> and avoiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that.
Not so, because of the step up basis at death. That provision allows the capital gains tax to be not just postponed, but eliminated.
Not so, because of the step up basis at death. That provision allows the capital gains tax to be not just postponed, but eliminated.
Even a quick Google search yields articles describing a (very incomplete) list of loopholes one can use to make the estate tax not something one has to "worry about": https://smartasset.com/taxes/5-ways-the-rich-can-avoid-the-e...
The estate tax rate itself is fine - the issue is the exemptions.
That aside, I’m not arguing for a lower estate tax threshold. I’m arguing for an elimination of the state up basis at death, at least for assets which the estate tax has not been paid.
If Joe Farmer’s kids keep his $10 million farm, they won’t pay any taxes. But if they sell it, they ought to have the same basis as Joe would were he still alive.
In the U.S., a pettings zoos or a county fair might have pigs, cows, and others like goats, horses, etc. Working animals or ones that kids/families raise for contests/shows, say the 4H society or FFA.
The step up basis will probably be limited or eliminated this year with Biden's tax plan.
In reality it would be pretty easy to setup the tax code to avoid such issues, but instead we’ve whittled the estates tax down to nothing to benefit heirs of the ultra wealthy.
I know the intent of your comment is to support family farms, but now these tax incentives have become perverse and really only benefit rich people, not family farmers.
Suppose I own $1 million worth of Bitcoin I mined back in the day. If I sell the day before I die I’ll owe $200,000 in long term capital gains taxes. But if I die, leave those coins to you, and you sell them the day you inherit them for the same $1 million, you owe no capital gains taxes.
Edit: if this is surprising, it should be. The step up basis is insane.
If you inherent cash, that cash has already had taxes paid for that. It shouldn't be taxed again like some "death taxes" propose to do. If you inherit stock, then sell it, the basis date for that stock should be the date it was bought, not the date you received it.
It only gets complicated with capital assets. And your proposal works for simple stock holdings.
Consider, if you are the beneficiary of a retirement account, you already have to withdraw percentages every year. So that is covered? Or not?
Right and I don't think gifts should be taxed either. It's already been taxed.
At some level, most (all?) money has already been taxed. Some entities can write off expenditures as a deduction. Most of us can't.
Consider, my income had already been taxed. Why do I have to pay sales tax on purchasing something?
Edit: and in case you fix on sale's tax being different from income. Payroll for businesses comes out of profit. Which comes from that same transaction. So, somebody's income is ultimately funded from a sales made with money that had been taxed.
So I'll give you $200k as a gift and you gift me your house "as a gift" ;)
E.g. if I win a car in a contest or get paid in stock for working, I have to pay income tax on the current value when I receive it.
Basis step up is extremely pragmatic, because it can be extremely difficult to establish the cost basis of a dead persons assets.
It's offset by the estate tax -- change your figures to $20 million and the situation is substantially equalized.
- eliminate the step up basis at death entirely
- index the capital gains basis to chained CPI
- give a credit to heirs for estate taxes paid which can only be used to offset the capital gains on inherited assets up to the basis at death
Step up basis might get eliminated in any case, as the Biden Administration is proposing to remove it.
It is true that if estate taxes are paid on the gains then the step up loophole hasn’t completely eliminated taxes on capital gains. However, the estate tax is even more full of loopholes than the capital gains tax. See for example the Grantor Retained Annuity Trust.
Finally, the Biden administration is not proposing to eliminate the step up basis entirely, unfortunately, but merely rein it in some.
Now how do we change the system? Put it in front of the entire public how much higher a percentage of their wealth they give up compared to these few, and get the entire public to fight for equity.
In practice huge amounts of capital gains are not taxed by either the capital gains tax or the estate tax.