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But, if the inheritance had at one point been income for the deceased, it would have been taxed at the time they earned it and (again) at the time it transferre

by jaxn 10y ago

But, if the inheritance had at one point been income for the deceased, it would have been taxed at the time they earned it and (again) at the time it transferred to their heirs (after the cap). The opponents of the inheritance tax state that they were taxed when they earned it, so it shouldn't be taxed again at the transfer to their heirs. With stock, it is only taxed at the transfer. You could argue that the person holding the stock never received benefit since it was illiquid, but it can still be leveraged. Which is the other piece to this. The stock holder is able to leverage the asset to create cash that has an interest rate significantly lower than the tax rate. As long as the loaned capital also results in a return, the stock holder is able to "grow their pile" essentially tax free.

AnthonyMouse 10y ago
Inheritance is a mess. An inheritance tax is a catastrophe for family businesses because you aren't inheriting money, you're inheriting the business. It isn't a liquid asset. Families end up forced to sell the farm to pay the inheritance tax on it. The natural thing to do would be to not have inheritance tax but leave the tax basis where it is. But then suppose grandpa bought shares of GM before the war and never sold them. Now they're worth a million dollars, but if you sold them the government would immediately take ~40% of the money. Which means you're stuck with a choice between keeping $1 of GM shares or selling them at $.60 on the dollar so you can buy Tesla shares or a Tesla or anything else whatsoever. Tax policy is forcing people into making otherwise economically irrational decisions, which is bad for the economy. So to prevent that from happening, when you inherit grandpa's shares you get a new tax basis. But then people start complaining about rich people not paying taxes and bring back the inheritance tax. And then rich families with family businesses quietly get an inheritance tax holiday passed every generation or so that lets them keep the family business in the family, or otherwise do tax planning to prevent it from having any effect. The solution to this mess is to realize that rich people never actually pay taxes until they spend the money anyway and we're better off with a VAT that doesn't have any of this trouble, combined with a UBI to make it progressive.
- jaxn 10y ago
  The threshold for inheritance taxes in the US is so high that very few family businesses are impacted. A small fraction of family-owned businesses are worth more than $5 million. That family-farm comment sounds more like an out-dated PR talking point than a legitimate concern in 2017.
  - AnthonyMouse 10y ago
    This is what farms, or many family businesses in general, look like. A light truck or small tractor is five figures. A larger truck or tractor can be a quarter of a million. A combine harvester is half a million. Livestock would add six figures. The land itself will typically be worth seven figures. Add these together, more than one of some, plus sprayers and irrigation systems and various other pieces of farm equipment each in the five to six figure range, farmhouse, feed and crop storage and other structures, you can easily exceed five million dollars. Many businesses are very capital-intensive. And a farm is just an example. A family construction business is going to own the same sort of expensive industrial equipment. A family that owns and operates residential apartments could exceed that amount with one building in many cities. The only reason very few family businesses are impacted is that the ones who failed to engage in tax planning to avoid it were dismantled by the tax a generation or more ago and the remaining families do the tax planning. But what's the point of specifically screwing over the families without the civic disloyalty to rearrange their affairs that way?
    - jaxn 10y ago
      I started a family-owned retail business with my father and have been growing it for 13 years. I get it. The farm example is trotted out all the time because it is an emotional example. But it isn't really a meaningful one. The 2016 estimates from the USDA states that 98.3% of family farms would not need to file a estate-tax return at all. Of the 1.7% that do need to file a return, the vast majority of those would owe no taxes. Only 0.4% of family farms will owe any estate tax for 2016. It only affects a very small percentage of family farms. And yet it is the go-to example of how the estate tax isn't fair.

by jaxn 10y ago

AnthonyMouse 10y ago

Inheritance is a mess. An inheritance tax is a catastrophe for family businesses because you aren't inheriting money, you're inheriting the business. It isn't a liquid asset. Families end up forced to sell the farm to pay the inheritance tax on it. The natural thing to do would be to not have inheritance tax but leave the tax basis where it is. But then suppose grandpa bought shares of GM before the war and never sold them. Now they're worth a million dollars, but if you sold them the government would immediately take ~40% of the money. Which means you're stuck with a choice between keeping $1 of GM shares or selling them at $.60 on the dollar so you can buy Tesla shares or a Tesla or anything else whatsoever. Tax policy is forcing people into making otherwise economically irrational decisions, which is bad for the economy. So to prevent that from happening, when you inherit grandpa's shares you get a new tax basis. But then people start complaining about rich people not paying taxes and bring back the inheritance tax. And then rich families with family businesses quietly get an inheritance tax holiday passed every generation or so that lets them keep the family business in the family, or otherwise do tax planning to prevent it from having any effect. The solution to this mess is to realize that rich people never actually pay taxes until they spend the money anyway and we're better off with a VAT that doesn't have any of this trouble, combined with a UBI to make it progressive.

jaxn 10y ago
The threshold for inheritance taxes in the US is so high that very few family businesses are impacted. A small fraction of family-owned businesses are worth more than $5 million. That family-farm comment sounds more like an out-dated PR talking point than a legitimate concern in 2017.
- AnthonyMouse 10y ago
  This is what farms, or many family businesses in general, look like. A light truck or small tractor is five figures. A larger truck or tractor can be a quarter of a million. A combine harvester is half a million. Livestock would add six figures. The land itself will typically be worth seven figures. Add these together, more than one of some, plus sprayers and irrigation systems and various other pieces of farm equipment each in the five to six figure range, farmhouse, feed and crop storage and other structures, you can easily exceed five million dollars. Many businesses are very capital-intensive. And a farm is just an example. A family construction business is going to own the same sort of expensive industrial equipment. A family that owns and operates residential apartments could exceed that amount with one building in many cities. The only reason very few family businesses are impacted is that the ones who failed to engage in tax planning to avoid it were dismantled by the tax a generation or more ago and the remaining families do the tax planning. But what's the point of specifically screwing over the families without the civic disloyalty to rearrange their affairs that way?
  - jaxn 10y ago
    I started a family-owned retail business with my father and have been growing it for 13 years. I get it. The farm example is trotted out all the time because it is an emotional example. But it isn't really a meaningful one. The 2016 estimates from the USDA states that 98.3% of family farms would not need to file a estate-tax return at all. Of the 1.7% that do need to file a return, the vast majority of those would owe no taxes. Only 0.4% of family farms will owe any estate tax for 2016. It only affects a very small percentage of family farms. And yet it is the go-to example of how the estate tax isn't fair.