5 ms·

I buy stock at price A and sell, it later, at price B. Assuming B > A, (if it isn't this is a whole different thing) then I am taxed on the gain the stock made,

I buy stock at price A and sell, it later, at price B. Assuming B > A, (if it isn't this is a whole different thing) then I am taxed on the gain the stock made, I pay tax on the value of (B-A). On the other hand, I do have all of the (B-A) cash, which is nice. (Or as my tax professor once said, it's always better to have more money rather than less, and to die later rather than sooner.) Now let's say I still buy the stock at price A, but instead of selling I hold until my death and my heirs inherit. They pay the estate tax, yes (presuming that my total wealth is massive enough to reach that level), but they pay it as a % of value B- at this point no one owes the government any of that (B-A) tax. Is that "double taxation"? Well, it kinda depends on your perspective, and this is a situation where perspective seems to be determined by bank balance. If you are wealthy, of course you feel that it is double taxation- it's two separate bites of taxes on the same underlying asset! If you aren't, then what you notice is that somehow this death has created a situation where the government never got it's cut of that (B-A) difference, so this is avoiding taxes.

necovek 5y ago
> If you aren't, then what you notice is that somehow this death has created a situation where the government never got it's cut of that (B-A) difference, so this is avoiding taxes. While capital was transferred, value increase was never really monetized. Would it not be fair to say that it will be taxed only once it turns into money, against the B-A gains, and A is taxed according to normal inheritance rates. Of course, this has a huge practical issue of knowing what A was, which could be a while back.
- torstenvl 5y ago
  > this has a huge practical issue of knowing what A was, which could be a while back So why not put the burden of establishing a basis (A) on the person seeking to claim its benefit — who, in this case, is also best-positioned to gather such evidence? Should they keep poor records, they lose the benefit of that basis, and will instead pay taxes on (B-0).
- mandevil 5y ago
  Taxing the B-A gains when they are sold, even after death, is what people mean by "eliminating the stepped-up basis" as the original poster suggested doing. At present, when a heir inherits at B they pay estate tax at B, but then if they sell at price C they only pay tax on (C-B). As for knowing what A is, if you don't know it you can always fill in 0 and pay slightly more tax than you should, to be safe, so you don't caught in an audit. As of 2011 the IRS requires all brokers to track and report the cost basis for all purchases- that is, any purchase made after 2011 when you sell it they will tell you and the government what the value of A should be.
chii 5y ago
> government never got it's cut of that (B-A) difference because the person who should be paying that cut is dead! You don't tax the dead.
- mandevil 5y ago
  Why don't we tax the dead? Seriously, they aren't going to object! Why shouldn't we? Who we tax, and what way, is entirely a choice made by a society. I routinely pay sales tax out of the income that I paid income tax on, and pay extra tax when I buy alcohol- those are all decisions made by society that they were the socially correct way to pay for everything we jointly need as a society. That's all taxes are. The modern estate tax was created in 1916. In 1906, then President TR gave a speech supporting this kind of tax as a way to try and reduce the power of dynastic wealth- to keep American society from being ossified, and to make sure that the current generation of talented people could amass wealth too. The modern income tax was created in 1909 as part of an attempt to clear the way for prohibition- a significant part of the Federal budget was paid for with alcohol taxes, and they needed to replace that hole in the budget[1]. For the first three decades it hit only a tiny percentage of the richest, until World War Two when it was expanded and covered a greater percentage of the population, as the Federal government massively expanded and needed more money to pay for its massive size[2]. But those were all the results of political choices, and taxing the dead makes just as much sense. [1]: Similarly, women's suffrage was also, at least in the US, largely a proxy battle over prohibition- it seems to have been a widely held assumption of everyone in politics in 1910 that as soon as women's suffrage was achieved prohibition would follow immediately afterwards (in fact, prohibition passed two years before women's suffrage). This is why the largest anti-suffrage organization had as its honorary chairwoman Mrs. Adolphus Busch, matriarch of the Budweiser fortune. [2]: Adam Tooze's book _The Deluge_ has as its basic thesis that the US Government was too small, and had too limited state capacity, which was a major cause of all of the problems of the 1920's and 1930's.
- seoaeu 5y ago
  > You don't tax the dead. Why not? If someone owes a bunch of taxes when they die, their estate should still be on the hook for it. I don't see any reason that money owed to the government should go to someone's heirs instead just because they happened to die at a specific time

necovek 5y ago

> If you aren't, then what you notice is that somehow this death has created a situation where the government never got it's cut of that (B-A) difference, so this is avoiding taxes. While capital was transferred, value increase was never really monetized. Would it not be fair to say that it will be taxed only once it turns into money, against the B-A gains, and A is taxed according to normal inheritance rates. Of course, this has a huge practical issue of knowing what A was, which could be a while back.

torstenvl 5y ago
> this has a huge practical issue of knowing what A was, which could be a while back So why not put the burden of establishing a basis (A) on the person seeking to claim its benefit — who, in this case, is also best-positioned to gather such evidence? Should they keep poor records, they lose the benefit of that basis, and will instead pay taxes on (B-0).
mandevil 5y ago
Taxing the B-A gains when they are sold, even after death, is what people mean by "eliminating the stepped-up basis" as the original poster suggested doing. At present, when a heir inherits at B they pay estate tax at B, but then if they sell at price C they only pay tax on (C-B). As for knowing what A is, if you don't know it you can always fill in 0 and pay slightly more tax than you should, to be safe, so you don't caught in an audit. As of 2011 the IRS requires all brokers to track and report the cost basis for all purchases- that is, any purchase made after 2011 when you sell it they will tell you and the government what the value of A should be.

chii 5y ago

> government never got it's cut of that (B-A) difference because the person who should be paying that cut is dead! You don't tax the dead.

mandevil 5y ago
Why don't we tax the dead? Seriously, they aren't going to object! Why shouldn't we? Who we tax, and what way, is entirely a choice made by a society. I routinely pay sales tax out of the income that I paid income tax on, and pay extra tax when I buy alcohol- those are all decisions made by society that they were the socially correct way to pay for everything we jointly need as a society. That's all taxes are. The modern estate tax was created in 1916. In 1906, then President TR gave a speech supporting this kind of tax as a way to try and reduce the power of dynastic wealth- to keep American society from being ossified, and to make sure that the current generation of talented people could amass wealth too. The modern income tax was created in 1909 as part of an attempt to clear the way for prohibition- a significant part of the Federal budget was paid for with alcohol taxes, and they needed to replace that hole in the budget[1]. For the first three decades it hit only a tiny percentage of the richest, until World War Two when it was expanded and covered a greater percentage of the population, as the Federal government massively expanded and needed more money to pay for its massive size[2]. But those were all the results of political choices, and taxing the dead makes just as much sense. [1]: Similarly, women's suffrage was also, at least in the US, largely a proxy battle over prohibition- it seems to have been a widely held assumption of everyone in politics in 1910 that as soon as women's suffrage was achieved prohibition would follow immediately afterwards (in fact, prohibition passed two years before women's suffrage). This is why the largest anti-suffrage organization had as its honorary chairwoman Mrs. Adolphus Busch, matriarch of the Budweiser fortune. [2]: Adam Tooze's book _The Deluge_ has as its basic thesis that the US Government was too small, and had too limited state capacity, which was a major cause of all of the problems of the 1920's and 1930's.
seoaeu 5y ago
> You don't tax the dead. Why not? If someone owes a bunch of taxes when they die, their estate should still be on the hook for it. I don't see any reason that money owed to the government should go to someone's heirs instead just because they happened to die at a specific time