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Meanwhile the estate tax in the US only applies to inheritances larger than $12.9 million. People with that kind of wealth also know how to start planning early

by pavlov 3y ago

Meanwhile the estate tax in the US only applies to inheritances larger than $12.9 million. People with that kind of wealth also know how to start planning early to avoid the tax, so the tax is practically ineffectual. A fairer inheritance tax could go a long way to fixing the worsening wealth gap in America.

credit_guy 3y ago
$12.9 is per estate, not per heir. If someone has one spouse and 3 kids and also leaves by will some stuff to 6 other relatives, then the exemption is split between the 10. Each benefits on average from an exemption of $1.3 MM. At the highest tax bracket, they get a one time tax deduction of about half a million. When people talk about wealth gap, they mean the ultra-rich, the multi-millionaires. For someone with a net worth of $20 million, a one time half-a-million does not make such a difference. If you want to get rid of the estate tax exemption, you don't hit the Bezoses and the Zuckerbergs of the world, you hit the middle class. And by the way, you don't even need to move a finger to cut that exemption in half. It will do that in 2026. If you so desire, you can write to your representative to tell them you'd be very upset if they vote for an extension of the current levels of the estate tax exemption.
- MarkMarine 3y ago
  People in the middle class don’t have 20 million, or 10 million.
  - sokoloff 3y ago
    That they don't is all the more reason to not tax what they do have at 18-40% when they die and pass it to their heirs.
    - standardUser 3y ago
      Do you have a link to a proposal that suggests taxing inheritance for fortunes under $10 million at 40%? From what I understand, if the exemption reverts to previous levels, that would sit at about $6 million (an absurd amount of money to "middle class" families) and would only apply to the value beyond that $6 million. So even a fortune of $10 million would be taxed at well under 40%.
- rayiner 3y ago
  > When people talk about wealth gap, they mean the ultra-rich, the multi-millionaires. For someone with a net worth of $20 million, a one time half-a-million does not make such a difference. These people are being snookered by the upper middle class. At $12 million, the estate tax exemption excludes all but the top 1% of wealthy. There’s over a million households in that group. The top 10% own 70% of the wealth. The top 1% holds over 30%. But billionaires hold only about 3%. To meaningfully address wealth inequality, it’s not enough just to heavily tax Bill Gates. You have to heavily tax people like his father, a law firm partner. You need to heavily tax many of the folks here on HN.
  - sokoloff 3y ago
    > At $12 million, the estate tax exemption excludes all but the top 1% of wealthy. There’s over a million households in that group. Far fewer than 1% of estates pay an estate tax, but rather closer to a tenth of that. It's nowhere near a million households currently subject to it. https://www.taxpolicycenter.org/briefing-book/how-many-people-pay-estate-tax https://www.taxpolicycenter.org/briefing-book/how-many-peopl... You might use that fact to support the second half of your argument, of course.
standardUser 3y ago
It's remarkable how many people oppose an increase to inheritance tax despite the fact that every proposal I have seen would exempt... almost everyone. At worst, the most aggressive proposals would simply skim a little off of the very largest wealth transfers. The very rich would remain very rich. Yet in our current political climate, even the mildest proposal is accused of being full blown communism.
- deleted 3y ago
  [deleted]
jxidjhdhdhdhfhf 3y ago
It's not clear to me there needs to be any exemption at all on inheritances. It should all be taxable income IMO. Poor people having their inheritances taxed will just get it back later in enhanced government benefits. More in fact since rich people have way larger inheritances to tax. Another huge loophole is charitable deductions. There's absolutely no reason the government needs to be helping fund individual charity decisions (for anyone, poor or rich). You have billionaires avoiding the majority of taxes they owe by giving money away to their pet charity causes.
- onlyrealcuzzo 3y ago
  So you slave away your younger years and pay ~40%+ income tax. You manage to afford 2 children and own a nice house outright by the time you're 65. You have a nest egg large enough to afford a high quality life in retirement (mostly to pay your property taxes & income taxes & capital gains on inflation [not even REAL capital gains]...) You die with $1M to your name plus a $1M estate (this is top ~6% or so). Now you want to take away 50% of that before passing it on to the kids? I mean, sure, why not? But also, that probably brings your effective tax rate for your life to close to ~66%... All while the people with 50% of the money (the top 1%) continue to have an effective tax rate of ~30% or less. Like, how about we solve the problem where the people with the majority of the money have the lowest effective tax rate before increasing taxes on regular folk to make up for that?? I wouldn't be surprised if the average lower-middle class person already has a close to ~60% effective tax rate...
  - jxidjhdhdhdhfhf 3y ago
    So don't save up $2 million for inheritance... No one is forcing you to do that. Not to mention the increased taxes will be paid back, at least to some extent, in enhanced services. Maybe your kids could get a free education and free healthcare instead of $1M each in inheritance. Or instead of increased services, we could tax other things less such as the income of living people. I'd much rather have dead people, who have zero use for the money getting taxed more and living people, who actually can make use of the money getting taxed less.
bluedevil2k 3y ago
What’s the argument FOR an inheritance tax, when it comes to fairness? The person who’s passsing the money down already paid tax on the money, whether income tax or capital gains tax. The government already got a hefty chunk of that earned money. Why should it be taxed again? Especially when we see how inefficient the government is at spending money for the public good.
- Projectiboga 3y ago
  Actually the capital gains basis gets reset at either date of death or 9 months later. So no not all that capital was taxed properly. Even saving $100K a year and getting 8% growth can't generate that scale of wealth, even if you save at that level for 40 years.
- egonschiele 3y ago
  Getting a leg up in life because your parents left you a big inheritance, is unfair to those who don't. There are many different types of fairness, not just one.
  - bluedevil2k 3y ago
    This is one of the silliest comments I’ve read on HN: it’s not fair to have successful parents that love you, therefore the government must step in and fix that.
    - CPLX 3y ago
      They aren’t taxing love they’re taxing money. We always tax money when it transfers from one person or entity to another.
      - bluedevil2k 3y ago
        No we don’t. In fact we rarely tax intra-family money transfers. When I pay for my kids’ college, that’s not taxed. Buy then a car at 16 - untaxed.
jules 3y ago
For comparison, adding up the Dutch tax rates for when my nephew inherits from me and buys a product with it: - Income tax: 49.5% (36.93% on income under €73k) - Inheritance tax: 40% (30% for inheritance under €138k) - VAT: 21% Thus, poor people pay 65% tax and rich 76% in such a scenario.

by pavlov 3y ago

credit_guy 3y ago

$12.9 is per estate, not per heir. If someone has one spouse and 3 kids and also leaves by will some stuff to 6 other relatives, then the exemption is split between the 10. Each benefits on average from an exemption of $1.3 MM. At the highest tax bracket, they get a one time tax deduction of about half a million. When people talk about wealth gap, they mean the ultra-rich, the multi-millionaires. For someone with a net worth of $20 million, a one time half-a-million does not make such a difference. If you want to get rid of the estate tax exemption, you don't hit the Bezoses and the Zuckerbergs of the world, you hit the middle class. And by the way, you don't even need to move a finger to cut that exemption in half. It will do that in 2026. If you so desire, you can write to your representative to tell them you'd be very upset if they vote for an extension of the current levels of the estate tax exemption.

MarkMarine 3y ago
People in the middle class don’t have 20 million, or 10 million.
- sokoloff 3y ago
  That they don't is all the more reason to not tax what they do have at 18-40% when they die and pass it to their heirs.
  - standardUser 3y ago
    Do you have a link to a proposal that suggests taxing inheritance for fortunes under $10 million at 40%? From what I understand, if the exemption reverts to previous levels, that would sit at about $6 million (an absurd amount of money to "middle class" families) and would only apply to the value beyond that $6 million. So even a fortune of $10 million would be taxed at well under 40%.
rayiner 3y ago
> When people talk about wealth gap, they mean the ultra-rich, the multi-millionaires. For someone with a net worth of $20 million, a one time half-a-million does not make such a difference. These people are being snookered by the upper middle class. At $12 million, the estate tax exemption excludes all but the top 1% of wealthy. There’s over a million households in that group. The top 10% own 70% of the wealth. The top 1% holds over 30%. But billionaires hold only about 3%. To meaningfully address wealth inequality, it’s not enough just to heavily tax Bill Gates. You have to heavily tax people like his father, a law firm partner. You need to heavily tax many of the folks here on HN.
- sokoloff 3y ago
  > At $12 million, the estate tax exemption excludes all but the top 1% of wealthy. There’s over a million households in that group. Far fewer than 1% of estates pay an estate tax, but rather closer to a tenth of that. It's nowhere near a million households currently subject to it. https://www.taxpolicycenter.org/briefing-book/how-many-people-pay-estate-tax https://www.taxpolicycenter.org/briefing-book/how-many-peopl... You might use that fact to support the second half of your argument, of course.

standardUser 3y ago

It's remarkable how many people oppose an increase to inheritance tax despite the fact that every proposal I have seen would exempt... almost everyone. At worst, the most aggressive proposals would simply skim a little off of the very largest wealth transfers. The very rich would remain very rich. Yet in our current political climate, even the mildest proposal is accused of being full blown communism.

deleted 3y ago
[deleted]

jxidjhdhdhdhfhf 3y ago

It's not clear to me there needs to be any exemption at all on inheritances. It should all be taxable income IMO. Poor people having their inheritances taxed will just get it back later in enhanced government benefits. More in fact since rich people have way larger inheritances to tax. Another huge loophole is charitable deductions. There's absolutely no reason the government needs to be helping fund individual charity decisions (for anyone, poor or rich). You have billionaires avoiding the majority of taxes they owe by giving money away to their pet charity causes.

onlyrealcuzzo 3y ago
So you slave away your younger years and pay ~40%+ income tax. You manage to afford 2 children and own a nice house outright by the time you're 65. You have a nest egg large enough to afford a high quality life in retirement (mostly to pay your property taxes & income taxes & capital gains on inflation [not even REAL capital gains]...) You die with $1M to your name plus a $1M estate (this is top ~6% or so). Now you want to take away 50% of that before passing it on to the kids? I mean, sure, why not? But also, that probably brings your effective tax rate for your life to close to ~66%... All while the people with 50% of the money (the top 1%) continue to have an effective tax rate of ~30% or less. Like, how about we solve the problem where the people with the majority of the money have the lowest effective tax rate before increasing taxes on regular folk to make up for that?? I wouldn't be surprised if the average lower-middle class person already has a close to ~60% effective tax rate...
- jxidjhdhdhdhfhf 3y ago
  So don't save up $2 million for inheritance... No one is forcing you to do that. Not to mention the increased taxes will be paid back, at least to some extent, in enhanced services. Maybe your kids could get a free education and free healthcare instead of $1M each in inheritance. Or instead of increased services, we could tax other things less such as the income of living people. I'd much rather have dead people, who have zero use for the money getting taxed more and living people, who actually can make use of the money getting taxed less.

bluedevil2k 3y ago

What’s the argument FOR an inheritance tax, when it comes to fairness? The person who’s passsing the money down already paid tax on the money, whether income tax or capital gains tax. The government already got a hefty chunk of that earned money. Why should it be taxed again? Especially when we see how inefficient the government is at spending money for the public good.

Projectiboga 3y ago
Actually the capital gains basis gets reset at either date of death or 9 months later. So no not all that capital was taxed properly. Even saving $100K a year and getting 8% growth can't generate that scale of wealth, even if you save at that level for 40 years.
egonschiele 3y ago
Getting a leg up in life because your parents left you a big inheritance, is unfair to those who don't. There are many different types of fairness, not just one.
- bluedevil2k 3y ago
  This is one of the silliest comments I’ve read on HN: it’s not fair to have successful parents that love you, therefore the government must step in and fix that.
  - CPLX 3y ago
    They aren’t taxing love they’re taxing money. We always tax money when it transfers from one person or entity to another.
    - bluedevil2k 3y ago
      No we don’t. In fact we rarely tax intra-family money transfers. When I pay for my kids’ college, that’s not taxed. Buy then a car at 16 - untaxed.

jules 3y ago

For comparison, adding up the Dutch tax rates for when my nephew inherits from me and buys a product with it: - Income tax: 49.5% (36.93% on income under €73k) - Inheritance tax: 40% (30% for inheritance under €138k) - VAT: 21% Thus, poor people pay 65% tax and rich 76% in such a scenario.