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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsOn the Estate Tax
I was in a "debate" with someone on Reddit regarding the Estate Tax. His question was the standard reactionary one: The income is already taxed and "why should I have to pay for the takers." You know, the ignorant tripe that doesn't require critical thinking skills.
So, I thought I'd share my response for those who are interested. It doesn't affect nearly the amount of population that the reactionaries would have you believe. I mean, if you believed their arguments, you'd think the end of civilization is nigh!
My response:
So, currently, only those inheriting $5.25 million or more are taxed, and only for the amount above the exclusion amount. If I recall correctly, this only affects ~0.3%* of the total population.
*This figure for 2014 is probably even lower since Congress raised the exclusion amount.
Wikipedia: Estate Tax in the United States
Stallion
(6,476 posts)remember Husband and Wife can each claim the exemption amount with proper planning too
Fantastic Anarchist
(7,309 posts)badtoworse
(5,957 posts)Warpy
(111,407 posts)which saves heirs a bundle. I was able to talk my dad into a revocable trust (he could revoke it if I turned to crime, in other words) and I have to say that the whole business went smoothly when he died.
However, if you're leaving a real empire of tens of millions on up, your heirs will still have to fill out their estate tax forms and pay their estate taxes, Federal and state (if the state has them).
One plutocrat loophole has always been endowing the charitable foundation and naming their heirs as its head, allowing them to collect lavish salaries as long as 1% or so of the income goes to other scam foundations, the foundation death spiral.
badtoworse
(5,957 posts)Call me a reactionary, but I've paid taxes on my estate already. The government shouldn't get a second bite at the apple.
Warpy
(111,407 posts)The unearned windfall your heirs will get is what is taxed. They're the ones who need to file the paperwork and they're the ones who will owe the taxes if you're an offline multi millionaire.
Saying the deceased pays double taxes on what s/he has saved is a Republican lie. It's just not true. Heirs have to pay taxes on inheritances above a certain dollar amount and that's a good thing. Estate planning also considers charitable donations for people who don't want Johnny and Susie to have to pay any nasty taxes on their windfall.
If you buy the Republican lie, OK, you're a reactionary. However, it's just not how that tax works.
badtoworse
(5,957 posts)I don't like the idea of my heirs having to pay taxes on what I've already been taxed on.
Fantastic Anarchist
(7,309 posts)... Then they should still pay taxes on that inheritance.
Otherwise, the rest of us are just paying for them to live lavishly.
badtoworse
(5,957 posts)I've already paid for my share.
whatthehey
(3,660 posts)they need to pay their share of it too.
I pay my mechanic with after tax money. Should he not be taxed on it when it becomes his? Why should he pay taxes on earned transfer of wealth and your heirs not do the same on unearned transfer?
A HERETIC I AM
(24,380 posts)Spot on!
Welcome to DU.
badtoworse
(5,957 posts)I just don't believe in estate taxes.
Fantastic Anarchist
(7,309 posts)Are you in the 0.3% that would be affected?
If not, don't worry about it then.
Your heirs will be able to leech off society with impunity.
badtoworse
(5,957 posts)ETA: All three are responsible young adults with good careers in progress. One is an RN and two are in financial services - they do quite well.
Your use of the term leeches says much about you
Fantastic Anarchist
(7,309 posts)... to accrue such wealth says much about you.
As for me, I stand to get quite close to the exclusion mark (probably over by the time I get it). I'm totally happy to pay the tax to give back to the society that made that wealth possible in the first place.
badtoworse
(5,957 posts)We'll have to disagree about where that point should be.
whatthehey
(3,660 posts)I pay enough income taxes to lift at least two families out of poverty. I wish I paid enough to do so for 10. 100. 10000. Because anybody who complains about income taxes has one easy way to solve that. Get less income. When the very highest tax rate is under 40% (heck let's add state and FICA and make it 55, ignoring deductions too) , this point of which you speak is only ever going to be hypothetical for any sensible American.
badtoworse
(5,957 posts)I give a lot to charity as well. Saying I'm giving back plenty is not complaining; it's a statement of fact. My heirs pay plenty in income taxes also, so they're giving back their share. I'm very comfortable that we are all giving back. The government doesn't need a piece of my estate to get a fair share - they've already gotten that.
PowerToThePeople
(9,610 posts)Anyone working in the financial services has contributed zero to human society via their profession. Their whole existence is one of leeching from people who do contribute to society.
I have read your posts in this thread and others and I have an honest question for you. What brings you to a message board that states the following:
It is the responsibility of all DU members to participate on our discussion forums in a manner that promotes a positive atmosphere and encourages good discussions among a diverse community of people holding a broad range of center-to-left viewpoints. Members should refrain from posting messages on DU that are disruptive, hurtful, rude, insensitive, over-the-top, or otherwise inappropriate. These broad community standards of behavior are maintained through the combined efforts of members posting and serving on citizen juries, using their own best judgment to decide what behavior is appropriate and what is not.
I may have missed something in your post history (if I have I'll be happy to pull back my question), but I personally do not see evidence of center-to-left viewpoints in what I have read.
badtoworse
(5,957 posts)Starting your post with insults doesn't meet that standard. I'm not going to dignify your post any further.
PowerToThePeople
(9,610 posts)whatthehey
(3,660 posts)WHY do you believe unearned income should be taxed less than earned income? If anything, wouldn't taxing it more be more in keeping with concern for the less privileged?
I have a suggestion that may help frame away this red herring.
Let's repeal estate taxes entirely.
.....and replace them with inheritance taxes, payable on the tax returns of those who receive the money.
No more double taxation, which is of course the genuine moral principle involved, right, not greed and the perpetuation of an overclass?
badtoworse
(5,957 posts)Calling it something else and making it more onerous for the heirs isn't going to change my opinion. The earned vs unearned income aspect is irrelevant as far as I'm concerned.
gratuitous
(82,849 posts)And as long as we're still in a democracy, what say the rest of ye? Majority rules, after all.
badtoworse
(5,957 posts)MO_Moderate
(377 posts)zero would be perfect.
Fantastic Anarchist
(7,309 posts)Anything above that would be taxed at 19% and only for the amount above the exclusion.
The construction worker who's barely getting by will still pay his 35%, though, you just rest assured!
hfojvt
(37,573 posts)Not always.
Let's say I have 10,000 shares of stock that I bought in 2008 for $20 a share. Now it is 2019 and I am dead. The stock is worth $35 a share. There's $150,000 in capital gains that I never paid taxes on.
Or for a real life example, I bought 4.5 acres of land in 1987 for $4,500. In 2009, I sold it for a net of $20,000. (As it turned out, thanks to the Bush tax cuts, I paid no taxes on that gain anyway.) But if the sale had happened after my death, a good part of that estate would have never been taxed.
And you may say, "aha" (or maybe, like a Heffalump, you'd say "ho ho!" but part of that money HAS been taxed.
Yes, and a big part of that money will not be subject to the estate tax. Remember the exemption?
But I always say it's cool. If rich people don't want to pay taxes on their estates after they are dead, then we can just tax them NOW while they are alive. The choice is theirs. Now if it was me, I'd rather pay after I am dead.
badtoworse
(5,957 posts)hfojvt
(37,573 posts)my nephew inherits 10,000 shares at $35 a share. Goes out on a drunken binge and sells it a month later for $34.5 a share.
Is he gonna pay a capital gain based on the original purchase price? Why? It was worth $35 a share when he GOT it. Same with the real estate. Any value it has gained, has NOT already been taxed.
badtoworse
(5,957 posts)He pays capital gains or writes off losses when he sells.
IphengeniaBlumgarten
(328 posts)Consider property (real estate, stocks, etc) that is part of the estate. These things tend to appreciate in value, sometimes quite a lot.
This increase in value is not taxed until the property is sold, then the owner is taxed at the favorable capital gains rates.
However, if the property is not sold by the owner but remains in his estate it goes to his/her heirs at its value at the time of his death.
This the increase in value is NEVER taxed!
Warpy
(111,407 posts)I know I had to supply them with copies of the bill of sale for my dad's house to be added to the value of the portfolio.
IphengeniaBlumgarten
(328 posts)I guess this is of greatest benefit to estates that don't exceed the exclusion amount.
But that increase in value is only taxed ONCE at most. Not the double taxation that the Republicans are so eager to talk about.
mainer
(12,034 posts)It only means that when a married couple dies, the estate gets taxed as if the parents had two separate estates, so it allows an exemption for each member of the couple.
Above that, there are still taxes to be paid.
The only way to transfer money to your offspring tax-free is to give them the maximum allowable gift each year, but that's limited right now to about $13,000 a year.
House of Roberts
(5,192 posts)in ways in takes a tax lawyer to understand. By the time they pass, the amount subject to the estate tax is negligible. Only in cases of unexpected, premature death do these laws apply.
A HERETIC I AM
(24,380 posts)Or is it just an anecdote on your part? Something you figure must be true.
pipoman
(16,038 posts)Taxation buy life insurance to cover the estate taxes. My dad sold those policies for years...
mainer
(12,034 posts)then that pay-out is part of the estate, I believe, and would be taxed.
The only way for the heirs to benefit fully from an insurance payout is if THEY paid the premiums through the years. One way parents can do that for their kids is to "gift" the premium amount to their children every year.
But again, that gift is limited to $13,000 per child.
pipoman
(16,038 posts)Then they would determine the tax, the policy size to cover the taxes for the heirs. A lot of big farmers did it as I recall. He worked with a cpa....i think the cpa approached him and would contact him with clients who he had advised.
This was 30 years ago. ..I'm sure things have changed. ..
Gormy Cuss
(30,884 posts)It's an easy way to transfer assets. Most people I've known who wring their hands about the estate tax don't even know that they can gift so much to their kids, and most of the rest don't want to transfer the assets until death.
mainer
(12,034 posts)My kids work hard (one's a teacher, the other's a farmer) and I'm glad I can help them out while I'm still alive and kicking.
SheilaT
(23,156 posts)as it moves through the economy: income taxes, sales taxes, school taxes, and so on and so forth.
I honestly think one reason very rich people fight so very hard against estate taxes is that once that tax kicks in, it's very high. Of course, it does provide a great deal of employment for tax lawyers. It's my opinion that estate taxes should kick in at about a $1million point, but not go immediately to 46%, or whatever it actually is. I'd say start at about 15%, escalate to 25% at $10million, and maybe top out at 35% above $25million.
The up side of estate taxes is that it does tend to encourage the wealthy to give money away, and not just to their children or grandchildren.
PowerToThePeople
(9,610 posts)They should be happy that their heirs get to inherit a pair of bootstraps. What more does any good Republican or Libertarian need to be successful?
Oh I see, that line is just a bunch of bullshit. They really do not have any understanding of what real work is.
Scuba
(53,475 posts)... for 1,000 years.
But I resent the idea that she would inherit her family's entire fortune while the maids who cleaned all those hotel rooms are living in poverty and dying without healthcare.
Warpy
(111,407 posts)we need a change and "business as usual" Democrats are going to find themselves losing consistently.
Gothmog
(145,752 posts)eallen
(2,955 posts)The person who died is gone, and will never pay a cent of further tax.
He is not his heirs, who are their own individuals, and who enjoy a windfall by virtue of that inheritance. Why should such windfall be taxed less than the income earned by someone who works hard for their wage?
Well... there is good argument that a spouse is a partner in income and spending, and should have benefit of any joint estate, without paying further tax. And so it is. But after that, who?
TexasBushwhacker
(20,228 posts)Wasn't one of the biggest founding principles of our country was that we would not have royalty? Well what is royalty if it isn't being able to pass enormous sums of wealth, generation to generation, untaxed? At the end of the day, these heirs end up far better off than other working stiffs. Besides, if their parents have any sense, they will set up their estate to minimize taxes.
Turbineguy
(37,386 posts)That's the answer to give them.
It's not that difficult for a farm or business to be valued above the 5.25 million limit. But that's how you get around the tax problem.
mainer
(12,034 posts)and thus taxable -- if the deceased was the one paying the premiums.
Your heirs have to pay the premiums (and thus own the policy) in order for them to get the payout on your estate tax free.
So if you want your kids to have money tax-free, you tell them to start paying your life insurance premiums now. And trust me, as you get older and those premiums increase to huge amounts (I cancelled my life insurance when the yearly premiums suddenly jumped to five figures) this is not a cheap way to inherit money.
mainer
(12,034 posts)Last edited Tue Mar 25, 2014, 12:09 PM - Edit history (1)
http://www.bankrate.com/finance/taxes/taxes-on-insurance-benefits.aspxFederal estate taxes must be paid on life insurance benefits above $5.25 million in 2013, but only if the policy was owned by the deceased individual, says Tignanelli.
"If a life insurance policy is owned by the beneficiaries, they won't have to pay an estate tax," he says.
So have your beneficiaries pay the premiums and own the policy. They'll get a tax-free payout. But this solution is not free, and as the insured person gets older, it certainly isn't cheap.
I'm 60 and healthy, and the premium quoted for my term life insurance suddenly shot up to #23,000 this year. I cancelled it.
To get that payout, your beneficiaries would have to pay premiums year after year during your lifetime. If a term policy costs $23,000 a year at age 60 (the number quoted to me), and the parent lives till 80, your heirs would be paying $500,000 over 20 years in premiums -- for what amounts to about a million dollar payout. They'd be better off investing that money in something on their own.
Turbineguy
(37,386 posts)If you have more than $5.25 million in a single illiquid asset, it's a problem.
gulliver
(13,197 posts)Teams should be able to keep their points between games.
n2doc
(47,953 posts)silly me. The mistake these idiots make is in thinking that the super rich made their money the same way that ordinary people do.
JNelson6563
(28,151 posts)Fantastic Anarchist
(7,309 posts)Glad I can share a little so we can refute the nonsense.
Frustratedlady
(16,254 posts)Even Big Daddy didn't pay taxes on it. Let Susie/Sonny pay the tax.
Bigmack
(8,020 posts)... when it suddenly came to me.
"This is a reasonable, researched argument..I love it!"
Then I remembered that the people who most need to read it won't. If they could read it, that is.
The number of Murikans who blindly follow the Fox/Limbaugh "death tax" meme is enormous.
And they're not reading reasonable, researched arguments about any of the heavy-duty questions of the day.
Fantastic Anarchist
(7,309 posts)And we let them frame the debate.