The DEATH TAX...let's put estate taxes in perspective

[Dueller]

This topic gets a lot of attention when talking about federal tax reform. A disproportioinate amount I feel. Now, I'm not talking about whether the transfer of wealth upon your death should be taxed...but rather how many people it really affects. The "morality" or justification of whether the transfer of wealth is a taxable event is a topic for another thread.

As a primer, prior to 2001 (I think) estates with a greater net value than $675,000 were subject to some taxation. Keep in mind that generally speaking the transfer of your estate to a surviving spouse was not a taxable event. Beginning in 2001 the levels subject to estate tax began going up, first to $1million then to $1.5million in 2004-2006. Currently your estate is not taxed on the first $2million. Next year the limit rises to $3.5million before you are taxed. After 2009 it is repealed altogether but there are some quirks in the law where it may will revert back to $1million (or even $675K) being the exemption from estate tax unless congress acts. Plan your death accordingly

BUT, I digress...

In 2000 when the deduction was $675K, 52,000 estates of people who died that year were subject to taxation.

In 2006, when the limit was $2million, about 12,000 estates were taxable.

At an estate exclusion of $3.5 million only 7,100 estates will be subject to taxation.

If the exclusion was $5million, fewer than 5,000 estates would be subject to taxation.

Since it affects so few, kinda makes you wonder why it gets so much press, eh?

[legion]

Originally Posted by Dueller

Since it affects so few, kinda makes you wonder why it gets so much press, eh?

How many people were the beneficiaries of taxable estates?

[Dueller]

Originally Posted by legion

How many people were the beneficiaries of taxable estates?

Good point...but can it be THAT many? I mean, assume 5 beneficiaries...no assume 10 beneficiaries per estate on average. You're only looking at 120,000 being affected under current law. 2400 per state.

[MikeSid]

Where'd you get those numbers? Because I would agree that they seem awfully low if you are talking about the Federal Estate Tax. If you are talking about the pickup tax from an individual state, it would seem plausible. But not a nationwide number.


EDIT.... IRS shows 18,431 estates paid Fed Est Tax in '04. Consistent with the trend you show. But yeah...at 3.5M exemption level, not many estates will be affected.

[RoninLB]

The karma of the death tax can't be reconciled by most Americans.

Even poor people say it sucks.

An argument could be used in old Europe to filter old monarchy wealth down to the common man over generations. Over here it's outright government theft.

[Rick Lee]

Just because a small number of people are subject to some ridiculous law does not make it any less ridiculous. That mentality is what got us the AMT, which affected around 100 people when it was passed. And look what's happening with that now. Oh, and the fed. income tax, when it was first implemented, was 1% on people who made $1 million or more back in 1916. Look where we are now.

[MRM]

Dueller, what would you do for a living if there was no estate tax? I've been thinking of getting into estates and trusts myself. I say bring back the death tax and make is as complex as can be.

Seriously, as a policy matter, I think estate taxes should have a large excemption to cover the middle class, another generous excemption to exclude family farms (real families, not the Cargills) and small businesses (again, real small business, not the Fords, although they are trying hard to qualify) and then anything above a certain level should be taxed.

The middle class and comfortably well off should not be hit with estate taxes. The rich and very rich made their money off the American public, they can return some of it when they die. The children of the rich did nothing to earn that money; they benefited disproportionatly from society's bounty by the fate of being born well. They should be happy to pay some tax on it. I don't mean a confiscatory tax like in the 50s and 60s, a realistic tax that reflects that it is inherited wealth but still give the decedents an incentive to leave something to the kids. It's not like they're going to spend it on anything other than hookers and blow, anyway.

[Rick Lee]

Originally Posted by MRM

The middle class and comfortably well off should not be hit with estate taxes. The rich and very rich made their money off the American public, they can return some of it when they die. The children of the rich did nothing to earn that money; they benefited disproportionatly from society's bounty by the fate of being born well. They should be happy to pay some tax on it. I don't mean a confiscatory tax like in the 50s and 60s, a realistic tax that reflects that it is inherited wealth but still give the decedents an incentive to leave something to the kids. It's not like they're going to spend it on anything other than hookers and blow, anyway.

Karl Marx is alive and well. Why is the gov't. more entitled to someone's money if they're rich vs. well off vs. middle class? It's theft, no matter how you slice it. Lottery winners did nothing to earn their money either. Why not just confiscate all their wealth too?

Warren Buffet and Bill Gates Sr. constantly write about how the death tax prevents generational wealth transfers from becoming a permanent aristocracy. But they are totally free to arrange their estates in such a way that their heirs don't become rich for nothing. Indeed, Buffet has done just that, while Gates Sr. is obviously not in the same league with his son. All people are free to arrange their estates such that their heirs get it all, nothing or just some. Why should gov't. theft influence that decision? All their wealth was not stolen. It was EARNED. It was TAXED. It produced JOBS. Why punish that further?

[Dueller]

Originally Posted by MikeSid

Where'd you get those numbers? Because I would agree that they seem awfully low if you are talking about the Federal Estate Tax. If you are talking about the pickup tax from an individual state, it would seem plausible. But not a nationwide number.


EDIT.... IRS shows 18,431 estates paid Fed Est Tax in '04. Consistent with the trend you show. But yeah...at 3.5M exemption level, not many estates will be affected.

In 2004 the exemption was $1.5million, so the numbers I quoted fall into line. I got the numbers from a 2006 Congressional Budget Office report for a speach I gave. For the life of me I can't find it now.

[MRM]

Originally Posted by Rick Lee

Karl Marx is alive and well. Why is the gov't. more entitled to someone's money if they're rich vs. well off vs. middle class? It's theft, no matter how you slice it. Lottery winners did nothing to earn their money either. Why not just confiscate all their wealth too?

Rick, every loterry winner in the country is taxed. No one is talking about taking an entire lottery prize from the winner or taking an entire estate from the heirs. It costs money to run the government. Roads, bridges, border patrol, court system, cops, FDA, even the IRS cost money. If you can get the country to agree to cut spending to 1950s levels, go ahead and eliminate the estate tax. until then, it is an eminently fair way to raise the revenue necessary to run the government. It is fair to tax the rich more than the middle class because they can afford it and because they benefited more from society's advantages such as roads and bridges and a system of economic freedom (made possible by the governmental system and paid for by taxes) than the average person.

By definition, NO estate tax is taxed on earned income. Until you can find a better source of money to replace the lost revenue on estates over $5 million, then it doesn't make much sense to eliminate the estate tax. Unless you think it's more fair to make working people making $50-$100,000 a year pay it. Those are the choices.

[Dueller]

On a distantly related note, I saw an article about the IRS' cadre of estate law attorneys. On average they are responsible for collecting $2200/hr based on their average work loads.

Why can't I get that job if its farmed out to the private sector

[berettafan]

That's about equal to what i've seen some private estate atty's charge

Uncle Sam takes big bucks from estates for the same reason that 'estate' atty's do. It's found money for the beneficiaries and the man/woman who accumulated is dead so no complaints from him/her.

MRM is right; the money has to come from somebody.

[Rick Lee]

Originally Posted by MRM

Rick, every loterry winner in the country is taxed. No one is talking about taking an entire lottery prize from the winner or taking an entire estate from the heirs. It costs money to run the government. Roads, bridges, border patrol, court system, cops, FDA, even the IRS cost money. If you can get the country to agree to cut spending to 1950s levels, go ahead and eliminate the estate tax. until then, it is an eminently fair way to raise the revenue necessary to run the government. It is fair to tax the rich more than the middle class because they can afford it and because they benefited more from society's advantages such as roads and bridges and a system of economic freedom (made possible by the governmental system and paid for by taxes) than the average person.

By definition, NO estate tax is taxed on earned income. Until you can find a better source of money to replace the lost revenue on estates over $5 million, then it doesn't make much sense to eliminate the estate tax. Unless you think it's more fair to make working people making $50-$100,000 a year pay it. Those are the choices.

Complete socialist drivel. Lotto winners are taxed as if the money were income. Estates are built with income that was already taxed when it was earned, taxed again with real estate taxes, taxed again with sales taxes, maybe taxed again as cap. gains and finally taxed again at death. It's outrageous. Why should people have to do any estate planning other writing up a will? Because the gov't. will take it otherwise.

One of my dear friends, whose dad owned a 100 acre dairy farm in NJ, was slapped with a $900k tax bill as soon as his dad passed away. The dad didn't know anything about estate planning, the farm had dilapidated during his long illness and he had sold the development rights long ago. So his kids could not even sell the farm to pay off the IRS because the land was blocked from development and not viable as a farm without major investment. How is this even approaching fair or right? Why should other small businesses be forced into sale just to come up with the cash to pay off the IRS because the owner died?

[Mo_Gearhead]

QUOTE: "Complete socialist drivel. Lotto winners are taxed as if the money were income. Estates are built with income that was already taxed when it was earned, taxed again with real estate taxes, taxed again with sales taxes, maybe taxed again as cap. gains and finally taxed again at death. It's outrageous. Why should people have to do any estate planning other writing up a will? Because the gov't. will take it otherwise."
______________________

Todays assignment: Read the above paragraph, as MANY TIMES as necessary, until you GET IT!

[MRM]

Rick, at the risk of sounding like WWB, please read my posts before you accuse me of socialsit drivel. Drivel, perhaps, but socialist is fightin' words where I come from.

Anyway, I specifically stated that a fair estate tax would have generous excemptions for small businesses and family farms - much like the estate tax had before it was temporarily mostly eliminated. And as Mo pointed out, you gotta take some responsibility for your own well being and plan for death. Why should the US taxpayers bail out someone who didn't take care of his own business? So you and I could pay more INCOME tax?

[Rick Lee]

Originally Posted by MRM

Rick, at the risk of sounding like WWB, please read my posts before you accuse me of socialsit drivel. Drivel, perhaps, but socialist is fightin' words where I come from.

Anyway, I specifically stated that a fair estate tax would have generous excemptions for small businesses and family farms - much like the estate tax had before it was temporarily mostly eliminated. And as Mo pointed out, you gotta take some responsibility for your own well being and plan for death. Why should the US taxpayers bail out someone who didn't take care of his own business? So you and I could pay more INCOME tax?

I'd think the term "socialist drivel" would be a badge of honor in MN.

And "fair estate tax" is an oxymoron if there ever was one. The fact that you want exemptions from a law based on one's economic status is proof positve that there's nothing fair about it. We should all be robbed equally or not at all. BTW, I'm no lawyer, but I always wondered how our fed. tax code passed Constitutional muster when it came to "equal protection under law".

And let's just say you got all your exemptions for your gov't.-favored grievance groups. Would you suggest the taxes be indexed for inflation so we don't eventually get into another pickle like we now have with the AMT? Your suggestions equate to more of the same loopholes and favors for this or that group, which is why our tax code a) has nothing at all to do with fairness and b) is the single greatest contributor to our class of career politicians who hold onto power by doling out federal favors to supporters and punish enemies via the tax code. Why do you want more of this?

[VincentVega]

Why is the gov't. more entitled to someone's money if they're rich vs. well off vs. middle class?

As I see it, we already have the $$ spent, we are just trying to find a source for the cash. We dont want to pay taxes, but as soon as the roads turn to gravel no one is happy.

[Rick Lee]

Originally Posted by Chris Martin

As I see it, we already have the $$ spent, we are just trying to find a source for the cash. We dont want to pay taxes, but as soon as the roads turn to gravel no one is happy.

The death tax is a negligible fraction of fed. revenue. If someone tells me the gov't. needs more money, I'd say cut spending in other areas. If someone tells me the death tax is matter or right and wrong, fariness, etc., I'd say bull$hit.

[berettafan]

Originally Posted by Chris Martin

As I see it, we already have the $$ spent, we are just trying to find a source for the cash. We dont want to pay taxes, but as soon as the roads turn to gravel no one is happy.

Very well stated.

It IS interesting, however, to consider the concept that estate taxes have a social motive and that is to prevent the growth of dynasties.

[Superman]

"Death Tax" is an emotionally LOADED term. It is also semantically dishonest. Deaths are not taxed. Wealth transfer is taxed. If one of you guys gave me your multi-billion-dollar estate, would you feel that this gift should not be considered a capital gain for tax purposes. Sure, it would be slick if it were not a capital gain for me, or if capital gains were simply not taxed, or....heck....it would be nice of there were no such thing as taxes. But in reality, everywhere there is substantal transfer of wealth or assets, that "income" or "capital gain" is taxed.

"Death Tax" is something everyone would reject, including people who are struggling to scrape up bus fare to get to work. But if you call it something that actually represents what it is, and outline what it is, then most of that rejection will turn around. There should be some exemptions and exceptions. Family farms and businesses, etc. But if Warren Buffet gives me his estate upon his death, a very tiny proportion of Americans are going to decry the taxes I will need to pay. Yes, I know that several of you fall into this miniscule minority.