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This is one of the arguments in favor of inheritance/estate taxes - they should have a distributive effect that prevents the formation of a nobility or royal cl

by gefh 11y ago

This is one of the arguments in favor of inheritance/estate taxes - they should have a distributive effect that prevents the formation of a nobility or royal class. Of course, no-one with enough foresight actually ens up paying a significant amount these days.

harryh 11y ago
Americans paid 19 billion in inheritance taxes in 2014.
- smtddr 11y ago
  In comparison to what? And exactly what income-levels paid what percentage of that? Did the poor & middle class paid 98% of of that? Did the rich & powerful use all kinds of crazy tax-loop-holes to avoid paying trillions? Cost of living/retirement in what parts of America?....maybe 19 billion is a drop in the ocean, maybe not. 19 billion tells me nothing.
  - harryh 11y ago
    Well, roughly 2.6 million Americans died in 2014. I've read that 1 in 500 estates gets taxed so that's about 5200 estates. 19 billion / 5200 = an mean of ~3.65 million per taxed estate. That's all I know off the top of my head. In general I've found the trope of "the rich don't pay taxes because of their fancy lawyers and accountants" generally turns out to be false.
    - smtddr 11y ago
      >>In general I've found the trope of "the rich don't pay taxes because of their fancy lawyers and accountants" generally turns out to be false. It's not that they don't pay taxes at all, but they definitely pay less than they should. http://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes/ http://money.cnn.com/2013/03/04/news/economy/buffett-secreta... There's no way you can believe otherwise, a millionaire can afford all kinds of financial experts to work 40hrs/week to move money all over the place to avoid taxes. It's unreasonable to think they don't (ab)use that ability.
      - harryh 11y ago
        Buffet doesn't pay lower taxes because of fancy lawyers and accountants though. He pays lower taxes because capital gains are taxed at a lower rate than ordinary income. We can certainly debate whether that is good policy or not, but it has absolutely nothing to do with any sort of fancy tricks.
        ashwinaj 11y ago
        I wonder which group of people lobbied for capital gains to be taxed lower than ordinary income? Is it coincidence that since the law (one of Reagan's tax cuts) was passed a lot of executives are paid a lower base salary and tons of stock options? I'd consider that a fancy trick :) EDIT: To answer harryh: Yes and it has been steadily decreasing [1]. And your point is? I think we can agree this mainly benefits the rich; I don't see someone in the middle class would have the discretionary income (not 401k, I'm talking about leftover income after expenses) to put his/her money in massive amounts stocks. [1] http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=161 http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...
        harryh 11y ago
        Capital gains taxes have almost always been lower than ordinary income taxes. This is not a new post-Reagan phenomenon.
        drumdance 11y ago
        The rate was much higher pre-Reagan, nearly double what it is today. Also, the rise of finance means a lot of Wall Street hedge fund managers who should be paying ordinary income tax are paying cap gains rates through the carried interest exception. Venture capitalists too. http://avc.com/2010/05/why-taxing-carried-interest-as-ordinary-income-is-good-policy/ http://avc.com/2010/05/why-taxing-carried-interest-as-ordina...
        harryh 11y ago
    - asmithmd1 11y ago
      Taxes are for the 99% The 1% can and do pay lawyers to get out of paying much. Check out this loophole - it is complicated but basically if you can afford to set up one of these trusts you can give money to your kids tax free: https://en.wikipedia.org/wiki/Grantor_retained_annuity_trust https://en.wikipedia.org/wiki/Grantor_retained_annuity_trust
    - washadjeffmad 11y ago
      From 2003 to 2013, the top marginal and capital gains tax rates were 35% and 15% respectively, and the top 0.01% of taxpayers faced an average tax rate of effectively 25%. The last time rates were that low was before WW2, leading up to a period we remember as the Great Depression. During the nation's most prosperous decades, those rates were consistently above 40%, and leading up to them, ranged between 60% and 40%. The issue isn't that the mega-wealthy pay no taxes, but that the value of the taxable income of a handful of people vastly supersedes that of most of that of the rest of the population. In essence, lower tax rates didn't fix anything about the economy unless you thought taxes were the problem and provided no overall boost to the economic security or general prosperity of the public. So when GE Capital pays no corporate taxes and someone points that out, you're likely to hear that they pay those taxes through the number of people they employ. This is deceptive, since a legitimate small business would be paying both taxes. That entities like GE Capital exist is the trope that you need to dispel. Or did those estate taxes not come from the earnings of mom and pop shop owners and people who put in their 40 quarters with a little wise investing?
    - sumedh 11y ago
      > "the rich don't pay taxes because of their fancy lawyers and accountants" generally turns out to be false. So why does Buffett keep on saying that he pays low taxes compared to his secretary?
      - kspaans 11y ago
        Short explanation: capital gains, dividend income is taxed less than normal (wage, salary, etc) income. And I believe Buffett means that he pays a lower effective tax rate than his secretary, not fewer taxes in absolute terms.
- toomuchtodo 11y ago
  Your first $5.3 million is exempt from inheritance tax when you die.
  - harryh 11y ago
    $5.45 million if you can hold out until 2016!
    - tanderson92 11y ago
      Marking my calendar!
    - sevensor 11y ago
      Relevant Monty Python: "...rigged the market, made a cool forty million, payed off the Lord Mayor, and put the lot into diesel-powered nuns." "Which is where he went wrong, eh?" "Exactly" "When's the funeral?" "Oh, he hasn't killed himself yet." "He hasn't?" "No, waiting 'til April the fifth. Some sort of tax dodge."
- zevyoura 11y ago
  That's not a particularly meaningful number without knowing the total amount that was inherited.
- yongjik 11y ago
  American's 2014 GDP is 17.4 trillion dollars. It seems reasonable to assume that some portion of it will accumulate among the wealthiest class and be inherited. Probably much more than ~0.1%.
  - harryh 11y ago
    Rather than comparing to GDP it's probably better to compare to net worth which is about 70 trillion dollars. With an expected lifespan of ~80 years that's roughly 875 billion passed on in any given year. Let's assume that all inheritance taxes are paid by the top 1%. They own about a third of total assets. So that's about 290 billion being passed on. 19 / 290 = 6.5% being paid in inheritance taxes. To high? To low? I dunno, but that's my best guess back of the envelope math.
    - asmithmd1 11y ago
      Nice estimates. The nominal US estate tax rate for estates $1M over the exclusion is 40% so I would say your estimate of 6.5% shows how effective the 1% have been at sheltering their wealth from estate tax. The GRAT was invented (and patented[1]) as a way to transfer money tax free after congress closed the GRIT loophole in 1990: https://en.wikipedia.org/wiki/Grantor_retained_annuity_trust https://en.wikipedia.org/wiki/Grantor_retained_annuity_trust [1] https://www.google.com/patents/US6567790 https://www.google.com/patents/US6567790
      - harryh 11y ago
        Completely separate from the rest of this discussion, but I am amazed that you can patent something like that.
nugget 11y ago
There are a few challenges here. Unless you fundamentally alter the way trust funds shelter wealth and income across generations, then all raising the inheritance tax does is widen the gap between the 1% (who you will tax) and the .1% (who will remain out of reach and become relatively more entrenched). Second is the fact that we live in a global economy now and taxes that are not applied globally will encourage human and capital flight. If, for example, you gutted trust funds or raised inheritance taxes to 75% in the US, you would likely find many wealthy families relocating (and expatriating if necessary) to more favorable jurisdictions. For a few generations now the US enjoyed unrivaled status as the best/safest/most desirable place in the world to live (for most people), but this is already lessening as the world becomes smaller and more connected. It's already much easier for me to imagine raising my kids in London or Singapore (especially if I'm worth tens of millions) than it was for my parents. Personally I would be in favor of a globally applied inheritance tax set at a high level but the devil is in the details and I don't think we'll get there in our lifetimes.
deleted 11y ago
[deleted]
kamaal 11y ago
What distributive effect are you talking about? Almost every free market economy today is an equal opportunity space. And that is only thing that should count. If people can't even keep their own money earned for themselves, you are just killing the incentive to even earn it at the first place. You seem to suggesting we must periodically make the rich, poor. This kind of equality is more dangerous than inequality. Look up the failure of socialist/communist set ups in past century that will tell you why this is such a bad idea. The whole scheme over time feels like punishing people for working hard and generating wealth, while remainder free loads on the assumption they are entitled to free money. What follow next is exodus of smart, hard working people to better countries.
- SalmoShalazar 11y ago
  I think you may be confusing Atlas Shrugged with reality my friend.
  - zo1 11y ago
    Well, are his ideas/comments/arguments valid or invalid? Or are you simply dismissing it because it's too-similar to a line of thinking that is often popularized by a single book?
    - drumdance 11y ago
      Lots and lots and LOTs of sectors are heavily regulated, which leads to rent seeking which leads to protectionism, either via foreign trade barriers or just making it bureaucratically difficult for competitors to enter (i.e. Uber getting flack from municipalities). For a long time the rent-seeking was done by unions, but these days its more commonly done by corporations.
  - kamaal 11y ago
    Care to explain your version of 'reality'?
- gefh 11y ago
  If you can figure out how to use your money after you're dead, I'll make an exception for you in my Kingdom.
tunesmith 11y ago
Another thing you could do is a logarithmic flat tax, where everyone pays the same amount of relative resources. The value of money as people get richer is roughly logarithmic. The simplest plan I've seen along these lines is: Figure your year's revenue. Find out how many times the poverty level that is, for your family size. (Twice the poverty level, 10x the poverty level, etc.) Take the log base 10. Multiply that by some constant that is the same for every tax payer in the nation (both people and businesses). Currently, that "flat" constant would be about 9. The resultant number is your tax rate. (Hint: this would be a massive tax cut for pretty much everyone short of billionaires.)

by gefh 11y ago

harryh 11y ago

Americans paid 19 billion in inheritance taxes in 2014.

smtddr 11y ago
In comparison to what? And exactly what income-levels paid what percentage of that? Did the poor & middle class paid 98% of of that? Did the rich & powerful use all kinds of crazy tax-loop-holes to avoid paying trillions? Cost of living/retirement in what parts of America?....maybe 19 billion is a drop in the ocean, maybe not. 19 billion tells me nothing.
- harryh 11y ago
  Well, roughly 2.6 million Americans died in 2014. I've read that 1 in 500 estates gets taxed so that's about 5200 estates. 19 billion / 5200 = an mean of ~3.65 million per taxed estate. That's all I know off the top of my head. In general I've found the trope of "the rich don't pay taxes because of their fancy lawyers and accountants" generally turns out to be false.
  - smtddr 11y ago
    >>In general I've found the trope of "the rich don't pay taxes because of their fancy lawyers and accountants" generally turns out to be false. It's not that they don't pay taxes at all, but they definitely pay less than they should. http://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes/ http://money.cnn.com/2013/03/04/news/economy/buffett-secreta... There's no way you can believe otherwise, a millionaire can afford all kinds of financial experts to work 40hrs/week to move money all over the place to avoid taxes. It's unreasonable to think they don't (ab)use that ability.
    - harryh 11y ago
      Buffet doesn't pay lower taxes because of fancy lawyers and accountants though. He pays lower taxes because capital gains are taxed at a lower rate than ordinary income. We can certainly debate whether that is good policy or not, but it has absolutely nothing to do with any sort of fancy tricks.
      - ashwinaj 11y ago
        I wonder which group of people lobbied for capital gains to be taxed lower than ordinary income? Is it coincidence that since the law (one of Reagan's tax cuts) was passed a lot of executives are paid a lower base salary and tons of stock options? I'd consider that a fancy trick :) EDIT: To answer harryh: Yes and it has been steadily decreasing [1]. And your point is? I think we can agree this mainly benefits the rich; I don't see someone in the middle class would have the discretionary income (not 401k, I'm talking about leftover income after expenses) to put his/her money in massive amounts stocks. [1] http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=161 http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...
        harryh 11y ago
        Capital gains taxes have almost always been lower than ordinary income taxes. This is not a new post-Reagan phenomenon.
        drumdance 11y ago
        The rate was much higher pre-Reagan, nearly double what it is today. Also, the rise of finance means a lot of Wall Street hedge fund managers who should be paying ordinary income tax are paying cap gains rates through the carried interest exception. Venture capitalists too. http://avc.com/2010/05/why-taxing-carried-interest-as-ordinary-income-is-good-policy/ http://avc.com/2010/05/why-taxing-carried-interest-as-ordina...
        harryh 11y ago
  - asmithmd1 11y ago
    Taxes are for the 99% The 1% can and do pay lawyers to get out of paying much. Check out this loophole - it is complicated but basically if you can afford to set up one of these trusts you can give money to your kids tax free: https://en.wikipedia.org/wiki/Grantor_retained_annuity_trust https://en.wikipedia.org/wiki/Grantor_retained_annuity_trust
  - washadjeffmad 11y ago
    From 2003 to 2013, the top marginal and capital gains tax rates were 35% and 15% respectively, and the top 0.01% of taxpayers faced an average tax rate of effectively 25%. The last time rates were that low was before WW2, leading up to a period we remember as the Great Depression. During the nation's most prosperous decades, those rates were consistently above 40%, and leading up to them, ranged between 60% and 40%. The issue isn't that the mega-wealthy pay no taxes, but that the value of the taxable income of a handful of people vastly supersedes that of most of that of the rest of the population. In essence, lower tax rates didn't fix anything about the economy unless you thought taxes were the problem and provided no overall boost to the economic security or general prosperity of the public. So when GE Capital pays no corporate taxes and someone points that out, you're likely to hear that they pay those taxes through the number of people they employ. This is deceptive, since a legitimate small business would be paying both taxes. That entities like GE Capital exist is the trope that you need to dispel. Or did those estate taxes not come from the earnings of mom and pop shop owners and people who put in their 40 quarters with a little wise investing?
  - sumedh 11y ago
    > "the rich don't pay taxes because of their fancy lawyers and accountants" generally turns out to be false. So why does Buffett keep on saying that he pays low taxes compared to his secretary?
    - kspaans 11y ago
      Short explanation: capital gains, dividend income is taxed less than normal (wage, salary, etc) income. And I believe Buffett means that he pays a lower effective tax rate than his secretary, not fewer taxes in absolute terms.
toomuchtodo 11y ago
Your first $5.3 million is exempt from inheritance tax when you die.
- harryh 11y ago
  $5.45 million if you can hold out until 2016!
  - tanderson92 11y ago
    Marking my calendar!
  - sevensor 11y ago
    Relevant Monty Python: "...rigged the market, made a cool forty million, payed off the Lord Mayor, and put the lot into diesel-powered nuns." "Which is where he went wrong, eh?" "Exactly" "When's the funeral?" "Oh, he hasn't killed himself yet." "He hasn't?" "No, waiting 'til April the fifth. Some sort of tax dodge."
zevyoura 11y ago
That's not a particularly meaningful number without knowing the total amount that was inherited.
yongjik 11y ago
American's 2014 GDP is 17.4 trillion dollars. It seems reasonable to assume that some portion of it will accumulate among the wealthiest class and be inherited. Probably much more than ~0.1%.
- harryh 11y ago
  Rather than comparing to GDP it's probably better to compare to net worth which is about 70 trillion dollars. With an expected lifespan of ~80 years that's roughly 875 billion passed on in any given year. Let's assume that all inheritance taxes are paid by the top 1%. They own about a third of total assets. So that's about 290 billion being passed on. 19 / 290 = 6.5% being paid in inheritance taxes. To high? To low? I dunno, but that's my best guess back of the envelope math.
  - asmithmd1 11y ago
    Nice estimates. The nominal US estate tax rate for estates $1M over the exclusion is 40% so I would say your estimate of 6.5% shows how effective the 1% have been at sheltering their wealth from estate tax. The GRAT was invented (and patented[1]) as a way to transfer money tax free after congress closed the GRIT loophole in 1990: https://en.wikipedia.org/wiki/Grantor_retained_annuity_trust https://en.wikipedia.org/wiki/Grantor_retained_annuity_trust [1] https://www.google.com/patents/US6567790 https://www.google.com/patents/US6567790
    - harryh 11y ago
      Completely separate from the rest of this discussion, but I am amazed that you can patent something like that.

nugget 11y ago

There are a few challenges here. Unless you fundamentally alter the way trust funds shelter wealth and income across generations, then all raising the inheritance tax does is widen the gap between the 1% (who you will tax) and the .1% (who will remain out of reach and become relatively more entrenched). Second is the fact that we live in a global economy now and taxes that are not applied globally will encourage human and capital flight. If, for example, you gutted trust funds or raised inheritance taxes to 75% in the US, you would likely find many wealthy families relocating (and expatriating if necessary) to more favorable jurisdictions. For a few generations now the US enjoyed unrivaled status as the best/safest/most desirable place in the world to live (for most people), but this is already lessening as the world becomes smaller and more connected. It's already much easier for me to imagine raising my kids in London or Singapore (especially if I'm worth tens of millions) than it was for my parents. Personally I would be in favor of a globally applied inheritance tax set at a high level but the devil is in the details and I don't think we'll get there in our lifetimes.

deleted 11y ago

[deleted]

kamaal 11y ago

What distributive effect are you talking about? Almost every free market economy today is an equal opportunity space. And that is only thing that should count. If people can't even keep their own money earned for themselves, you are just killing the incentive to even earn it at the first place. You seem to suggesting we must periodically make the rich, poor. This kind of equality is more dangerous than inequality. Look up the failure of socialist/communist set ups in past century that will tell you why this is such a bad idea. The whole scheme over time feels like punishing people for working hard and generating wealth, while remainder free loads on the assumption they are entitled to free money. What follow next is exodus of smart, hard working people to better countries.

SalmoShalazar 11y ago
I think you may be confusing Atlas Shrugged with reality my friend.
- zo1 11y ago
  Well, are his ideas/comments/arguments valid or invalid? Or are you simply dismissing it because it's too-similar to a line of thinking that is often popularized by a single book?
  - drumdance 11y ago
    Lots and lots and LOTs of sectors are heavily regulated, which leads to rent seeking which leads to protectionism, either via foreign trade barriers or just making it bureaucratically difficult for competitors to enter (i.e. Uber getting flack from municipalities). For a long time the rent-seeking was done by unions, but these days its more commonly done by corporations.
- kamaal 11y ago
  Care to explain your version of 'reality'?
gefh 11y ago
If you can figure out how to use your money after you're dead, I'll make an exception for you in my Kingdom.

tunesmith 11y ago

Another thing you could do is a logarithmic flat tax, where everyone pays the same amount of relative resources. The value of money as people get richer is roughly logarithmic. The simplest plan I've seen along these lines is: Figure your year's revenue. Find out how many times the poverty level that is, for your family size. (Twice the poverty level, 10x the poverty level, etc.) Take the log base 10. Multiply that by some constant that is the same for every tax payer in the nation (both people and businesses). Currently, that "flat" constant would be about 9. The resultant number is your tax rate. (Hint: this would be a massive tax cut for pretty much everyone short of billionaires.)