) before federal inheritance taxes begin to kick in and when they do apply, the tax rate is lower than in most past years of my lifetime. I think that give you ample opportunity to provide for your family

[dicemen99]

Theoretical arguments are nice, but let's take a look at some of the examples of what @German41 and @Jazzhead are pushing back at:

Since German41 pointed out that there is no point in making money other than helping your family, let's assume for this example that the person being taxed is married or at least has been married at some time to start his family. You now have two people who each have a 12.92 million dollar exemption as the marital exemption is unlimited. And, for the sake of argument, they refuse to take advantage of any gifting exemptions (although, in these cases, they might be a drop in the bucket unless you have a TON of kids).

Scenario 1 - Individual accumulates $20M in assets during his lifetime.
No federal estate tax - the married couple is under the total of $25.84M total exemption available

Scenario 2 - Individual accumulates $50M in assets during his lifetime.
Estate tax is potentially a maximum of $9.7M which still leaves $40.3M to be passed to heirs

Scenario 3 - Individual accumulates $500M in assets during his lifetime.
Estate tax is potentially a maximum of $189M leaving $311M to be passed to heirs

All of the above assumes that these wealthy individuals who are working for their families DO NOT take advantage of placing any of their accumulated assets because, obviously, despite being able to accumulate all of this wealth, they are actually stupid and do not realize that they can shelter a significant portion of these assets through trusts. Or they don't have financial advisors, lol.

I'd also like to point out that scenario #3 applies to only .00035% of the families in the US (about 4,500).

In reality, what the hell are we arguing about? How does one make this a "fundamental philosophy" of anyone's political views when confronted with the reality of the consequences of this "tax?"

This is a Facebook meme that appeals to a specific base.

[bkox]

In reality, what the hell are we arguing about?

For some reason poor Republicans think its their duty to protect the assets of the wealthy, even though those wealthy do everything they can to keep them poor.