6 ms·

These are just generic anti-tax arguments. Yes, if you pay your taxes you will have less money. And maybe you would have used some of that money to do good thin

by eli 2y ago

These are just generic anti-tax arguments. Yes, if you pay your taxes you will have less money. And maybe you would have used some of that money to do good things. Oh well. I don't think anyone is seriously suggesting you shouldn't be allowed to borrow against assets. That isn't even the problem. The problem is that you can go your whole life without paying taxes on gains of those assets, then pass them on to your heirs who can sell them and also never have to pay those taxes. It's like a big gift from the IRS: your assets that were previously encumbered by unpaid capital gains taxes instantly become more valuable upon your death. Your heirs should have the same cost basis as you did. And so if they sell they have pay the taxes that you never did.

Negitivefrags 2y ago
The main concern with this is how do you actually get the records of what the cost basis was from someone who is dead?
- saghm 2y ago
  If the issue is that people are dying leaving behind significant wealth but not documenting this, just make the estate tax 100% on any assets missing documentation like this. I'm sure the lawyers would figure out the rest.
  - eli 2y ago
    That's effectively already the rule if you sell something and can't figure out the cost basis - it counts as zero.
- AnthonyMouse 2y ago
  That isn't really the main concern. It's really a question of alienability. If your great grandfather invested in something a hundred years ago and now 99% of its value is appreciation (or inflation), you may or may not want to continue investing in it. If you do, the step up in basis doesn't really matter because you're not going to sell it anyway. But if you now think it's a mediocre investment, you may be inclined to sell it and invest in something else. Except that you won't if you'd lose a significant proportion of its value to taxes. This is a problem with capital gains taxes in general, but it's especially a problem for anything held intergenerationally (i.e. for a very long time) because not only will the appreciation be large, the inflation by itself would represent most of the value of the "gain". So the step-up in basis is a stupid hack to avoid this and let children make different choices than their parents and grandparents without being punished by the tax code. There are probably better ways to handle this, but "delete it and replace it with nothing" is not one of them.
  - CPLX 2y ago
    > There are probably better ways to handle this, but "delete it and replace it with nothing" is not one of them. Why not? Why do I care about someone being deprived of a portion of some investment his great-grandfather made? If I get money from some relative who invested in stuff and then you get money from working really hard in a way that someone thought valuable so they gave you money for your work, why should you pay taxes on that money while I don't pay taxes on the money I got from my dead relative? Are we trying to incentivize people to be born to families that already have money or something? Like are we afraid that if we don't do this, we'll be creating incentives for people to get born into poor families instead?
    - AnthonyMouse 2y ago
      > Why do I care about someone being deprived of a portion of some investment his great-grandfather made? Because they only get deprived of it if they sell it, so that gives them more incentive not to sell it, but selling it may be more economically productive, and then you lose the positive externalities of the more productive investment and the tax revenue it would have generated, which could by itself plausibly be more than the loss from the step up in basis. In general the problem is that capital gains taxes when implemented simplistically create a lot of perverse incentives (tax on productive investment is economically undesirable in general and some of the edge cases are especially ugly), and then the tax code gets full of warts that try to reduce the bad incentives/consequences instead of rethinking the structure of the tax. > If I get money from some relative who invested in stuff and then you get money from working really hard in a way that someone thought valuable so they gave you money for your work, why should you pay taxes on that money while I don't pay taxes on the money I got from my dead relative? Your dead relative already paid the taxes on any money earned in the equivalent way. Capital gains are on asset appreciation, which is an industrial-sized can of worms.
- ac29 2y ago
  Brokers have been required to track costs basis information since 2011. That doesnt really help for assets purchased before then, so estate executors would need to find records for transactions before then. The IRS will generally assume a costs basis of zero until proven otherwise.
Fin_Code 2y ago
Yep step up in basis reform. Thats actually on the table under Kamala.
dixie_land 2y ago
Why would capital gains be taxed in the first place? It's simply double taxation on the income
- jewayne 2y ago
  I always ask myself, "What was a government service necessary in order to obtain this money?" Since there are no capital gains without all manners of law enforcement, the answer is yes here. A capital gain is not a tax on the original income. It's a tax on the capital gain, which would be impossible without the rest of us.
  - dixie_land 2y ago
    Capital gains do depend on participants of the market and economy in general. But each and every one of them has already been taxed. I simply stating the obvious that money should be taxed exactly once, not so many times.
    - jewayne 2y ago
      > I simply stating the obvious that money should be taxed exactly once, not so many times. Why is that obvious? Doesn't a rule like that necessarily create distortions in who gets all the benefits of civilization? For example, in only income is taxed, but not gains on investments, doesn't that mean that working people do ALL the work AND pay ALL the taxes, while people who are rich enough not to work literally do NO work and pay NO taxes? People like you don't realize that economics involves living, breathing humans.
- tutorialmanager 2y ago
  Also, most of my capital gains are due to inflation and not an increase in value.
  - paxys 2y ago
    Then you really need to pick better investments. Say, any broad market index fund.
AnthonyMouse 2y ago
> Yes, if you pay your taxes you will have less money. The issue is that it can cause you to have less than zero money, and be forced to sell (possibly illiquid) assets solely in order pay the tax. This is kind of a major deal, e.g. you have an asset worth $20M, but not if you have to sell it right now because it would take time to find the right buyer, so instead you're forced to sell it for $8M to the only person who will buy it immediately. Some assets may not even be possible to sell in the current year, e.g. because the law requires the owner to have some specific license but the only other current licensees are rightfully prohibited from buying you out by antitrust laws. Not to say that the resulting market consolidation would be a good thing when that isn't the case. > Your heirs should have the same cost basis as you did. And so if they sell they have pay the taxes that you never did. What this is really encouraging is that they never sell. Which isn't even obviously going to increase tax revenue. If the daughter inherits the business and runs it successfully for a few years and then sells it for 25% over its value at transfer, the government gets tax on the 25%, and then going forward gets the taxes from the new, more productive investment she sold that one in order to buy. And the latter isn't just capital gains; better investments would also be employing more people (payroll taxes, fewer unemployment claims), paying more property taxes, etc. If you make it so the tax basis stays low so a sale would have to pay tax on 95% of the value instead of 25%, she doesn't sell, you don't even get the tax on the 25% and the tax base stays lower because she doesn't switch to the more productive investment.
- eli 2y ago
  I do not understand your first point at all. I’m saying we should eliminate the step up in basis for inherited assets. In what scenario would that force someone to sell something? Yes their heirs could hold the assets forever and never sell, correct.
  - AnthonyMouse 2y ago
    > I’m saying we should eliminate the step up in basis for inherited assets. In what scenario would that force someone to sell something? The proposal has been floated recently that unrealized capital gains should be taxed. This would nominally mitigate a major problem with your proposal, which is that it would heavily discourage people from switching from long-held mediocre investments with a low tax basis to better investments. So they're often proposed together or as the mechanism to remove the step-up in basis, i.e. it's unconditionally stepped up to market value every year but then you have to pay the tax immediately. But if you tax unrealized gains then you force the sale of assets any time the tax is more than the owner's liquid cash, which is its own major problem. Whereas if you don't do this, now you haven't solved the original problem that the owner suffers a huge tax penalty for switching from a long-held mediocre investment to a better one.
zxcvbnm69 2y ago
[dead]
lumost 2y ago
It's also relatively easy to enforce with a generic assertion that all inherited assets must provide proof of adequate payment of capital gains taxes or carry a cost basis equal to the earliest point from which proof can be established. I'm sure there would be hijinks to avoid this, but for the amounts in question a great deal of legal and accounting hours could be expended to audit the correctness of the returns.

by eli 2y ago

Negitivefrags 2y ago

The main concern with this is how do you actually get the records of what the cost basis was from someone who is dead?

saghm 2y ago
If the issue is that people are dying leaving behind significant wealth but not documenting this, just make the estate tax 100% on any assets missing documentation like this. I'm sure the lawyers would figure out the rest.
- eli 2y ago
  That's effectively already the rule if you sell something and can't figure out the cost basis - it counts as zero.
AnthonyMouse 2y ago
That isn't really the main concern. It's really a question of alienability. If your great grandfather invested in something a hundred years ago and now 99% of its value is appreciation (or inflation), you may or may not want to continue investing in it. If you do, the step up in basis doesn't really matter because you're not going to sell it anyway. But if you now think it's a mediocre investment, you may be inclined to sell it and invest in something else. Except that you won't if you'd lose a significant proportion of its value to taxes. This is a problem with capital gains taxes in general, but it's especially a problem for anything held intergenerationally (i.e. for a very long time) because not only will the appreciation be large, the inflation by itself would represent most of the value of the "gain". So the step-up in basis is a stupid hack to avoid this and let children make different choices than their parents and grandparents without being punished by the tax code. There are probably better ways to handle this, but "delete it and replace it with nothing" is not one of them.
- CPLX 2y ago
  > There are probably better ways to handle this, but "delete it and replace it with nothing" is not one of them. Why not? Why do I care about someone being deprived of a portion of some investment his great-grandfather made? If I get money from some relative who invested in stuff and then you get money from working really hard in a way that someone thought valuable so they gave you money for your work, why should you pay taxes on that money while I don't pay taxes on the money I got from my dead relative? Are we trying to incentivize people to be born to families that already have money or something? Like are we afraid that if we don't do this, we'll be creating incentives for people to get born into poor families instead?
  - AnthonyMouse 2y ago
    > Why do I care about someone being deprived of a portion of some investment his great-grandfather made? Because they only get deprived of it if they sell it, so that gives them more incentive not to sell it, but selling it may be more economically productive, and then you lose the positive externalities of the more productive investment and the tax revenue it would have generated, which could by itself plausibly be more than the loss from the step up in basis. In general the problem is that capital gains taxes when implemented simplistically create a lot of perverse incentives (tax on productive investment is economically undesirable in general and some of the edge cases are especially ugly), and then the tax code gets full of warts that try to reduce the bad incentives/consequences instead of rethinking the structure of the tax. > If I get money from some relative who invested in stuff and then you get money from working really hard in a way that someone thought valuable so they gave you money for your work, why should you pay taxes on that money while I don't pay taxes on the money I got from my dead relative? Your dead relative already paid the taxes on any money earned in the equivalent way. Capital gains are on asset appreciation, which is an industrial-sized can of worms.
ac29 2y ago
Brokers have been required to track costs basis information since 2011. That doesnt really help for assets purchased before then, so estate executors would need to find records for transactions before then. The IRS will generally assume a costs basis of zero until proven otherwise.

Fin_Code 2y ago

Yep step up in basis reform. Thats actually on the table under Kamala.

dixie_land 2y ago

Why would capital gains be taxed in the first place? It's simply double taxation on the income

jewayne 2y ago
I always ask myself, "What was a government service necessary in order to obtain this money?" Since there are no capital gains without all manners of law enforcement, the answer is yes here. A capital gain is not a tax on the original income. It's a tax on the capital gain, which would be impossible without the rest of us.
- dixie_land 2y ago
  Capital gains do depend on participants of the market and economy in general. But each and every one of them has already been taxed. I simply stating the obvious that money should be taxed exactly once, not so many times.
  - jewayne 2y ago
    > I simply stating the obvious that money should be taxed exactly once, not so many times. Why is that obvious? Doesn't a rule like that necessarily create distortions in who gets all the benefits of civilization? For example, in only income is taxed, but not gains on investments, doesn't that mean that working people do ALL the work AND pay ALL the taxes, while people who are rich enough not to work literally do NO work and pay NO taxes? People like you don't realize that economics involves living, breathing humans.
tutorialmanager 2y ago
Also, most of my capital gains are due to inflation and not an increase in value.
- paxys 2y ago
  Then you really need to pick better investments. Say, any broad market index fund.

AnthonyMouse 2y ago

> Yes, if you pay your taxes you will have less money. The issue is that it can cause you to have less than zero money, and be forced to sell (possibly illiquid) assets solely in order pay the tax. This is kind of a major deal, e.g. you have an asset worth $20M, but not if you have to sell it right now because it would take time to find the right buyer, so instead you're forced to sell it for $8M to the only person who will buy it immediately. Some assets may not even be possible to sell in the current year, e.g. because the law requires the owner to have some specific license but the only other current licensees are rightfully prohibited from buying you out by antitrust laws. Not to say that the resulting market consolidation would be a good thing when that isn't the case. > Your heirs should have the same cost basis as you did. And so if they sell they have pay the taxes that you never did. What this is really encouraging is that they never sell. Which isn't even obviously going to increase tax revenue. If the daughter inherits the business and runs it successfully for a few years and then sells it for 25% over its value at transfer, the government gets tax on the 25%, and then going forward gets the taxes from the new, more productive investment she sold that one in order to buy. And the latter isn't just capital gains; better investments would also be employing more people (payroll taxes, fewer unemployment claims), paying more property taxes, etc. If you make it so the tax basis stays low so a sale would have to pay tax on 95% of the value instead of 25%, she doesn't sell, you don't even get the tax on the 25% and the tax base stays lower because she doesn't switch to the more productive investment.

eli 2y ago
I do not understand your first point at all. I’m saying we should eliminate the step up in basis for inherited assets. In what scenario would that force someone to sell something? Yes their heirs could hold the assets forever and never sell, correct.
- AnthonyMouse 2y ago
  > I’m saying we should eliminate the step up in basis for inherited assets. In what scenario would that force someone to sell something? The proposal has been floated recently that unrealized capital gains should be taxed. This would nominally mitigate a major problem with your proposal, which is that it would heavily discourage people from switching from long-held mediocre investments with a low tax basis to better investments. So they're often proposed together or as the mechanism to remove the step-up in basis, i.e. it's unconditionally stepped up to market value every year but then you have to pay the tax immediately. But if you tax unrealized gains then you force the sale of assets any time the tax is more than the owner's liquid cash, which is its own major problem. Whereas if you don't do this, now you haven't solved the original problem that the owner suffers a huge tax penalty for switching from a long-held mediocre investment to a better one.

zxcvbnm69 2y ago

[dead]

lumost 2y ago

It's also relatively easy to enforce with a generic assertion that all inherited assets must provide proof of adequate payment of capital gains taxes or carry a cost basis equal to the earliest point from which proof can be established. I'm sure there would be hijinks to avoid this, but for the amounts in question a great deal of legal and accounting hours could be expended to audit the correctness of the returns.