I'm guessing you vote Republican? Trust funds and charitable organizations are a time honored way for the superrich for avoiding the estate tax, regardless of political leanings but "death tax" is a kind of a charged language.
Besides, they are still young, they may also actually want to do something positive with the money, not just offload it to protect it from the government. Unless you think he's about to kick the bucket soon?
The purpose is to prevent a class of non-working super rich that live for generations off of the estate.
So you can be rich and have lots of fancy toys and swim in pools of money while you're alive, but once you die that's it. Your children benefit by starting with a (very large) head start relative to their peers, but they shouldn't necessarily be set-for-life. It's economically bad to have a vast pile of money sitting in one place for a long time, you want to get that back into circulation. And success should be earned, not granted at birth.
The only alternative would be something like actively taxing net worths that exceed some amount, which is less palpable.
Although I agree with your point overall this point specific point is flawed unless someone is literally storing physical cash in large volumes.
If I have a big bag of assets that is passed from generation to generation it is not sitting in one place or in any way out of circulation. Businesses do their thing regardless of whether a family member or someone else owns them. Real estate portfolios are similarly unaffected by who happens to own it. Even money sitting in a bank account is not actually just sitting there.
Yet a lot of countries with low inequity don't have them. Canada, Sweden, etc.
Sweden only very recently (2005) repealed its inheritance tax after centuries of having one. So the current inequity levels in sweden occurred under inheritance tax. Prior to 2005 the inheritance tax rate in sweden was 60%, higher than the estate tax in the US. And vastly more people hit the tax in sweden as the exemption was a mere $8600 USD.
So if anything Sweden is evidence that a stiff estate/inheritance tax helps prevent inequity. We'll see if that changes.
I know this is not contradicting what you said, it's complementing.
Hell, if your forty year old son hasn't been able to mooch at least a couple million off of you tax free, you're just not doing it right.
If you decided to give it to your children or whatever, it'll get taxed just like if you tried to give them that much money before you died. If in your will you decide to give it to a non-profit charity instead, it's not taxed.
You aren't taxed for dying. The person who died isn't taxed at all. It's the people that are still alive that are now receiving money that are taxed.
How is any of this unfair? Your children didn't do anything to earn that money. Why should they get it at all?
Your children still did not earn income, you did. And you got a tax break for that as well in the form of dependents. You are asking to double-dip here, which is unfair.
If a tax directly taxed holdings on an ongoing basis (a wealth tax, or much better, a land value tax), I could see an argument for doing away with an estate tax, but only then. (And I'd say not even then)
Anyway multi-generation estates are very well tested as being bad for society over time. Just look up monarchies.
(Not that I have anywhere near that much money, but it's the principle)
(in the case of a gift tax the cutoff is $14k and yes it applies to your children, see: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Emplo... )
What am I missing?
Hence, multi-generation estates are anti-democratic.
Of course there is nuance in the extent of the effect. Some inter-generational wealth transfers are fine. Multi-generation estates wouldn't be a problem if everybody had them. And so on. But the core of an important argument against multi-generation estates is very plain. (Other arguments can and have been made as well, of course, including fairness arguments - I didn't work for my inheritance, for example.)
However, a land value tax can scale up to 100%, because you're taxing rent, and not wealth that is bought/created by any individual.
An estate that has its rent taxed 100% will eventually dissolve, unless it's constantly generating new value aside from rent (which is in general not the case).
- How do you measure the basic value of the land?
Is is it the amount of rent collected minus
maintenance-and-improvement expenses? Does
this mean it is impossible to turn a profit
as a landlord?
- Is the tax also applied to land that is not
rented? Is it harder to assess the value of
that land?
- Does this system discourage conservation by
incentivizing everyone to sell their unused
land to someone who is going to develop it?
- A common type of investment in today's no-LVT
world: I buy an undeveloped plot of land that
noone would pay anything to live on in a town
just outside of Worcester, MA. I spend $100k
building a house on the premises, and then I
proceed to rent out that house for $1k per month.
Under an LVT system, do I still have any reason
to buy that land and build a house on it? How
much money can I make?
To answer your questions to the best of my abilities:
- A landlord should be able to make a profit because the building itself would
not be taxed. The only kind of landlord would which not see a profit is the
kind that rents out land use, but does not actually develop or perform
maintenance.
- Land that nobody wants wouldn't get taxed. (A few square feet of land in
Alaska, for instance) But if there's any demand to own the land, it would have
a rental value.
- It highly discourages sprawl, so it's good for conservation in that
sense. However, I recognize that greenlands near city centers need special
consideration. For instance, the Muir Redwoods in Marin absolutely would have
needed intervention to be saved; the LVT would have been an incentive to
develop so close to SF.
- In a LVT system, undeveloped land would always sell for $0. The tax on the
land is equal to the return on the land itself. So in the current system,
you pay $100k for the land, $100k on the house, get taxed $2k/yr in
property taxes, get taxed on the rental income, etc.
In a LVT system, the land would be free, but would be taxed at $5k a year.
(Assuming 5% rate of return). You're not going to get $5k for that land unless
you do something with it, so you absolutely have the incentive to build a
$100k house and rent it out for $1k per month.
But let's say that the land was worth $500k instead of $100k. Now the LVT
would be $25k a year; you'd have an incentive to build much more than a
$100k house; you'd want to develop it even more to generate even more
return. This is how the LVT aligns the incentives for land use better
than the current system (where property tax on improvements leads
as a discentive to develop, and encourages restrict zoning laws).
This is one of the more common anti-estate tax arguement but I dont see it. At the end of the day the government will raise a pool of tax dollars. They can tax you more while you're alive, or tax you less while alive + estate tax when you die. If you look at it like this, estate taxes actually allow you to pay less tax over your lifetime. So to not have estate tax, one could argue people are paying too much tax during their lifetime.
Sorry, I chuckled a little bit.
If you think the gov't putting a new tax in place reduces taxes in other places, I'd point you to the size of gov't over the past 100 years.
Ok, I expended sweat and tears and made $X, and obviously I should be able to benefit from my labors in my life. Too much tax denies me that, but too little is unfair as I used the resources of "the commons".
But receivers of inheritance did not earn any of it. It's not obvious that 100% estate tax is unfair.
To those speaking of multi-generational wealth, I'll bypass the "it's bad" argument and point greatly towards the "1/10 of 1 percent" that have gained something like 90% of all newly created wealth in the past couple decades (and the innumerable ways they can keep that wealth from the estate tax) as evidence of it being a failed policy, again only hurting those somewhere in the middle.
Basically your estate has to pay up all pending taxes / capital gains as if it sold all its property at the time of death.
It's only a concern for the middle class, and there are other rules that cover them.
Not really the point. In general, money is taxed when it changes hands. Payroll taxes, income taxes, sales taxes, etc. Taxing on death is just taxing money that is transferred from the decedent to their heirs. It's not a matter of how many times you "dip": the same money has likely been taxed quite a few times for different reasons before it ended up in that person's estate anyway.
How do "all people" have any right to the fruits of your labor, especially a superior right than your own children?
I'm not sure why your children should be exempt from paying taxes on the gift of an estate. Call it "death tax" if you want, but really the lack of an estate tax is tax break privilege for the wealthy. The estate tax is simply a decision of what the income tax will be on income in the form of an gifted estate.
That the giver pays is not really a super important distinction, the money is coming from the same place either way, but procedurally it's the giver that has to do the paperwork.
Edit: So, yes, if you are transferring 500 Million or 50 Million then you will get close to the 40% tax (slightly higher than the regular 39.6% tax), but if you are transferring 5 Million or below there will be no tax.
Agree with you there.
> wealth is largely the product of appropriation of people's productivity
???
In a market economy, wealth accrues to those who solve people's problems the best.
It is only through business-government collusion that you skew the market toward cronies and incumbents.
> state monopoly on violence guarantees rights
In theory. But it doesn't really work that way. Hence, the estate tax.
For example, let's consider what I do, cancer research. In my field, lots of scientists and doctors work very hard to develop new therapies for treating cancer. At the end of the day, this results in a product that is covered by a patent, a form of property.
This property is owned by some very rich people who have never lifted a finger to do any cancer research or solve any problems; all they have done is own things. In this case, because of the specific form of property, they are able to make hundreds of billions in profits without having done any work other than the contribution of some capital. That is, literally, property ownership is the only contribution these people make to drug development, yet they accrue essentially all of the resulting wealth.
The extent of this accrual is a product of the specific forms of property that exist and how much they allow this sort of appropriation.
Every form of property is the product of government - property as we know it cannot exist without government help. For a practical example, until 2013 it was possible to own genes via patents, and about 20% of the human genome was under patent. There were companies that were entirely built on the fact that they owned certain human genes, e.g. Myriad Genetics, which made hundreds of millions of dollars off this. Then the Supreme Court decided this was NOT a form of property, and suddenly this possibility of accrual vanished.
This applies to everything we might think of as property - patents, trademarks, land titles, etc., they exist because of legal force guaranteed by the government.
Some of these property forms are extremely arbitrary measures that seem almost designed to produce wealth transfer (for example, granting mineral rights) to certain individuals.
In the case of cancer research, you sold your time to your employer for a fixed amount of money (maybe you had equity, but it doesn't sound like it). That was the end of the transaction for you. The investor took a risk and was rewarded for it, all within the current system, which is not a free society.
When you spend money on a consumer good, you're going to choose the product that works best for you, given your budget. For the same money, you will not choose a product you deem to be inferior. Thus, you reward the maker of that product with your dollars because they solve the problem better than the maker of the inferior product.
As for "appropriation of productivity," if you're alluding to the workers vs capitalists struggle from Marx, then I can't help you. I will simply point out that nobody in a free society is compelled to work for another. Thus, all salaries / wages / employment agreements are entered into voluntarily. There is no appropriation: each voluntary employee knows the terms of employment and agrees to them.
Ah, the plaintive cry of the college Libertarian. Of course people in our society are compelled to work for another; you cannot live without eating. You may not be compelled to work for a specific employer, but you are compelled to work, and in an economy where there is massive unemployment and wealth inequality, employees and employers are not on the same bargaining terms.
Let's put it this way: someone comes to you and says, "I have your wife in a secret location. Go and murder my boss, or you'll never see her again." You might accept this contract and we might call it "voluntary" since you agreed to the terms, but that's hardly a fair characterization of the situation. Power differentials matter, and they absolutely produce compulsion.
But noo, you enter into a contract voluntarily, it's not exploitation because you can leave your employer. Agh! Marx got it right on the money 150 years ago. It's incredible how the obvious escapes these misty eyed libertarians.
That is simply it true, and it baffles the mind how some people obtusely insist on that bunch of wishful baloney, pardon my bluntness.
So a capital holder/landowner simply buys stock/rents out a flat, and by essentially doing nothing but owning stuff he gets to earn a large amount of money while people actually doing stuff are rewarded as lowly as the market can squeeze them. How does this fit with your worldview of "money goes to those who work harder"?
By passing large sums of money from generation to generation, you end up with a class this won't apply to. It'll be the family of some relative long since past who once upon a time, solved some problem the best.
Why should I care if someone else inherited family money and doesn't have to work?
Inherited wealth must be invested continually to defend against inflation. That investment will continue to power the market economy, even if the holders of the wealth are not entrepreneurs.
This assumes that wealth is being invested correctly, and that money acts in some sort of neutral fashion, automatically flowing where it is most needed. In fact, money just shores up wherever there is some sort of place for it to grow.
It turns out that it is much easier for concentrated wealth to use games and tricks of the economic, financial, political system to make money grow than it is to actually invest it in high-risk areas that might provide stronger growth.
The more diffuse wealth is, the less this will be an issue.
Yes. Every dollar in the pocket of a trust fund baby is a dollar missing from an underfunded public school, a homeless relief program, a cancer research center, a library...
Do you think your children should have more rights than other people?
Anyways, you're appropriating the word free for describing your personal political agenda.
This is a political topic.
Also why I would advocate elimination of income tax ;-)
If we had a consumption tax (FairTax) then you couldn't skirt paying your share when you spend it. Sales tax is incredibly efficient.
[1] http://www.factcheck.org/2007/05/unspinning-the-fairtax/
https://www.irs.gov/Businesses/Small-Businesses-%26-Self-Emp...
Also, while it would be great if the tax system was reformed, in the short term it wouldn't be too bad if the existing taxes weren't avoided.
"Estate tax" is equally charged language, even if you aren't superrich and affluent.
[0] https://www.law.cornell.edu/uscode/text/26/subtitle-B/chapte...
[1] http://www.npr.org/sections/thetwo-way/2010/12/16/132031116/...