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The argument for this is that you're getting a large windfall (and in most cases you haven't done anything to earn it) so you must be taxed on it.

by kierank 16y ago

ryanf 16y ago
Also note that there is a huge exemption (apparently $3.5m last year, and $1m next year if they don't change it). It's only 45% beyond that point, like tax brackets.
- d2viant 16y ago
  Only 45% at the federal rate. Don't forget (in most cases) the state taxes that get levied as well.
- Retric 16y ago
  There are a lot of ways of avoiding this, EX1: you can give your wife unlimited assets without tax implications. EX2: Let's say you and your wife have a 7 million$ 50% of which is appreciated assets, and 2 million in life insurgence and 3 children. Each of you can give 1 million to each child, so 6 million is exempt, as is all life insurgence thus only the last million is taxed at 45%. Resulting in a 0.450 / ( 7 + 2) = 5% effective tax rate. Note: If they actually sold their appreciated assets they would pay more in taxes. EX3: 1 billion in assets. Set's up a blind trust = zero direct taxes on death. Money can compound tax free in the trust and is only taxed on disbursement. EX4: 1 billion donation to the red cross = zero tax. PS: If you do nothing and leave 5million to 1 person the effective tax rate is still only 36%. You really have to have huge amount in assets and stupid tax advice for this to be a major issue.
amh 16y ago
That argument happens to be full of shit. Even if you win $36 million in the lottery (surely the stereotypical "windfall"), the feds won't tax you 55%. The highest marginal tax rate is 35%. Estate taxes are morally repugnant. If the idea of people passing along large fortunes to bratty kids is so bothersome, take comfort in the fact that money tends to "find its level". Spendthrift fools will eventually lose it all to mismanagement anyway. It might take more than one generation, but it'll happen.
- jacobolus 16y ago
  Estate taxes are only morally repugnant if you believe that the children of the elite have a unique right to the accumulated wealth of the society (which tends to build up in those who own property and capital). Why should all of us whose ancestors for generations actually built this society with their hands end up with nothing while the man whose ancestor was a robber baron, land speculator, or plantation owner receives a handout of a giant pile of cash? Especially when such dramatic wealth inequalities severely distort people’s economic behavior, depressing the overall growth of the whole economy and wealth of the whole society?
  - sliverstorm 16y ago
    It's not that the children are entitled to it, but the deceased wanted to give it to them. It's their assets, shouldn't they be allowed to decide what to do with them?
    - pavel_lishin 16y ago
      I believe that you are limited in that, too - you can only give away so much money to relatives before it starts being taxed as well. I can't really cite anything, though, so feel free to disregard this.
    - jacobolus 16y ago
      Why? By common cultural and legal convention (and in my firm opinion), the accumulated wealth of most countries partly belongs to all who are citizens. You’re suggesting that the rest of us cede complete social and economic control to those who own property. Such is the typical libertarian utopian ideal, but in practice the result is a sort of quasi-aristocratic society with sharply limited opportunities for those at the bottom. If you change your perspective, recognize that every fortune depends just as much on the context and the society it was built in as it does on the individual who built it, that our definitions of wealth and property are essentially arbitrary human constructions, defined to be whatever we can mostly agree on (through our institutions of government), and decide that the accumulated wealth created by all our ancestors should "rightfully" (another human construction) belong somewhat to all of us, then suddenly inheritance in general becomes a way for some people (the rich) to take our property (that is, your property and mine and everyone's) and give it to a few people that they personally selected. Now, in practice, there's some kind of balance between these positions (full inheritance or no inheritance), because again, our culture and laws in a republican society are based on what we can agree on. In America, there's more of a cultural and legal emphasis on inheritance and personal wealth than in any of the Scandinavian countries, for example. But for someone to say that the very concept of broader societal input into inheritance is "morally repugnant" is in my opinion a pretty narrow and socially destructive morality, and I’m glad I don’t live in a country where a small elite has enough power and influence to impose such cultural definitions through force.

The argument for this is that you're getting a large windfall (and in most cases you haven't done anything to earn it) so you must be taxed on it.

by kierank 16y ago

The argument for this is that you're getting a large windfall (and in most cases you haven't done anything to earn it) so you must be taxed on it.

ryanf 16y ago

Also note that there is a huge exemption (apparently $3.5m last year, and $1m next year if they don't change it). It's only 45% beyond that point, like tax brackets.

d2viant 16y ago
Only 45% at the federal rate. Don't forget (in most cases) the state taxes that get levied as well.
Retric 16y ago
There are a lot of ways of avoiding this, EX1: you can give your wife unlimited assets without tax implications. EX2: Let's say you and your wife have a 7 million$ 50% of which is appreciated assets, and 2 million in life insurgence and 3 children. Each of you can give 1 million to each child, so 6 million is exempt, as is all life insurgence thus only the last million is taxed at 45%. Resulting in a 0.450 / ( 7 + 2) = 5% effective tax rate. Note: If they actually sold their appreciated assets they would pay more in taxes. EX3: 1 billion in assets. Set's up a blind trust = zero direct taxes on death. Money can compound tax free in the trust and is only taxed on disbursement. EX4: 1 billion donation to the red cross = zero tax. PS: If you do nothing and leave 5million to 1 person the effective tax rate is still only 36%. You really have to have huge amount in assets and stupid tax advice for this to be a major issue.

amh 16y ago

That argument happens to be full of shit. Even if you win $36 million in the lottery (surely the stereotypical "windfall"), the feds won't tax you 55%. The highest marginal tax rate is 35%. Estate taxes are morally repugnant. If the idea of people passing along large fortunes to bratty kids is so bothersome, take comfort in the fact that money tends to "find its level". Spendthrift fools will eventually lose it all to mismanagement anyway. It might take more than one generation, but it'll happen.

jacobolus 16y ago
Estate taxes are only morally repugnant if you believe that the children of the elite have a unique right to the accumulated wealth of the society (which tends to build up in those who own property and capital). Why should all of us whose ancestors for generations actually built this society with their hands end up with nothing while the man whose ancestor was a robber baron, land speculator, or plantation owner receives a handout of a giant pile of cash? Especially when such dramatic wealth inequalities severely distort people’s economic behavior, depressing the overall growth of the whole economy and wealth of the whole society?
- sliverstorm 16y ago
  It's not that the children are entitled to it, but the deceased wanted to give it to them. It's their assets, shouldn't they be allowed to decide what to do with them?
  - pavel_lishin 16y ago
    I believe that you are limited in that, too - you can only give away so much money to relatives before it starts being taxed as well. I can't really cite anything, though, so feel free to disregard this.
  - jacobolus 16y ago
    Why? By common cultural and legal convention (and in my firm opinion), the accumulated wealth of most countries partly belongs to all who are citizens. You’re suggesting that the rest of us cede complete social and economic control to those who own property. Such is the typical libertarian utopian ideal, but in practice the result is a sort of quasi-aristocratic society with sharply limited opportunities for those at the bottom. If you change your perspective, recognize that every fortune depends just as much on the context and the society it was built in as it does on the individual who built it, that our definitions of wealth and property are essentially arbitrary human constructions, defined to be whatever we can mostly agree on (through our institutions of government), and decide that the accumulated wealth created by all our ancestors should "rightfully" (another human construction) belong somewhat to all of us, then suddenly inheritance in general becomes a way for some people (the rich) to take our property (that is, your property and mine and everyone's) and give it to a few people that they personally selected. Now, in practice, there's some kind of balance between these positions (full inheritance or no inheritance), because again, our culture and laws in a republican society are based on what we can agree on. In America, there's more of a cultural and legal emphasis on inheritance and personal wealth than in any of the Scandinavian countries, for example. But for someone to say that the very concept of broader societal input into inheritance is "morally repugnant" is in my opinion a pretty narrow and socially destructive morality, and I’m glad I don’t live in a country where a small elite has enough power and influence to impose such cultural definitions through force.