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The gift tax exists largely to prevent people from avoiding estate tax by gifting large sums of money just before death. That's why they're linked. If there w

The gift tax exists largely to prevent people from avoiding estate tax by gifting large sums of money just before death. That's why they're linked. If there was an estate tax and no gift tax, people would just give all their money away in the years leading up to death. The gift tax exemption is co-mingled with the estate tax exemption, so you can just think of the gift tax as pre-death estate taxes. As for why we have an estate tax, the general idea is that oligarcies and plutocracies are bad; that while you should be able to give your kids (and grandkids, and even great-grandkids) every leg up in the world, they should have to work and contribute to society; that the pernicious effects of wealth snowball as generations pass; etc. Add to that the fact that an estate tax has the least negative impact on the taxpayer (and their spouse), given that the taxpayer is dead, it's a pretty good tax. Especially now that the exemption is so high, I feel like the value proposition is pretty good.

charlesdm 8y ago
Very much depends on the policy country. In Belgium you can gift any arbitrary amount ($10,000, $5m, $100m) through a notarial deed (up to a day) before death and pay 3% "gift tax". But the estate tax gets to 27% in the low hundreds of thousands.
- secabeen 8y ago
  Fascinating. Do you see a lot of deathbed transfers of wealth? Certainly, there are some illiquid assets that are going to be hard to transfer at deathbed in any country. In the US, you would see tons of deathbed transfer (they had to create a look-back period for gifts to prevent people from "improvishing" themselves via gifts to kids to qualify for government-paid nursing home care through medicaid). Is it just a cultural difference in Belgium, or something else?
  - charlesdm 8y ago
    Definitely possible. Most wealthy people do transfers before death and avoid (most of) the estate tax. Normal people with a low net worth generally don't do this, because they are unaware of the avoidance mechanisms.
  - deleted 8y ago
    [deleted]
  - Luc 8y ago
    It's even better - in Belgium you can avoid even the 3% gift tax by simply donating the money AND not dying within 3 years (if you do, however, the donation then gets taxed as if it were part of the inheritance, so it may be worth just paying the gift tax).
    - charlesdm 8y ago
      This is not possible for all assets, but yes.
      - Luc 8y ago
        Yes, 'money'. Not real estate.
    - indemnity 8y ago
      In New Zealand you can gift “people for whom you have natural love & affection” any sum and it will not be taxed. $1k, $100k, $100MM, any amount. A recent (2011) policy change, remains to be seen how it will play out.
rigged-system 8y ago
>> oligarcies and plutocracies are bad >> the pernicious effects of wealth snowball as generations pass I feel like the exact situation that our country is in right now is the exact outcome I would fear from such a situation as you describe.
dragonwriter 8y ago
> As for why we have an estate tax, the general idea is that oligarcies and plutocracies are bad No, the reason we have an estate tax with broad exemptions rather than taxing generational transfers as income is the general idea in the ruling class that oligarchies and plutocracy are good.
- secabeen 8y ago
  The original estate tax rate was over 45%, and the exemption was under $1mil. I think you can make the case that the oligarchs and plutocrats have pushed hard to change that law over the past 15 years. They're succeeding, unfortunately.
jws 8y ago
At the generational time frame, the estate tax serves to capture otherwise untaxed asset appreciation… Consider Grandpa buys an asset; as company, land, a football team, whatever. 50 years later Grandpa dies and his will transfers it to you. If Grandpa had sold it the day before he died and given you the stack of money, he would have been taxed on the appreciation of the investment. If there were no estate tax, then that appreciation would never be exposed to taxation as long as families pass their assets down to heirs. The estate tax isn't so much about controlling plutocracy as it is leveling the taxation field between people who buy and sell assets and people with so many assets that they don't need to sell them.
- bradleyjg 8y ago
  I’d argue that we should eliminate the step up basis at death despite having an estate tax. The estate tax after all only starts at $11 million dollars. Why should an estate with $10 million worth of appreciated assets pay no capital gains and no estate tax?
  - RhysU 8y ago
    Why should an estate with $100K worth of appreciated assets pay no capital gains and no estate tax?
    - bradleyjg 8y ago
      Right. I don't see why we need a step up basis at death. If you want to put it at $10,000 or something just to avoid a lot of paperwork for a de minimis tax loss, that'd be fine. But otherwise the tax basis of an asset should be whatever it was bought for, by whoever bought it.
      - jws 8y ago
        The problem here is that the buyer is dead and knowledge of the basis may be lost. It could be written down in a safe place, but not known to estate's executor.

charlesdm 8y ago

Very much depends on the policy country. In Belgium you can gift any arbitrary amount ($10,000, $5m, $100m) through a notarial deed (up to a day) before death and pay 3% "gift tax". But the estate tax gets to 27% in the low hundreds of thousands.

secabeen 8y ago
Fascinating. Do you see a lot of deathbed transfers of wealth? Certainly, there are some illiquid assets that are going to be hard to transfer at deathbed in any country. In the US, you would see tons of deathbed transfer (they had to create a look-back period for gifts to prevent people from "improvishing" themselves via gifts to kids to qualify for government-paid nursing home care through medicaid). Is it just a cultural difference in Belgium, or something else?
- charlesdm 8y ago
  Definitely possible. Most wealthy people do transfers before death and avoid (most of) the estate tax. Normal people with a low net worth generally don't do this, because they are unaware of the avoidance mechanisms.
- deleted 8y ago
  [deleted]
- Luc 8y ago
  It's even better - in Belgium you can avoid even the 3% gift tax by simply donating the money AND not dying within 3 years (if you do, however, the donation then gets taxed as if it were part of the inheritance, so it may be worth just paying the gift tax).
  - charlesdm 8y ago
    This is not possible for all assets, but yes.
    - Luc 8y ago
      Yes, 'money'. Not real estate.
  - indemnity 8y ago
    In New Zealand you can gift “people for whom you have natural love & affection” any sum and it will not be taxed. $1k, $100k, $100MM, any amount. A recent (2011) policy change, remains to be seen how it will play out.

rigged-system 8y ago

>> oligarcies and plutocracies are bad >> the pernicious effects of wealth snowball as generations pass I feel like the exact situation that our country is in right now is the exact outcome I would fear from such a situation as you describe.

dragonwriter 8y ago

> As for why we have an estate tax, the general idea is that oligarcies and plutocracies are bad No, the reason we have an estate tax with broad exemptions rather than taxing generational transfers as income is the general idea in the ruling class that oligarchies and plutocracy are good.

secabeen 8y ago
The original estate tax rate was over 45%, and the exemption was under $1mil. I think you can make the case that the oligarchs and plutocrats have pushed hard to change that law over the past 15 years. They're succeeding, unfortunately.

jws 8y ago

At the generational time frame, the estate tax serves to capture otherwise untaxed asset appreciation… Consider Grandpa buys an asset; as company, land, a football team, whatever. 50 years later Grandpa dies and his will transfers it to you. If Grandpa had sold it the day before he died and given you the stack of money, he would have been taxed on the appreciation of the investment. If there were no estate tax, then that appreciation would never be exposed to taxation as long as families pass their assets down to heirs. The estate tax isn't so much about controlling plutocracy as it is leveling the taxation field between people who buy and sell assets and people with so many assets that they don't need to sell them.

bradleyjg 8y ago
I’d argue that we should eliminate the step up basis at death despite having an estate tax. The estate tax after all only starts at $11 million dollars. Why should an estate with $10 million worth of appreciated assets pay no capital gains and no estate tax?
- RhysU 8y ago
  Why should an estate with $100K worth of appreciated assets pay no capital gains and no estate tax?
  - bradleyjg 8y ago
    Right. I don't see why we need a step up basis at death. If you want to put it at $10,000 or something just to avoid a lot of paperwork for a de minimis tax loss, that'd be fine. But otherwise the tax basis of an asset should be whatever it was bought for, by whoever bought it.
    - jws 8y ago
      The problem here is that the buyer is dead and knowledge of the basis may be lost. It could be written down in a safe place, but not known to estate's executor.