The American death tax

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Monday, November 9. 2015

The American death tax is a terrible thing. It doesn't apply to most working class people who slide their possessions past the tax man - and the very wealthy avoid it, but it kills families with savings, large farms or family businesses which have appreciated over time. For a recent example of how the wealthy deal with it, Estate Taxes And the (Clinton) Family Business.

One might think that American policy-makers would want more independent families, building up businesses and assets, but no. Only the filthy rich can afford to do that. Death tax drives Dems to dementia

Posted by The Barrister in Hot News & Misc. Short Subjects at 13:55 | Comments (31) | Trackbacks (0)

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So . . .

Since they gained both houses of Congress, have the repubs sent anything concrete to 0bama to remedy this? Have they tried but Dingy Harry blocked them? Are they whining and moaning they STILL don't have enough votes? Or are they doing nothing?

I don't think our ruling masters in the GOP give a tinker's damn about the little people either.

#1 feeblemind on 2015-11-09 13:57 (Reply)

The current exemption for the estate tax is $5.43 million per spouse. Farm real estate is valued at its farm-use value, which is typically much less than its market value. If a couple leaves a $12 million estate, only about $1 million is subject to the tax, a tax of about $402 thousand. Return on $12 million at 5% is $600 thousand per year.

As for the Clintons using life insurance to provide liquidity to pay the estate tax, that obviously implies they are expecting their heirs to pay an estate tax. And most people who have millions of dollars in assets do have life insurance.

Not sure who we are supposed to be crying for.

#2 Zachriel on 2015-11-09 14:15 (Reply)

It is just about the ultimate indignity the state can inflict on any individual: taxing their death and penalizing their next of kin for being related to them.

#2.1 JJM on 2015-11-09 15:08 (Reply)

Farm land is not taxed any differently than any other land for federal tax purposes. Some states do tax it at its current use value for property tax assessments. So heirs that wish to continue farming must pay the appraised value of the land as inheritance tax. Yes, the exemptions sound high, but in this day and age, it is difficult to support a family on less than 1000 acres if you're a grain farmer. That's at least $10 M in land alone in most of the US corn belt, not counting equipment, buildings, etc.

#2.2 Gordon on 2015-11-09 19:09 (Reply)

Gordon: Farm land is not taxed any differently than any other land for federal tax purposes.

QUOTE:

USDA: Over the years, a number of targeted provisions have been enacted to reduce the burden of the estate tax on farms and small business owners. These include a special provision that allows farm real estate to be valued at farm-use value rather than at its fair-market value, and an installment payment provision. A provision aimed at encouraging farmers and other landowners to donate an easement or other restriction on development has also provided additional estate tax savings. Together, these provisions have reduced the potential impact of estate taxes on the transfer of a farm or other small business to the next generation
http://www.ers.usda.gov/topics/farm-economy/federal-tax-issues/federal-estate-taxes.aspx

#2.2.1 Zachriel on 2015-11-10 09:50 (Reply)

So for the land to be appraised at its agricultural, they must surrender the rights of all subsequent owners to use the land for any but agricultural purposes (or are you unfamiliar with the concept of a conservation easement?). You're sliding from casuistry to sophistry. What the USDA says about estate values makes little difference to the IRS.

#2.2.1.1 Gordon on 2015-11-10 11:50 (Reply)

Gordon: So for the land to be appraised at its agricultural, they must surrender the rights of all subsequent owners to use the land for any but agricultural purposes (or are you unfamiliar with the concept of a conservation easement?).

You are confusing two separate provisions. If you want to farm the land, it is assessed as farmland. If you want to set aside some of the land, then there are additional exemptions. If you want to develop the land, then it is assessed at market value.

Gordon: What the USDA says about estate values makes little difference to the IRS.

Handwaving. USDA is a federal department with a special interest in agricultural issues.

#2.2.1.1.1 Zachriel on 2015-11-10 12:17 (Reply)

There are two reasons for the death tax:
1. Because the left cannot stand the fact that someone or some family would have millions and they can't take it.
2. A true Marxist socialist knows that businesses and families cannot be allowed to prosper by passing along their wealth. Forcing the individual to sell the farm destroys property rights and creates an environment friendly to socialism/communism.

#3 GoneWithTheWind on 2015-11-09 15:31 (Reply)

QUOTE:

1. Because the left cannot stand the fact that someone or some family would have millions and they can't take it.

Unless its their money that could be taxed away like Bill & Hill. Then they employ all those nasty tax avoidance strategies that when they are talking to 'the masses' they claim the rich are taking unfair advantage of.

#3.1 mudbug on 2015-11-09 17:18 (Reply)

Who cares what the amount is? It's not the government's money, it's the family's. People work for their family first.

#4 Bird Dog on 2015-11-09 15:51 (Reply)

Bird Dog: Who cares what the amount is?

The original post talked about killing families.

Bird Dog: It's not the government's money, it's the family's.

Death and taxes. In much of Europe, property and estate taxes helped lead to the breakup of entrenched aristocratic power.

#4.1 Zachriel on 2015-11-09 17:13 (Reply)

In England, at least, a fair few estates which were "broken up" were sold to foreigners who could claim a non-resident tax exemption. Hence wealthy Saudis, etc., owning prime British property while Englishmen who are trying to keep the property in the family are heavily penalized.

#4.1.1 Frances on 2015-11-09 21:37 (Reply)

Frances: In England, at least, a fair few estates which were "broken up" were sold to foreigners who could claim a non-resident tax exemption.

Most of the aristocratic estates were broken up long before the Saudis started shopping real estate. Most were turned into modern commercial farms, or became housing for the burgeoning middle class. The days where an earl would literally own a town, and people would work long hours for room and board are largely gone in Britain. While taxes were only part of the impetus to change, they were a significant factor. Land and labor are worth far more now than then. The same is true in any country which has experienced industrialization.

#4.1.1.1 Zachriel on 2015-11-10 09:59 (Reply)

It is worth noting in the discussion of British taxes on their rich that:
1. Some of the rich in England paid in excess of 100% tax. Is this really the position those on the left want to take?
2. British high tax rates were very effective. That is most/many of the productive people left the country. Very effective because that is the purpose of high taxes, right? You tax what you want to prevent/minimize and you don't tax (or tax at a low rate) that which you want to encourage. So I compliment the left their high taxes were very effective and seemed to accomplish exactly what they wanted to accomplish.

'Fair tax' is a commonly used phrase. My idea of a 'fair tax' is that everyone pays taxes (how can you justify freedom and equality and then say but some people will be exempt from civil responsibility?) And secondly that the tax and the total of all taxes are not onerous or 'unfair'. In my humble opinion for anyone to pay more then 50% total taxes on their income is unfair. 40% may be too high as well. But using 50% as an example I would say that once any individual's or corporations taxes exceed 50% that an exemption kick in and they do not have to pay the excess taxes. Conversely I think everyone should pay taxes. That would mean every person/entity with income. That means people on welfare, tax exempts/charities, etc. That tax rate could be a low number, say 10% and still be fair both to the lower income person and the higher income taxpayer. But whatever it is everyone should have some skin in the game, everyone should pay taxes. It is part of being a good citizen of the community and it is only fair if the individual or entity enjoys the rights and privileges the community affords them.

#4.1.1.1.1 GoneWithTheWind on 2015-11-11 13:30 (Reply)

GoneWithTheWind: 1. Some of the rich in England paid in excess of 100% tax. Is this really the position those on the left want to take?

Top marginal tax rates in Britain are 45%. Most people pay considerably less. The marginal tax rate was 99.5% during WWII for rather obvious reasons. Most people paid considerably less.

GoneWithTheWind: 2. British high tax rates were very effective. That is most/many of the productive people left the country.

Britain has had substantial net immigration since WWII.

#4.1.1.1.1.1 Zachriel on 2015-11-12 08:50 (Reply)

It is indeed a fact that the rich had to pay taxes in England that exceeded 100% of their income. Either you are merely ignorant of this or you intentionally misrepresented the facts

You opinion about the rich and productive being forced out by higher taxes seems to be "who cares we have immigration is so it's all good". A very naive and uninformed view. England has suffered for years from a brain drain and at the same time has suffered from massive immigration of uneducated and non-productive people who only came for the 'free stuff'. Everyone needs to understand the 'free stuff' gravy train is coming to an end. Most Western countries are deep in debt because of welfare. The policies of the left are killing the golden goose. This is not a difficult concept to grasp but first you must divest yourself of your far left belief system.

#4.1.1.1.1.1.1 GoneWithTheWind on 2015-11-12 20:12 (Reply)

GoneWithTheWind: It is indeed a fact that the rich had to pay taxes in England that exceeded 100% of their income. Either you are merely ignorant of this or you intentionally misrepresented the facts

While the marginal tax system in Britain sometimes results in a marginal tax rate of a small portion of income above the nominal tax rate (due to benefits that disappear at a certain income level), no one incurs an income tax of more than 100% of their total income. You are confusing effective marginal tax rate with the rate paid.

GoneWithTheWind: England has suffered for years from a brain drain and at the same time has suffered from massive immigration of uneducated and non-productive people who only came for the 'free stuff'.

According to the census, immigrants are more skilled than the average Briton.
http://www.ons.gov.uk/ons/guide-method/census/2011/index.html?utm_source=twitterfeed&utm_medium=twitter

#4.1.1.1.1.1.1.1 Zachriel on 2015-11-13 06:36 (Reply)

Not confusing anything. I think perhaps you aren't as old as me and simply don't remember it. I am not referring to today's tax rates but rates in the 70's.

"According to the census, immigrants are more skilled than the average Briton."

If that were true than the new immigrants would not need any welfare. I suggest England pass a law ending all welfare to immigrants especially since the immigrants are so smart.

But you totally missed the point. I didn't say that the Britons who were not forced out of the country due to high taxes were geniuses!! What I said was that the high taxes forced out the smarter and more productive people. How is that good? Tax the productive so much that they leave the country and all you have left are the ignorant welfare masses who by your own words are not even as smart as the typical uneducated immigrant.

#4.1.1.1.1.1.1.1.1 GoneWithTheWind on 2015-11-13 10:05 (Reply)

When Jerry Seinfeld's eight year-old daughter asked , "Are we rich, Daddy?" he responded, "I am."
That's more American: you work for what you earn and it should be yours. Your kids should do the same.
Warren Buffett strongly agrees: the Estate Tax (it's not a death tax) still leaves plenty of dough to your heirs. Let them earn the rest and be grateful to support a great nation where you could earn so well and live well until your inevitable death.

Have faith in your kids: they'll do fine and well as long as they were raised well.

#5 ns on 2015-11-09 18:33 (Reply)

OK, so my assets become a communal checking account when I croak?

No. Any of my assets are earned by my sweat and exist for the benefit of my family. Nobody else.

Family first. Let others take care of their own, and I will do my own charity for the unfortunate and dysfunctional.

#5.1 The B on 2015-11-09 19:28 (Reply)

Totally agree: we have not been frugal so the government can give away our hard-earned savings to their pet causes.

Back in the day, Dad was upset when he received his inheritance from his mother - a 1/3 share in her house - because Granny had lived so frugally over her lifetime instead of selling up and using the proceeds for a "better" life. But Granny loved her garden: when I heard she was selling, I knew she was dying; and I am certain in her mind the money from the house would "repay" the children for their help over the years.

Fast forward another generation, and Mum was remaking her will. Insisted that the grandchildren each get a legacy. Her comment was that they - as young adults - needed the money at that time rather than have to wait until the parents shuffled off this mortal coil. Don't know what other family members did, but ours looked at this as an opportunity to begin own savings, investments, etc. They'll always remember Granny for many reasons, but the legacies were special.

#5.1.1 Frances on 2015-11-09 21:51 (Reply)

The B: Any of my assets are earned by my sweat and exist for the benefit of my family. Nobody else.

Unless the estate is worth more then $5.43 million per spouse, then there is no estate tax.

Frances: Dad was upset when he received his inheritance from his mother - a 1/3 share in her house - because Granny had lived so frugally over her lifetime instead of selling up and using the proceeds for a "better" life.

Unless the estate is worth more then $5.43 million per spouse, then there is no estate tax. You can keep your Granny's garden without incurring a estate tax.

#5.1.2 Zachriel on 2015-11-10 09:55 (Reply)

* no {federal} estate tax

#5.1.2.1 Zachriel on 2015-11-10 10:00 (Reply)

You are in engaging in a bit of casuistry. While a $5 M exemption indexed to inflation is an improvement over past rates, it is a very recent development and people are right to be on guard. For much of its existence the estate tax was draconian to families, especially those with a multi-generational businesses (https://cooklaw.co/blog/current-historical-federal-estate-tax-structure-exemptions-rates).

There are enough impediments to farms and other businesses remaining profitable from generation to generation, and the government should not be among them; it is counterproductive on many levels.

#5.1.2.2 Gordon on 2015-11-10 10:26 (Reply)

Gordon: While a $5 M exemption indexed to inflation is an improvement over past rates, it is a very recent development and people are right to be on guard.

Your statement concerned the appraisal of farmland. Others argued, in effect, that there shouldn't be any taxes on anything whatsoever, that it's not the government's to take.

As for the exemption per individual, indexed for inflation, in thousands:

1920, $584
1930, $1400
1940, $660
1950, $582
1960, $473
1970, $360
1980, $455
1990, $1070
2000, $917
2010, $5417

Keep in mind that most people double the exemption. Some of the lower numbers were because the exemption wasn't indexed for inflation.

Let's assume your granny left you her home, a nice Victorian needing repair, but worth $800 thousand as is. There's no estate tax. Mom and Dad left you a hardware store, worth say $7 million. Again, no estate tax. Now you have a house and a business, free and clear.

Now, let's assume that today you inherit a $15 million estate from your rich Uncle and Aunt. The first $10.8 million is exempt, so you pay 40% of $4.2 million or about $1.7 million. A reasonable rate of return on $15 million is near a million, so that would be two years return on the investment. Amortize that over a few years, and you will still clear a very nice return, with more expected once the loan is paid off.

On the other hand, if your estate is worth $100 million, then the situation is quite different, of course. You only clear $60 million.

Who were we supposed to cry for again?

#5.1.2.2.1 Zachriel on 2015-11-10 11:07 (Reply)

All the chart shows is how immoral the inheritance tax has been since its inception. Your hypotheticals are cute and all, but you've run away from the point many different people have made in many different ways. How is it anything but detrimental to discourage successful multigenerational businesses from continuing to succeed in subsequent generations?

#5.1.2.2.1.1 Gordon on 2015-11-10 12:48 (Reply)

Gordon: All the chart shows is how immoral the inheritance tax has been since its inception.

A chart of tax exemptions doesn't show morality.

Gordon: How is it anything but detrimental to discourage successful multigenerational businesses from continuing to succeed in subsequent generations?

All taxes are taxing.

Small businesses are generally exempt. Large businesses typically got large by moving away from the family nepotism model.

#5.1.2.2.1.1.1 Zachriel on 2015-11-10 13:09 (Reply)

I hope you like poor quality lumber and Chinese vegetables.
In forestry in particular, if I know the feds (or, even more often the state) will force the sale of my land when I die or at best a fire sale of what it can produce....why would I manage for oak, a multi-generation product? I won't, of course. I'll go for pine and poplar, so that at least my heirs can get something.
If enough people do that, enough times. Well, I guess particle board is pretty on the outside.
The same holds true of many buildings and institutions which are backed by an expectation of a multi-generational return, from universities to cathedrals to castles. People don't build for the ages unless their heirs, by blood, benefit. It happens that, when they do build for the ages, all of society benefits.

#5.2 acairfearann (Link) on 2015-11-09 21:21 (Reply)

The estate tax isn't imposed despite the impact on frugality motivated by a desire to take care of our families, it's imposed because of resentment that some people have families who will behave this way and others don't.

#6 Texan99 on 2015-11-10 08:58 (Reply)

You people keep feeding The Gang of Z troll(s). Are you somehow not aware of the goalposts being run all over the field?

Commenter: Death taxes are wrong.
Gang of Z: But death and taxes so there.
Commenter: Yes, but taxes didn't used to [X] back when [Y] was [Z].
Gang of Z: According to Googlepedia, taxes used to [A] over during [B's] term of [C] in [D].
Commenter: But [E] came about because of [F] in 1785.
Gang of Z: But Googlepedia says The Imperial Act of 1784 Act precludes farmers from [insert irrelevant diversion] because [insert irrelevant diversion] thus [irrelevant diversion].

By now all relevance to Commenter's original point has been long lost, Commenter's original point being correct and true.

(Repeat for any topic. It's quite obvious, after all.)

So stop indulging the troll. Death taxes are wrong; just say it. It's not like you need to debate your own principles with someone(s) not remotely interested in them but apparently quite interested in having you forget them.

#7 Ten on 2015-11-11 16:05 (Reply)

Ten: Commenter: Death taxes are wrong.
Gang of Z: But death and taxes so there.

The argument is that all taxes are taxing. No one explained why the moral argument "What's mine is mine" doesn't apply to other forms of taxation.

Ten: Commenter: Yes, but taxes didn't used to [X] back when [Y] was [Z].
Gang of Z: According to Googlepedia, taxes used to [A] over during [B's] term of [C] in [D].

Gordon raised a question concerning the history of the estate tax exemption.

Ten: Commenter: But [E] came about because of [F] in 1785.
Gang of Z: But Googlepedia says The Imperial Act of 1784 Act precludes farmers from [insert irrelevant diversion] because [insert irrelevant diversion] thus [irrelevant diversion].

Our first comment pointed out the size of the exemption, and the provisions made for farms. That is certainly relevant to a discussion of the American "death tax".

Ten: By now all relevance to Commenter's original point has been long lost, Commenter's original point being correct and true.

Our comments rebut the point directly. No one has responded as to why the death tax is immoral while property, income, or trade taxes are not, or argued that all taxes are immoral (the anarchist position).

#7.1 Zachriel on 2015-11-12 08:58 (Reply)

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Monday, November 9. 2015

The American death tax