The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners | Hacker News Reader

The Greatest Wealth Transfer in History Is Here, with Familiar (Rich) Winners

nytimes.com

74 pointspseudolus165 comments

Meanwhile the estate tax in the US only applies to inheritances larger than $12.9 million. People with that kind of wealth also know how to start planning early to avoid the tax, so the tax is practically ineffectual.

A fairer inheritance tax could go a long way to fixing the worsening wealth gap in America.

$12.9 is per estate, not per heir. If someone has one spouse and 3 kids and also leaves by will some stuff to 6 other relatives, then the exemption is split between the 10. Each benefits on average from an exemption of $1.3 MM. At the highest tax bracket, they get a one time tax deduction of about half a million.

When people talk about wealth gap, they mean the ultra-rich, the multi-millionaires. For someone with a net worth of $20 million, a one time half-a-million does not make such a difference.

If you want to get rid of the estate tax exemption, you don't hit the Bezoses and the Zuckerbergs of the world, you hit the middle class.

And by the way, you don't even need to move a finger to cut that exemption in half. It will do that in 2026. If you so desire, you can write to your representative to tell them you'd be very upset if they vote for an extension of the current levels of the estate tax exemption.

People in the middle class don’t have 20 million, or 10 million.

That they don't is all the more reason to not tax what they do have at 18-40% when they die and pass it to their heirs.

Do you have a link to a proposal that suggests taxing inheritance for fortunes under $10 million at 40%? From what I understand, if the exemption reverts to previous levels, that would sit at about $6 million (an absurd amount of money to "middle class" families) and would only apply to the value beyond that $6 million. So even a fortune of $10 million would be taxed at well under 40%.

> When people talk about wealth gap, they mean the ultra-rich, the multi-millionaires. For someone with a net worth of $20 million, a one time half-a-million does not make such a difference.

These people are being snookered by the upper middle class. At $12 million, the estate tax exemption excludes all but the top 1% of wealthy. There’s over a million households in that group.

The top 10% own 70% of the wealth. The top 1% holds over 30%. But billionaires hold only about 3%. To meaningfully address wealth inequality, it’s not enough just to heavily tax Bill Gates. You have to heavily tax people like his father, a law firm partner. You need to heavily tax many of the folks here on HN.

> At $12 million, the estate tax exemption excludes all but the top 1% of wealthy. There’s over a million households in that group.

Far fewer than 1% of estates pay an estate tax, but rather closer to a tenth of that. It's nowhere near a million households currently subject to it. https://www.taxpolicycenter.org/briefing-book/how-many-peopl...

You might use that fact to support the second half of your argument, of course.

It's remarkable how many people oppose an increase to inheritance tax despite the fact that every proposal I have seen would exempt... almost everyone. At worst, the most aggressive proposals would simply skim a little off of the very largest wealth transfers. The very rich would remain very rich. Yet in our current political climate, even the mildest proposal is accused of being full blown communism.

It's not clear to me there needs to be any exemption at all on inheritances. It should all be taxable income IMO. Poor people having their inheritances taxed will just get it back later in enhanced government benefits. More in fact since rich people have way larger inheritances to tax.

Another huge loophole is charitable deductions. There's absolutely no reason the government needs to be helping fund individual charity decisions (for anyone, poor or rich). You have billionaires avoiding the majority of taxes they owe by giving money away to their pet charity causes.

So you slave away your younger years and pay ~40%+ income tax.

You manage to afford 2 children and own a nice house outright by the time you're 65. You have a nest egg large enough to afford a high quality life in retirement (mostly to pay your property taxes & income taxes & capital gains on inflation [not even REAL capital gains]...)

You die with $1M to your name plus a $1M estate (this is top ~6% or so).

Now you want to take away 50% of that before passing it on to the kids?

I mean, sure, why not?

But also, that probably brings your effective tax rate for your life to close to ~66%...

All while the people with 50% of the money (the top 1%) continue to have an effective tax rate of ~30% or less.

Like, how about we solve the problem where the people with the majority of the money have the lowest effective tax rate before increasing taxes on regular folk to make up for that??

I wouldn't be surprised if the average lower-middle class person already has a close to ~60% effective tax rate...

So don't save up $2 million for inheritance... No one is forcing you to do that.

Not to mention the increased taxes will be paid back, at least to some extent, in enhanced services. Maybe your kids could get a free education and free healthcare instead of $1M each in inheritance.

Or instead of increased services, we could tax other things less such as the income of living people. I'd much rather have dead people, who have zero use for the money getting taxed more and living people, who actually can make use of the money getting taxed less.

Encouraging people to frivolously spend on luxury instead of saving is a terrible idea.

You just described the entire economy. It's worked out pretty well actually. All spending is someone else's income, which can then be taxed again.

By spending on luxury such as expensive restaurants and hotels, you cause the economy to allocate talent and capital toward the production of those luxury goods and services, rather than toward longer term investment. Making it so that old people burn up their built-up wealth in that way is not good. It would be much better to gather the equivalent amount of tax elsewhere, if you insist that we must do so (such as with a VAT on luxury goods and services!).

Encouraging rich people to spend, and using that money to better support poor and working class people is a great idea.

> Now you want to take away 50% of that before passing it on to the kids?

Yes, or spend it…

I’ve met too many people who are quite concerned about their parent’s wealth and spending later in life, and it seems to become more concerning for the kids once their parents become closer to death.

I believe, as a rule of thumb, dynastic wealth is bad for society at large and encourages a rise in rentiers and other parasitic behaviors.

> But also, that brings your effective tax rate for your life at close to ~66%…

Such an odd concept: the tax rate of all income you have had over the span of your life. Once you’re dead, you no longer ‘own’ anything. It belongs to your estate, and whoever owns that estate is the person who is taxed.

I can recognize that saving for the sake of saving is bad for the economy, I don't like to pretend that the only solution is for one entity (the government) to get it, and it doesnt have to be that way

if the balances were programmed to be slashed - a portion automatically deleted for inactivity - I would be more into that. note that this is an upgrade from what the Federal Reserve already tries to do in tightening phases like now. This is also what some monetary experiments do to validating nodes.

What’s the argument FOR an inheritance tax, when it comes to fairness? The person who’s passsing the money down already paid tax on the money, whether income tax or capital gains tax. The government already got a hefty chunk of that earned money. Why should it be taxed again? Especially when we see how inefficient the government is at spending money for the public good.

At the moment of death, capital gains tax on unrealized gains has not yet been incurred. The estate tax is one way to force those gains to be taxed (but not the only way, of course).

That sounds fair and reasonable when you're talking about stocks, but if you talk about a small family farm who's owners typically have very little capital other than the land, are you proposing that they sell the farm in order to keep it?

Exempt the farm from taxes if you like farms. Whatever. That’s a public policy choice.

But don’t say we’re talking about a fucking farm when you’re advocating for no taxes on a diverse network of private equity positions and real estate holdings.

Don't assume you can read "fucking" more into what I wrote than what I wrote and cast your anger on me.

It's all public policy choice, and if you think that it's simple, than lay it all out for us after you've considered all the consequences (immediate, secondary, "unintended", and unintended) and get back to us.

I'm merely correcting an objectively incorrect claim: "The person who’s passsing the money down already paid tax on the money, whether income tax or capital gains tax."

I'm not advocating for increasing the estate tax (nor even necessarily closing the capital gains stepped-up-basis upon death). I am advocating for having our facts straight.

A $12 million family farm may be stretching the definition of 'small'.

Like it would be pretty amazing if that value was just due to land appreciation and had nothing to do with their management and investment decisions.

like, maybe? What are the demographics?

The one I know intimately is worth less than $1m for the land. I believe there are far fewer of those left than in 1960, but my perception is there are still quite a few.

All of the "small family farms" I'm aware of personally here in farm country are incorporated.

I think you need a better straw man.

Not the one I know.

Forgive my ignorance, but I see 2 possible scenarios for the assets to be passed on to the heirs:

- simply transfer possession - in this case, there is no realised gains, so no need to charge taxes. they can be charged when the gains are eventually realised.

- realise the gains and transfer the money - in this case, tax is charged on the realisation of the gains.

What have I missed?

I don’t know anything about taxes and stuff but in > simply transfer possession - in this case, there is no realised gains,

aren’t the inheritors gaining wealth they did not have before?

> aren’t the inheritors gaining wealth they did not have before?

In terms of stocks and land, yes and no. They are receiving assets they did not have before, and those assets have a market value that is not realized until they sell them. They are receiving paper wealth, and while paper wealth can be beneficial (you can borrow against it), it is not the same as actual spendable cash. A government could tax them on the value of those assets at the time of transfer, but that may require the inheritor to dispose of some or all of the assets in order to pay the tax bill. Governments typically require their citizens to pay taxes in currency, not assets.

Note that governments do sometimes treat asset transfers this way (e.g. restricted stock awards), but they typically view unrealized gains as something to be taxed when they are realized (ie. converted to currency).

What's really beneficial with inheritance is the step-up basis. When assets get inherited, the cost basis is reset to the market value at the time of the transfer, which means taxes are never paid on any gains made between acquiring the asset and the death of the owner. So even if the inheritor sells them at a later date, they still pay substantially less in taxes than they would normally pay.

Indeed. They are perpetuiting inequality...

The inheritors didn't earn it.

So?

The question was about fairness. When concentrated wealth goes to a selected individual or group of individuals, it is usually seen as "fair" when it has been earned in some way. This didn't need to be explained, right?

If you're the spouse or child of an earner you technically didn't "earn" their money either, right? Inheritance is the same concept... you work and make money to provide to your family.

Neither did the government. Why shouldn’t the person who did earn it get to decide what happens to it? After all, they could choose to donate some to the government. No one does though, voluntarily, because we all know that money would get wasted.

“The government” isn’t a fixed entity. It is what people want to be funded. Wealthy Americans donate enormous amounts of money to entities that would be publicly funded in many other countries: universities, hospitals, concert halls…

Everybody wants to give money to something where they get their name on a wall and the envy of their rich peers. Meanwhile projects that could be more beneficial to society but don’t have the prestige factor languish. An inheritance tax would level the playing field.

Not sure what country you’re from, but here in the US tax money does not efficiently get to these projects “beneficial to society”

That’s something people can change by voting, even in America. The Roosevelt administration allocated tax money very differently from the Hoover administration, for example. Whether the New Deal was beneficial to society could be debated, but enough people believed in the change to keep voting for it.

If you'd like a modern tech view of government, think of it as a platform that creates the marketplace (aka an app store) where you pay a tax to do business.

The government doesn't own the money it uses it for the benefit of the rest of us

The government provides physical and legal infrastructure that allows the person who made the money earn it. Society provides a market for whatever goods and services they sell, and collectively pay by suffering environmental and social externalities resulting from business activities.

If you spend that money you pay VAT. The company you paid pays their employees, who pay income tax. Whenever money exchanges hands, it's taxed - pretty much.

Seems fair to me, though as a father working to leave something for my kids, I fully understand the sentiment. In Germany, children already pay inheritance tax starting at 400k EUR (half a house where I live).

> The person who’s passsing the money down already paid tax on the money

Why should I pay sales tax? I already paid tax on the money as income tax.

Why should I pay income tax on that money? That money was already taxed through payroll taxes before the employer paid me.

Why should the employer pay payroll taxes on that money? They already paid income taxes on it.

Why should companies pay income taxes on that money? They already paid sales taxes.

You don't pay taxes on literally the serial numbers of the notes being moved, you usually pay taxes when those monies move between entities.

One of the best comments I have ever read. You truly put this into perspective. Thank you.

For me, this comment just highlights how egregious taxation already is.

Yet how woefully it has failed to curtail growing inequality. The well off have proven for millennia they won't support the hardest hit on society. Governments have to do that.

And yet what is a government except people who are doing what they can to maintain the power they have?

Oh yeah when thy rich can mostly openly, or at least legally, buy politicians nothing will change.

I hope the US can pull themselves out, but everyone seems stuck quibbling over the extremes of minor issues, rather than important difficult topics.

Or worse, quibbling over minor issues to avoid settling important problems so that there's a platform to motivate votes

You're forgetting that what we [should] optimize for is the general welfare of the population (based on human moral code). Taxes are just one way to redistribute [some] gains that are lopsidedly awarded by the market, since in certain cases we do not want winner-take-all behavior (but instead to optimize the welfare of the many).

This is a middle ground between communism and capitalism and seems to be what works best in practice. Or you could call it market socialism (though that's leaning more into socialist direction).

Unregulated, un-taxed markets do not do that. They support exploitation and extraction (at the extremes).

Forget the moral code... how long would this rich people last without the government protecting them? Should we have a free for all? That's the way you start the revolution and the rich loose their heads...

Be careful what you wish for: https://ageofrevolutions.com/2017/06/26/land-and-liberation-...

The egregious-ness of taxation is seen only by the amount of money spent, not in the fashion in which it's collected. If you want lower taxes, you have to specify what things you're going to cut. (And you have to be honest about it: singling out tiny programs you disagree with doesn't even begin to cover it.)

All taxation is "double taxation". There's only a finite amount of money in the system. It just moves around. The government pays for its spending by taking a bit of it every time it moves. There's no single fair way to do that; everybody will always say that it should fall on somebody else.

Eliminating "double taxation" isn't a reasonable or useful goal. To cut taxes, you have to cut spending. And "cut spending on everybody but my priorities" isn't a useful way to think about that.

Came here to say this. Everyone wants the services taxes provide, no one wants to pay taxes.

> If you want lower taxes, you have to specify what things you're going to cut. (And you have to be honest about it: singling out tiny programs you disagree with doesn't even begin to cover it.)

I read an article saying that if the US federal government wants to cut the deficit to zero with no tax increases and avoid touching the entitlement programs (social security, medicare), they need to cut 70% of every other program. If you cut it evenly, it's 27%. 27%! Here's the article: https://www.nytimes.com/interactive/2023/03/06/upshot/balanc...

If you want to cut spending, bring on the detailed proposals.

Speaking in extreme generalities, the people in favour of taxes believe that there is only a tenuous link between improving society and getting paid money. That the state's view of what would be an improvement is superior to the view of wealthy individuals. Anyone being wealthy is somewhat suspect because they have claim on resources and the pro-tax types don't believe they can use those resource more effectively than a government.

From that perspective, the handover of assets that happens during an inheritance is a great time for a tax - they don't believe that the inheritee will use the money to improve the world, they don't believe that the deceased was making optimum use of those funds and so this is an opportunity to level the playing field for the next generation and redirect assets to a more fundamentally wise and fair state.

I don't agree with that view (the USSR alone, let alone all the other attempts...) but it is internally consistent.

Pro-tax type here, this quote is not accurate for me: “ pro-tax types don't believe [private entities] can use those resource more effectively than a government”

It’s not that they’re less effective, it’s that the public should get some say in how the money is used. I don’t want a small group of people single handedly deciding the “most effective” way for them to use their wealth, because it inevitably leads to whatever allows them to continue holding power.

I’d rather money be used less efficiently, but in the public’s interest, than in the interest of a few powerful people. No matter how philanthropic they appear.

I don’t trust the US govt much. But I trust them to spend money in a way that’s, say, 15% more democratic than the Koch brothers would. That’s good enough for me.

I’m on your side as well. These arguments are rarely in good faith but when they are I think it’s possible to write a succinct answer.

Society is better when we do. That’s why we should.

Let individuals fight for their own wealth as it should be. Society should take care of leveling the playing field... And helping those that cannot take care of themselves.

Taxed money could simply be passed on to the population in equal amounts. Then each individual could decide what to spend it on.

Otherwise wealth accumulates in the hands of an asset holding class which makes everything more expensive for everyone else.

> The person who’s passsing the money down already paid tax on the money.

If they're passing down cash yes, but if they pass on assets like stocks or real estate, the cost basis gets stepped up to the fair market value at the time of death (in the US at least). So any capital gains accrued on those assets prior to the death of the person passing them on are just never taxed.

There isn’t a deemed disposition at the fair market value at the time of death? I thought the estate paid that capital gain which is why the inheritor receives it at the new FMV?

nope.

No. It’s completely fucking indefensible and sitting there in plain sight.

I think the argument is that certain kinds of inheritance, like real estate and ownership in small businesses, cannot survive the taxes. It's the "what about the family farm/store/restaurant?" argument.

Actually the capital gains basis gets reset at either date of death or 9 months later. So no not all that capital was taxed properly. Even saving $100K a year and getting 8% growth can't generate that scale of wealth, even if you save at that level for 40 years.

Getting a leg up in life because your parents left you a big inheritance, is unfair to those who don't. There are many different types of fairness, not just one.

This is one of the silliest comments I’ve read on HN: it’s not fair to have successful parents that love you, therefore the government must step in and fix that.

They aren’t taxing love they’re taxing money.

We always tax money when it transfers from one person or entity to another.

No we don’t. In fact we rarely tax intra-family money transfers. When I pay for my kids’ college, that’s not taxed. Buy then a car at 16 - untaxed.

Right and give them the car two years later and it is taxed, subject to the gift tax exceptions and so on.

Proving my point that the rule is that money is taxed when it changes hands and the exceptions are exceptions.

A couple gifting their 18 (or 38) year old kid a car is unlikely to exceed the gift tax exemption.

We should tax money to use it for love. Not love money to not use in anything else than private enjoyment.

The argument is slightly different. It's not economically efficient to allocate wealth to children according to their parents' abilities (as opposed to the children's abilities). Doing the latter (as opposed to the former) will maximize the aggregate wealth of a society.

It's not "fair" that I'm only slightly above average height and will therefor never be an NBA star. It's not "fair" that I'm a competent musician at best -- far, far below professional level.

Are you arguing that no one should be allowed to be a pro basketball player or musician?

You should go read a story called Harrison Bergeron by Kurt Vonnegut.

Yes, it isn't fair that some people are taller than others, or more talented.

The way we account for that is is not by outlawing behaviors. Rather, we levy progressive income taxes so that people who are lucky can help people who are less lucky. The most talented basketball players pay a large income tax that helps provide services to those who were not born lucky.

I don't see why estate taxes are any different. It is not fair that some people are born into rich families while others are born into poor families. Nobody is suggesting we outlaw inheritance. But levying an appropriate tax on inheritance and preventing tax avoidance schemes is one way to compensate the unlucky.

Vonnegut was also a socialist (according to Wikipedia).

Agree

Sorry, you're dodging. Most professional musicians (and other artists) are far from wealthy. Should they have to pay high taxes as well, for "fairness"?

Maybe instead we could, e.g., force streaming services to play an equal number of songs from every musician (or imagined musician), regardless of talent. Want to listen to Bach? Okay, but you have to listen to five hundred songs from untalented randos before hearing a Bach piece.

That would be "fair", yes?

You’re strawmanning me. It would be better to let people stream songs by whatever artist they want. Then the fair thing to do is to levy progressively higher taxes on more popular/profitable artists to redistribute money to those who were not born as talented or motivated.

The difference is the state cannot make you taller but can defend you against those that want to abuse their money against you.

Agree 200%

There a meritocracy argument in favor of inheritance tax. Those inheriting did not earn that wealth, therefore they should not receive it.

Maybe instead there could be a lottery. Any wealth over some threshold (say $10M) is divided into $100k prizes and awarded to random citizens like a lottery.

This angle makes me think that we're going about the whole inheritance tax thing the wrong way.

It's not the parent's estate that should be taxed. They have indeed earned all the money fair and square, and should be able to pass it on as they see fit.

Instead, let's think about a tax on receiving inheritances. Limiting the money hose where the inequality actually happens, at the person that hasn't worked for the money and through pure happenstance comes into riches while others are not getting remotely equal opportunities. That person should be the one to consider when proposing an inheritance tax.

Maybe a lifetime tax-free limit on receiving inheritances, cumulatively, from any source.

[Edit: This way, we can also elegantly solve the "can't pass down the family business" problem: Allow the inheritance tax to be paid in long-term installments by the recipient, with interest, allowing the inheriting child to keep the asset but make them work for part of the value they got out of it. Remaining tax debt at the time of the child's death would be due immediately at the time of their own death.]

Just treat it like income. Doesn't matter when your parents gifted you the money, before or after they died, it's income received.

The money is gained on the backs of so many other people who helped make the infrastructure that made wealth accumulation possible. Taxes ideally pay for things that benefit enough of us, like roads, education, housing, and health care and sure, defense, since we're still combative and territorial humans.

Yeap

This "double taxation" argument has nothing to do with fairness. It's rules lawyering, not ethical reasoning. It also ignores the fact that money is usually taxed when it changes hands - income tax, sales tax, etc. Yes, again and again and again. The one notable exception - which the article even mentions - is certain kinds of inheritance. Thanks to the basis step-up, a lot of wealth has evaded the kind of taxation that every other kind of transfer typically incurs.

> Especially when we see how inefficient the government is at spending money for the public good.

Pure political cant, unrelated to the matter at hand and particularly to any issue of fairness. It does, however, underscore the ideological motivation behind an otherwise ridiculous argument.

> It also ignores the fact that money is usually taxed when it changes hands - income tax, sales tax, etc.

I don't think they're "ignoring the fact". I think they're arguing that it's wrong. Those aren't the same thing.

If you've got a better idea for how we can keep a tiny minority from absolutely dominating the rest of society, If like to hear it.

I really don't get why so many people are so eager to empower a class of people that can make the rest of us do their bidding.

It shouldn't matter how many websites, shoe stores, or or newspapers they or their ancestors make, that shouldn't make them the boss of us.

For comparison, adding up the Dutch tax rates for when my nephew inherits from me and buys a product with it:

- Income tax: 49.5% (36.93% on income under €73k)

- Inheritance tax: 40% (30% for inheritance under €138k)

- VAT: 21%

Thus, poor people pay 65% tax and rich 76% in such a scenario.

https://archive.is/IFWCA

It is sort of interesting how Gen X is screwed here.

Also the children of Gen X eg under 18s and younger Gen Z today.

The Gen Z chart I think is particularly misleading. My kids are (young) Gen Z. When plotted on that chart, their likely inheritance is $0, because the later of the date of death of my wife and I is very likely be after 2045. So, it looks like they're screwed, but it's because the peak of the Gen Z chart is cut off on the right.

Gen X has always been screwed. There's never been enough of us to matter demographically. The boomers have us boxed in before us, and Gen-Y/Millenials after.

It will probably be good for GenX during retirement. Nursing homes, elder care and such will be much less burdened than they are now for the baby boomers.

As far as I can tell, retirement for many gen X who didn't manage to get a property and won't inherit means poverty and homelessness unless they can miraculously keep high-paying work to cover the cost of rent until they die. Their too small pension won't cover the rent by then because rent has risen and is still rising much faster.

Nursing home? They can't afford long term stay due to lack of assets, but what about the decade or two after retirement age when a nursing home wouldn't be appropriate anyway?

Seems to me the renting-class gen Xers approaching retirement are just going to have to keep working long past retirement age, while it gets more and more difficult, and their housing stays precarious because they can't get a mortgage due to age. I think this is a hidden, underappreciated issue because people tend to think of property-owning gen Xers with a paid-off mortgage, and don't realise how many gen X never made it onto the property ladder.

I was specifically talking about the cost of elder care when GenX hits their 70s and 80s due to supply and demand, the demand being lower since GenX is a much smaller generation than the baby boomers. You went down a rabbit hole.

If you are a GenX and you are still renting, you're gonna have a rough time, unless you move to a much lower cost of living location upon retirement.

Worse is some younger folks are lumping anyone over 50 into "boomers". Sorry I'm Gen X and we certainly didn't have it easy.

I don’t think the chart is showing that Gen X is screwed at all. It’s just showing that as the Baby Boomer gen dies off, the inheritance will reach an inflection point. It’s looks bad compared to Millennials because the passed down wealth from the Boomers and the accumulated wealth from Gen X will compound into HUGE inheritances for Millennials. At some point, beyond the chart’s X-axis, it’ll start trending down too.

> Mr. Pearl noted that people with only a couple of million can use “securities-based loans,” borrowing low-cost funds from banks using the value of a given investment portfolio as collateral. “You just loan yourself money,” he explained, and in many if not most cases, the portfolio’s rate of return exceeds the rate of interest on the loan.

It seems like a step is missing here. Wouldn’t the borrower have to sell part of the portfolio to pay the interest on the loan? And wouldn’t that trigger capital gains?

Sure.

But if you liquidate the loan payment every month, but the portfolio grows greater than the loan interest you are “making money” (not really until you actually covert to $)

If you liquidated the full loan amount up front, you get all of the tax now, and you lose leverage

Edit:

Let’s make an example. You have a 10MM portfolio.

You wanna buy a thing for a million dollars.

You sell like 1.3MM to cover tax.

Or you get a 10 year loan for 1MM with your 10MM portfolio.

Interest on the loan is 7%.

If your portfolio averages greater return over the life of the loan, you “make money”.

https://www.wealthfront.com/portfolio-line-of-credit

Here is an example product.

As you get higher the rates can come down a liiiitle bit, but they are very much tied to the federal funds rate as much is I’ve seen them.

Right, that’s how I imagined it. But that’s not avoiding taxes so much as delaying taxes. Taxes are still paid but just slowly as you liquidate only enough to pay payment and pay taxes.

Gaining in value isn’t an issue with avoiding taxes and, I suppose, eventually will result in more taxes being paid.

No. Once you die and transfer the assets to your children, the cost basis gets reset.

But isn’t the inheritance tax (for everything over $12 mil until 2026) even larger than the capital gains tax? And it applies to the whole value, not only the increase in value.

There are some games that can be played with various types of trusts - irrevocable trusts, irrevocable life insurance trusts, grantor retained annuity trusts and other things I believe.

https://www.financialsamurai.com/how-do-millionaires-and-bil...

Right, but to my understanding there are related games that are played with trusts for example such that the loan passes onto the next generation too.

To make matters worse, theres a concept called "step up in basis" such that if structured correctly, the inheritors can pretend the cost basis of their portfolio is the current market value. So the parents shield the gains from taxes in life, pass on the portfolio, and the kids reset the tax obligation to zero.

"The concept of step-up in basis is actually quite simple. A trust or estate and its beneficiaries, or payable on death beneficiaries, get a step-up in basis to fair market value of the asset so received. That value is stepped up to the fair market value of the asset as of the date of death of the Decedent. This is true even if the beneficiary of the asset so transferred is a spouse of the Decedent." https://www.axley.com/publication_article/step-up-in-basis/

Not an expert, but having heard of it before & doing some research.. I'm sure there are more details, but if mere mortals like me understand it, I am sure the tax lawyers have even more esoteric methods now.

You’ve zeroed in on the most egregious problem.

Step up basis is insane as a policy choice. It basically means that we just don’t tax the primary means of income used by wealthy people AT ALL.

If a company pays you you have to pay taxes on it. Unless the company pays you by inflating the value of stock in that company, in which case you just… don’t.

Yeah. I think a lot of the non-founder, high-pay FAANG crowd is in the funny spot where we are all paid super well, pay a lot of taxes, but if we were richer.. we'd actually pay a lot less taxes.

Being paid salary by employers, we can't structure our compensation to the most tax efficient forms.

The guys (almost always guys) at the top structure their pay to forms like stock or pass-thru or carried-interest, or whatever tax arb of the decade. Then they carry it forward, use trusts, borrow against stocks, and then hand it off to their kids when they die w/o tax.

They probably own enough houses, and have control of their schedule that they can stay out of CA/NY for 183 nights/year and avoid high state income tax too (while mandating RTO to high tax city/states for the rest of us).

Kind of a millionaires vs billionaires (or even decamillionaires) thing.

yeah I make similar as FAANG employees but in a mixture of businesses and capital gains, deducted by retirement contributions (doing your own employer match is a super power! 3x higher contribution limit), QBI, illiquid asset based donations to donor advised funds and deducting the expenses to generate income

my tax is basically 0 every year, down from closer to 52% marginal in California (effective 40%)

if I was doing the same with W-2 income there would be almost nothing I could do

The step up applies only to assets in one's estate at death, not assets in trust.

IIUC, the very wealthy have limited exposure to step up in basis because they use trusts.

Everyone else doesn't want to owe taxes when selling a house at market value they, e.g., inherited from a recently deceased loved one.

The policy is not insane. It's sufficiently popular that no politician touches it.

No it’s insane. Like any tax it could be made progressive, make the tax lower or nonexistent for smaller amounts of money.

But stepping up the basis is insane and indefensible. It’s a heads I win tails you lose approach.

Basically you’re saying oh we know there are capital gains here but they are not realized so it’s not time to tax them yet and then the person dies they say just kidding those capital gains never happened.

It’s nonsense. Tax them at whatever rate makes sense if you want but don’t make a complete mockery of the concept of basis.

My simple tax take is that we should just treat all income streams as regular income, and have whatever progressive rate on that income and be done with it.

By creating different classifications of income and constantly tweaking the rules, we setup entire tax evasion industries catering to those who have control of their income streams & money to pay advisors.

There's lots of BS that estate tax exemptions are there to protect small farmers, but they constitute something like 0.002% of estate tax payers.

I agree. But if we had a simple system people would be able to tell whether or not they get adequate value for their money. Obtuse and opaque are a defense against fair or just, take your pick.

I think people at the top miss that they get, in some sense, some of the most value for money from a modern functional society.

In the absence of a government monopoly on violence and functional government services, a highly paid business exec will need to live their life more like a mafioso or warlord. There's places in latin America where even what Americans would call "upper middle class" people need to hire security and worry about kidnapping and extortion plots.

Add to that things like rule of law, so that the government strongman can't suddenly declare your business anti-patriotic / illegal (China) & take your cash / put you in jail.

Then you have things like - copyright, trademark, etc systems that allow you & I to develop ideas as IP and the government allows us to protect it in court so that we can reap the benefits.

So no, I don't think "tax is theft" and that we should live in some Mad Max world.

People who denigrate high trust society & rule of law do not understand how messed up living in low trust societies is.

Nor am I thoroughly impressed with the idea that we need a permanent overclass who is able to pass wealth down untaxed across generations, especially given all the trust fund underachievers I've met in my life in NYC.

> It’s a heads I win tails you lose approach.

All capital gains taxes are heads-govt-wins. The step up is simply not applying that insanity, for once, at death. That is, it's marginally sane.

Yes if you think we shouldn’t tax people and not have an healthy modern society with government services and let wealth pile up for tens of generations completely unmolested then you’re right.

The problem with that idea is that it’s wrong.

How did we go from discussing the step up basis to assuming I want an "unhealthy modern society"?

Buy, borrow, die.

Depending on what assets you have you may be looking at short term vs long term cap gains.

This strategy could cut your tax burden if you hold short term assets into long term category.

You could also strategically take losses as well which could also reduce tax burden.

No, because you’re gaining interest on your unpaid taxes.

Suppose you have exactly 1 million and must pay 1 million in taxes on year 0. That means you’re left with 0$.

Now suppose you can defer exactly 1 year, so you owe 1 million + taxes on your interest in year 1. Taxes on that interest are < 100% so you now have > 0$. That’s equivalent to lowering your tax bill even if nominally you eventually pay more.

But what happens if you can avoid paying taxes for say 10 years or 100? Delay long enough and for all practical purposes the actual tax disappears.

But this is just a function of leverage and isn’t unique to tax deferment. This seems more of a complaint about rich people than rich not paying taxes.

With 7% interest you end up paying the same tax as initial liquidation in 10 years so it’s not perpetual. And you eventually pay tax on the gains so even though you made money, the government eventually gets their money and ends up with a larger total.

Being able to defer taxes is a function of the tax code and not wealth. The 401(k) system is another example, though vastly less favorable.

All useful forms of tax deferment are tax cuts, otherwise people wouldn’t use them.

Another aspect of this arrangement: you don't pay federal income tax on money you receive as a loan in the US. The money does not count as income because of the matching obligation to pay it back.

Said differently, it doesn't count as income because it's not income.

I borrowed just shy of a million dollars to buy my house. That money sure wasn't income...

Is there any county where a loan is counted as income?

Probably diverting portions of future planned investnents into the portfolio.

You can just keep taking out more loans against your portfolio.

We don't need to hyper-focus on the inequality in bank accounts. We need to look at the difference in lives.

Is the zillionaire's iPhone any better than the one owned by the guy working at the grocery store? Is a Lucid that much better than a Corolla? How much more liveable is the mansion than an apartment?

Society as a whole has made great strides in making the great masses in the middle more comfortable, safer, and more long-lived.

The next big gains will come when we start educating people about how to handle money.

In Russia, if you are born in Moscow and inherit a granny's flat¥, it gives you an enormous boost. You are free to choose any occupation and dabble in any kind of weird lifestyles or rent it out and live abroad with very modest effort.

Meanwhile, if you did not inherit one and don't work in IT, expect to work hard and spend the majority of earnings on rent/mortgage.

This applies nontheless even if all of your ancestors were lower middle or working class.

¥ Which she got from the state basically just for being there.

Well, that's about to change for the midterm perspective, but that's also not good news for everyone, if you know what I mean

I was hoping to buy an apartment from under some porrige fleeing from Russia as the war progressed, but apparently the Rouble-denominated¥ prices only shoot up. I bought the old one on very good terms at the height of Covid uncertainity, though.

¥ USD is considered to be too volatile to price property in it, so property prices are usually expressed in roubles

That is kind of outdated for Russia. Many new buildings, salaries increased. Rent is reasonable with cheap energy. And metro goes everywhere.

Problem being, any wage growth in Moscow caused prices to appreciate, because real estate is most/only reliable vehiche for long term worth storage in middle class. If you have spare cash, you buy an apartment.

Indeed, the great amount of constructions works to limit this effect.

They are not competing with global foreign investors. Look at property markets in postsoviet countries like Poland or Czechia.

Russians can invest in foreign stock markets etc... It is not like in China or Korea.

Price rise you see is normal growth.

Same happens in US. Inheriting RE is a huge advantage. There’s been a huge influx to my home state for over a decade and, multiple reasons, but a common story I hear is they inherited a house in CA/NY or other Higher COL place. They come here and have driven up our COL.

Did you know that only the rich benefited in the pandemics with the amount of Rich being almost double worldwide? In troubled times the people with the most money benefit the most, that's why the state has to (or try to) level the playing field.

Doubled*

https://archive.is/o6GuR

If you taxed boomer-> millennial inheritances at just 25% you could completely eliminate the black-white wealth gap in the next couple of decades. There’s a reason that affluent white people are talking about DEI, and not raising our absurdly low inheritance taxes.

Do you have any indication it won't be spent on say, military budget, drug enforcement, domestic spying, or projects benefiting lobbyist at the detriment at the population?

A 25% inheritance tax, i.e. lose everything your family worked for in just four generations. That's ignoring inflation. The logical conclusion of the idea that where you are born is just an "accident", and you have no legitimate link to your ancestors.

That’s incorrect—you’re ignoring growth during each lifetime.

I think you need to go back to eighth grade math.

Fine, lose (1 - 0.75^4) = 68% of everything. Plus what is lost to inflation. Thank you for such meaningful criticism.

IMO the government is responsible for more than 25% of the vast majority of people's savings, so a 25% inheritance tax sounds fair. Maybe a few people really were innovative enough to have earned more than 75% without the government but that number is small enough to not matter.

Your comment suggesting that losing 68% after 100 years is similar to keeping 0% is very strange to me, those don't seem similar at all. And then the 68% doesn't even account for growth, which has always been greater than inflation in the past.

Generally the idea that people 100 years from now should be able to live off the labor their ancestors did 100+ years ago seems absurd to me. Those people did nothing to deserve that wealth.

> IMO the government is responsible for more than 25% of the vast majority of people's savings

OK, how about this: I pay zero taxes in my lifetime, and then government can take 25% of the estate after I die. What do you think of that?

I think income taxes should be zero. The government should be funded mainly from land value tax, since land belongs to society as a whole and not some individual who was passed it by someone who never had the right to claim it in the first place. VAT and Pigouvian taxes are good options too.

In the end the government has to be funded somehow, the only question is how? Taking money from those who did not earn it seems the best option to me.

You're ignoring any growth in invested value during inheritors' lifetimes.

> lose everything your family worked for

You're assuming your family is entitled to keep forever everything that it happens to have received in its economic activities.

Elizabeth Warren famously said in her first Senate campaign, "There is nobody in this country who got rich on his own. Nobody. You built a factory out there—good for you! But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did." [0]

In his book The Economists' Hour, NY Times economics columnist Binyamin Appelbaum argues that free-market icon Milton Friedman "celebrated drivers and took roads [and cars and gasoline and ....] for granted." [1]

Some would doubtless argue that the "free market" takes care of all this via pricing. But the "free market" really isn't; companies strive mightily, and often successfully, to seize pricing power and use it to extract rents.

[0] https://newrepublic.com/article/95247/elizabeth-warren-class...

[1] https://www.amazon.com/Economists-Hour-Prophets-Markets-Frac...

> You're assuming your family is entitled to keep forever everything that it happens to have received in its economic activities.

That would be ignoring income taxes and VAT. And I'm well aware of the failures of the free market. But they do not make inheritance illegitimate, as this article tries to frame it.

It's that framing that is most offensive, more than a reasonable (i.e. much much less than 25%) inheritance tax: that taxation is not a compromise between property rights and free trade on one hand, and the public good on the other, with both being desirable values that are sometimes in opposition, but that it is a punishment for unearned wealth. With the hate for the wealthy expanded far beyond the 1%, to everyone that bought a house before the housing market explosion.

I'm sure if the target of this hateful rhetoric was some other group, you'd quickly see its danger.

People advocating DEI programs overwhelmingly support increased inheritance taxes; it isn't even close. The argument you're attempting to make here is farcical.

Not in any meaningful way—as evidenced by where they spend their political, social, and institutional capital.

No. The issue you're advocating for is coded in literally the opposite way as you suggest it is. The opponents of DEI are the principal opponents of inheritance taxation. Well-educated and/or top-quintile professionals are also drastically more likely to support inheritance taxation (as a consequence of 21st century educational polarization). I don't think there's any meaningful connection between institutional DEI and economic justice, but you can't just make things up to drag DEI into unrelated arguments.

> don't think there's any meaningful connection between institutional DEI and economic justice

DEI is how the upper quantile has co-opted economic justice rhetoric while entrenching itself in economic sectors (finance, tech) and behind policies (immigration) that deepen economic divides. It’s Wall Street’s brilliant makeover (in response to 2008), which has created a national conversation wherein being a racist plumber in Michigan is somehow worse than working in private equity.

It’s immaterial what educated professionals purport to believe in. Politics isn’t just about supporting this policy or that policy. It’s about how you spend political capital to construct a majority coalition that can manifest policies. Upper quantile professionals have spent their political capital to create a majority capable of enacting their preferred social policies. When they wage trench warfare to make sure kids learn about race in history class, that’s political capital they didn’t spend making sure kids learn about the history of the labor movement. These are choices. And as a result of those choices, upper quantile professionals have created a Democratic Party that includes Wall Street, but excludes much of the working class (and excludes most of the white working class). As a result, that coalition is wholly incapable of addressing economic inequality.

Again: DEI's most vocal opponents are the ones legislatively blocking any reform to inheritance taxes; in fact, they're attempting to repeal the Estate Tax altogether, as they have been since the 1990s, when the effort was a plot point on The West Wing. There is no reasonable connection to draw between DEI and a resistance to taxing generational wealth.

The most vocal opponents of DEI are working class white people—who are indispensable to any liberal coalition worth the label. They are not trying to repeal the estate tax.

They absolutely are. The people you're referring to vote Republican.

This is a cogent analysis. To go further: I've noticed that rich, white tech professionals gravitate to social causes that pay lip service to economic equality, but only demand action on race. The mis-priorization and pretense you speak serves as a useful self-deception. Disclaim their own race, because they're already on top, and protect the wealth they've accumulated and now identify with.

By this logic, you go around here posting about the perversion of western societies in comparison to asia, only because you yourself are a pervert and are trying to hide that fact.

> A key reason there are such large soon-to-be-inherited sums is the uneven way boomers superbly benefited from price growth in the financial and housing markets.

While their point about financial markets is valid, framing rising house prices as a benefit is incredibly dishonest. Unless one owns multiple houses, one can only realize that "benefit" by going homeless.

In general I find framing the worsening unaffordability of housing/education/healthcare as a "benefit" to those that lived in better times distasteful. It is done to give legitimacy to taking those things away. Not only are things getting worse - if your family managed to protect themselves with sound financial planning, they'll be pulled down back into the crab bucket.

I think we should understand that new generations are currently shaping the future in general. See [1] and the same could be applied worldwide: if it is politics or finances.

IMHO the issue in the context of wealth is if would serve a purpose that benefit some part of the society or not. A lost of opportunities are lost when you don't see beyond your nose. Indeed is the human history but since these generations are more linked to global issues we will see if it is a naïveté or a force of change.

[1] https://news.ycombinator.com/item?id=35937862

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