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Killing Off The Death Tax

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Killing Off The Death Tax

Old 08-24-04, 08:37 AM
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Killing Off The Death Tax

By William W. Beach
Director at the center for data analysis at The Heritage Foundation


It sounds surprising at first blush, but the people working the hardest to save the federal estate tax, or “death tax,” are some of the country’s richest.

Indeed, the membership of the pro-death tax Committee for Responsible Wealth reads like a Who’s Who for a Vanderbilt birthday party.

There are reasons for that. For example, famed investor and outspoken death-tax proponent Warren Buffet makes money by selling “death tax insurance” to small businesses. He also makes money by buying small businesses (at fire-sale prices) when they have to be sold to pay taxes because their founder died without such insurance.

Much to Buffet’s chagrin, as things stand now, the death tax is, well, expiring. It will be completely phased out by 2010.

However, unless Congress takes action, it will rise from the grave in 2011. That means if someone dies in 2010, his estate will pay nothing in inheritance taxes, but if he survives until January of the following year, the estate will have to turn over more than half its assets to Uncle Sam.

Because this would provide a perverse incentive for wealthy individuals to die during 2010, economist Paul Krugman has jokingly called this the “Throw Momma from the Train Act of 2001.”

So why maintain a death tax at all? One reason the small group of extremely wealthy people wants to keep the death tax alive — and kick it back up to its confiscatory 2003 levels — is because they claim that eliminating the federal inheritance tax would decrease the amount of charitable giving, thus endangering American charities.

Of course, the best way to help charities is to boost the economy. We know that when the economy is strong, charitable donations increase. And permanently repealing the death tax would give our economy a big boost.

Heritage Foundation economists estimate that the federal estate tax alone costs the U.S. between 170,000 and 250,000 potential jobs each year. This additional employment never appears in the economy because the investments that would have resulted in higher employment are not made.

Those additional jobs would do more to help Americans than any charity ever could. By repealing the death tax, we’d open the door for hundreds of thousands of low-income workers and recent college graduates who simply need the chance to enter the workforce. We’d move them from the welfare rolls to the work rolls, changing them from charity cases to taxpayers. The additional revenue the government would collect from these new workers would far outstrip the amount it would lose from the permanent, total repeal of the inheritance tax.

Furthermore, the death tax prevents the economy from achieving its investment potential and slows down wage growth. Workers are more productive when they have new tools, machines and factories. And that increased productivity boosts wages and salaries.

History proves that charitable giving barely responds to changes in the estate tax rate or the amount that can be exempted. That’s probably because people won’t give their money away simply to dodge taxes — they need to know it’s being used wisely.

In fact, trimming the death tax has actually increased the amount of money given to charities. The Congressional Joint Economic Committee found that last year, with inheritance taxes coming down, charitable bequests reached a record $21.6 billion — a 25 percent increase from 1999. The death tax merely crowds out charitable giving. When estates are paying more to the government, there’s less for heirs to donate to worthy causes. But when we bring those taxes down, our charities benefit.

And we already know that worthy charities won’t be left behind. More than two-thirds of Americans donate money to charities. They simply want to know where the money is going and how it will be used before they sign the check. That’s one reason why charitable organizations are a critical part of the American fabric.

But many of the “charities” cited by death-tax supporters aren’t involved in helping the poorest of the poor — they’re making life better for the richest of the rich. Nobody would want to live in a country with no art galleries, ballet companies or horticultural gardens. However, these “charities” ought to be supported by wealthy private interests. They don’t need to be propped up by donations from people looking to avoid paying a death tax.

No charity in the world creates hundreds of thousands of jobs per year. Repealing the death tax, however, would. And those who would likely benefit the most are the working poor. We can have both a healthy economy and healthy charities. But the death tax is a danger to both. Let’s put it out of its misery, for good.
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Old 08-24-04, 08:47 AM
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But it's already DEAD !
Old 08-24-04, 08:55 AM
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Let's see. You pay a tax on everything when you're alive, and then when you die you have to pay taxes on it again.
Old 08-24-04, 09:31 AM
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You guys are missing the main point. The purpose of the tax is not to raise revenue for the Federal government. It is so elite insiders (lawyers, financial planners, even-richer-people)can get rich selling loopholes.
It sounds surprising at first blush, but the people working the hardest to save the federal estate tax, or “death tax,” are some of the country’s richest. . . .
There are reasons for that. For example, famed investor and outspoken death-tax proponent Warren Buffet makes money by selling “death tax insurance” to small businesses. He also makes money by buying small businesses (at fire-sale prices) when they have to be sold to pay taxes because their founder died without such insurance.
Old 08-24-04, 10:27 AM
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First of all, it's not a "death tax;" it's an estate tax.

The double taxation argument is a crock of bullshit. Lots of things get double taxed, and nobody complains about most of them. Singling out the estate tax as "double taxation" is nothing more than political opportunism. If you want to become a double taxation crusader, start with the fact that payroll taxes are included in AGI.

The purpose of the estate tax is twofold: first, to raise revenue for the government (the estate tax raised more than $20 billion in FY 2003), and second, to prevent the concentration of wealth.
Old 08-24-04, 10:34 AM
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Kill it already.
Old 08-24-04, 10:36 AM
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The double taxation argument is a crock of bullshit. Lots of things get double taxed, and nobody complains about most of them.
Whether other things get double taxed or not does not mean that the double taxation argument is a crock of bullshit. It's true!! It does get taxed twice.
Old 08-24-04, 10:37 AM
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Originally posted by classicman2
Whether other things get double taxed or not does not mean that the double taxation argument is a crock of bullshit. It's true!! It does get taxed twice.
It's a crock of bullshit insofar as estate tax opponents present double taxation as a unique and unfair situation with respect to the estate tax.

And, as you well know, not all assets in an estate get taxed twice.
Old 08-24-04, 10:41 AM
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Some federal employees retirement (once upon a time - including mine) got taxed 3 times.
Old 08-24-04, 10:42 AM
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Originally posted by classicman2
Some federal employees retirement (once upon a time - including mine) got taxed 3 times.
Doesn't social security get taxed three times (once as part of the payroll tax, a second time because the payroll tax you just paid is taxable income, and a third time when you get the benefits)?
Old 08-24-04, 10:43 AM
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The government is taxing us to death...just to tax us again a few more times.

It's a conspiracy I tell you!!!!
Old 08-24-04, 11:13 AM
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We've had these discussions before and I said that there are certainly ways to handle items that haven't been taxed before such as appreciated items. Just because one might have a hard time imagining how to do that is not a good reason to make a blanket call for things that have been previously taxed to be taxed again.
Old 08-24-04, 11:17 AM
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Originally posted by X
We've had these discussions before and I said that there are certainly ways to handle items that haven't been taxed before such as appreciated items. Just because one might have a hard time imagining how to do that is not a good reason to make a blanket call for things that have been previously taxed to be taxed again.
Perhaps, we could invent something like a "capital gains tax," oh, . . . , wait.
Old 08-24-04, 11:19 AM
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Originally posted by JasonF
Doesn't social security get taxed three times (once as part of the payroll tax, a second time because the payroll tax you just paid is taxable income, and a third time when you get the benefits)?
It most assuredly does.

I know - trust me.

I'm still paying taxes upon taxes upon taxes for my federal retirement.

The same holds true for the Social Security benefits I receive.
Old 08-24-04, 11:27 AM
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Originally posted by OldDude
Perhaps, we could invent something like a "capital gains tax," oh, . . . , wait.
Of course, taxing capital gains at the time of death creates its own problems (most significantly, documenting the basis in inherented property subject to the capital gains tax).
Old 08-24-04, 11:41 AM
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Originally posted by JasonF
and second, to prevent the concentration of wealth.
And what a great job it has done.

How much estate tax do super wealthy people pay? Does anyone truly think that Bill Gates will end up with a 20 billion tax bill when he dies?

The fact that the estate tax only brings in 20 billion (when compared to the wealth of those that die) is a great indication to me that the very wealthy rarely pay. Loopholes abound.
Old 08-24-04, 11:48 AM
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Bill Gates is taking it with him.
Old 08-24-04, 11:57 AM
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Originally posted by JasonF
First of all, it's not a "death tax;" it's an estate tax.

The double taxation argument is a crock of bullshit. Lots of things get double taxed, and nobody complains about most of them. Singling out the estate tax as "double taxation" is nothing more than political opportunism. If you want to become a double taxation crusader, start with the fact that payroll taxes are included in AGI.

The purpose of the estate tax is twofold: first, to raise revenue for the government (the estate tax raised more than $20 billion in FY 2003), and second, to prevent the concentration of wealth.

in this case it seems it's doing the exact opposite. It's giving a government mandate for buffet and others to buy up cheap family businesses.
Old 08-24-04, 12:07 PM
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Originally posted by JasonF
Of course, taxing capital gains at the time of death creates its own problems (most significantly, documenting the basis in inherented property subject to the capital gains tax).
The deceased former owner should have maintained records. After all, if he sold it in his lifetime, he would have paid captial gains.

For things like stock, if the purchase date is known (or the record date on the certificate, historical stock prices are tabulated. I think this is a red herring. (Of course if the inheritee can prove some reasonable basis estimate, the basis can be taken as zero, and the 15% capital gains would still be much less than a 55% death tax.
Old 08-24-04, 12:34 PM
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Originally posted by JasonF
and second, to prevent the concentration of wealth.
You say that like it's a good thing...
Old 08-24-04, 12:47 PM
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Great...more conservative think-tank dribble from the lovely Heritage Foundation.

classicman2-

Since this is from the Center for Data Analysis, I don't suppose Beach provides any form of link or reference to the data analyzed, does he? Heritage Foundation economists don't quite make credible sources. Maybe at least the origin of the Congressional Joint Economic Committee material.

I'm guessing one and one won't quite make two here.
Old 08-24-04, 01:00 PM
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Well you can always get the liberal prospective from the liberal think tank - the Brookings Institute.

Or if you are of a mind, you can get the libertarian prospective from the Cato Institute.
Old 08-24-04, 01:09 PM
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Originally posted by JasonF
Of course, taxing capital gains at the time of death creates its own problems (most significantly, documenting the basis in inherented property subject to the capital gains tax).
well that's why in my opinion, if my father leaves me a $2million dollar house in his will:

Instead of the current system of taxing the estate and having to have the CASH to pay the taxes and inheriting a "step up in basis"

I think I should get the house in a tax free transaction if it isn't being liquified, and I inherit the original basis.
When I sell it then I would have to pay taxes on the gains from the original basis. Just as if my father sold the house before he dies.

Now - slightly different argument (and especially in my case) since in my family NONE of our estates are even close to the threshold limits to be taxed at ALL it works out even BETTER:

The estate isn't taxed at ALL since the value is below the threshold AND I get the step up in basis in the property in all STOCKS and Property.
I can sell ALL the property/stocks shortly after TAX FREE.

The complete opposite if the deceased person sold the property/stocks shortly before their death, PAY TAXES ON THE GAIN, then leave the balance to their heirs.

That is one key mistake a lot of families make (transferring stock of an elder into another family member's name before the death of the elder). They then have the original basis instead of the "step up".
Old 08-24-04, 01:36 PM
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Originally posted by classicman2
Well you can always get the liberal prospective from the liberal think tank - the Brookings Institute.

Or if you are of a mind, you can get the libertarian prospective from the Cato Institute.
Not interested in the analysis (aka spin). Heritage, Brookings, Cato. All propaganda machines.

I prefer to make up my own mind.

Just want to see the information the spin is based on. More interested to see how far from the empirical data the spin actually is.

One thing I must admit, however. I love how this analysis totally avoids the question of where the lost tax revenue from the estate tax will come from. Lets wrap it in the non-issue of charitable contribution incentive for the wealthy (irregardless of estate tax, of course charitable revenues will at least stay steady as long as they are tax deductible.) especially funny as the acceptable definition of tax-deductible charity becomes looser and looser.
Old 08-24-04, 01:59 PM
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Originally posted by TheAllPurposeNothing
One thing I must admit, however. I love how this analysis totally avoids the question of where the lost tax revenue from the estate tax will come from.
Fired IRS workers. I'm pretty sure IRS has acknowledged this tax costs more in enforcement than it generates, but I don't have a link at the moment. (If not strictly more, the enforcement cost is at least close to the revenue.)

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