Also with regard to estate /inheritance taxing, it's not you being taxed AGAIN after a lifetime of being taxed on the money. It's someone else, receiving money and being taxed afresh on this money they themselves didn't earn.
Not taxing inheritances is just another way that keeps wealth concentrated in a small number of families.
Sorry, I didn't mean just salary (even though that's what I said). I was really just caught up on my curiosity of whether @ladydisdain considers 6 figures a big dog, which I realize is nowhere near the point of this thread.
Sorry, I'm back to respond to this and I know you've asked twice.
I did mean to say 6-figures, because there's a big difference between me earning $120,000 and $890,000 (just grabbing those out of the air). As you get farther up that scale, you do and should pay more taxes, but I'd say that difference would absolutely put me in a different echelon of potential lifestyle and taxable earnings.
I wasn't trying to be pushy tagging you that 2nd time...just didn't want you to think I was talking about you behind your back. Thanks for the clarification!
Sorry, I'm back to respond to this and I know you've asked twice.
I did mean to say 6-figures, because there's a big difference between me earning $120,000 and $890,000 (just grabbing those out of the air). As you get farther up that scale, you do and should pay more taxes, but I'd say that difference would absolutely put me in a different echelon of potential lifestyle and taxable earnings.
I wasn't trying to be pushy tagging you that 2nd time...just didn't want you to think I was talking about you behind your back. Thanks for the clarification!
I may lose my liberal card for this, but I oppose estate taxes on principle. I don't think that if you've paid income taxes, property taxes, sales taxes, etc. on everything you have over your life, you should have to pay *another* tax just to give it to your children when you die.
Can I attempt to play devil's advocate?
What makes estates so special?
Why do we not simply tax them as unearned income? Because it is tradition?
You can already give $14,000 per person per year in gifts. (<--I will agree that this could be higher). You can already buy generous life insurance policies. What makes heirs so special that we give them a $5 million dollar tax break when even professional investors have to pay a little?
(Anyone can answer.)
Put simply, because that same money was already taxed as income when it was earned.
I can give you some more examples of why I support the $5 million exemption. It protects small family businesses. Absent the exemption and/or expensive tax planning, the owners of the business could die and their children could have to liquidate to pay the estate taxes. Trusts come into play here for businesses worth more than $5 million. You can't really use trusts to shield cash or securities from estate tax because they retain the same tax attributes inside and outside the trust. Trusts are more about legal ownership. I primarily use them in situations where there are second marriages with multiple children involved to keep assets in the bloodline if that is the parent's wishes (slightly off topic but I wanted to clear the misconception that trusts were magic tax avoidance vehicles for estate tax).
Another situation where the estate tax really sucks is when many of the assets are non liquid. Imagine someone dying with $20 million in land and real estate and basically no cash, or even worse, right before a recession. The estate tax is based on the value on the date of death or an alternate date which is exactly 6 months after date of death. Then the assets have to be sold to pay the tax. You could owe tax on a $15 million estate ($20m - $5 m exemption) and have assets worth next to nothing that aren't selling and no way to pay the tax.
Also with regard to estate /inheritance taxing, it's not you being taxed AGAIN after a lifetime of being taxed on the money. It's someone else, receiving money and being taxed afresh on this money they themselves didn't earn.
Not taxing inheritances is just another way that keeps wealth concentrated in a small number of families.
No. The estate tax is levied at the estate level. Heirs do not pay estate tax. It is absolutely taxing money that has already been taxed.
Also with regard to estate /inheritance taxing, it's not you being taxed AGAIN after a lifetime of being taxed on the money. It's someone else, receiving money and being taxed afresh on this money they themselves didn't earn.
Not taxing inheritances is just another way that keeps wealth concentrated in a small number of families.
No. The estate tax is levied at the estate level. Heirs do not pay estate tax. It is absolutely taxing money that has already been taxed.
But we generally tax money when it's being transferred from one person/entity to another (income, sales, etc). I get that we need to protect small businesses and/or farms, so there should be a way to write in loopholes for that purpose but not for letting millions in real estate, stocks, and cash pass between generations so that it becomes even more concentrated.
No. The estate tax is levied at the estate level. Heirs do not pay estate tax. It is absolutely taxing money that has already been taxed.
But we generally tax money when it's being transferred from one person/entity to another (income, sales, etc). I get that we need to protect small businesses and/or farms, so there should be a way to write in loopholes for that purpose but not for letting millions in real estate, stocks, and cash pass between generations so that it becomes even more concentrated.
More loopholes! Less loopholes! Simplify the tax code! Make the tax code more complex! ;-)
I kid.
The passing of cash through generations is less common than you think. We aren't going to catch big bucks that way. The big bucks are in corporate tax reform.
Post by WanderingWinoZ on Oct 19, 2015 10:36:24 GMT -5
yea, estate tax reform is low on the priority list. I'd rather see more divisions & higher rates in the income tax brackets, simplifications overall, and raising the cap gains tax.
Why do we not simply tax them as unearned income? Because it is tradition?
You can already give $14,000 per person per year in gifts. (<--I will agree that this could be higher). You can already buy generous life insurance policies. What makes heirs so special that we give them a $5 million dollar tax break when even professional investors have to pay a little?
(Anyone can answer.)
Put simply, because that same money was already taxed as income when it was earned.
(I'm going to ignore the specific examples you gave to focus in on this.)
The person who earned it only pays taxes once. The person who receives money pays taxes once.
It just seems to me as a non-expert that we pay taxes on already-taxed things all the time. Sales taxes on income that has already been taxed, for example. Why do we call one double taxation but not the other?
Put simply, because that same money was already taxed as income when it was earned.
(I'm going to ignore the specific examples you gave to focus in on this.)
The person who earned it only pays taxes once. The person who receives money pays taxes once.
It just seems to me as a non-expert that we pay taxes on already-taxed things all the time. Sales taxes on income that has already been taxed, for example. Why do we call one double taxation but not the other?
Fair question. I don't know. But that's the standard conservative argument against estate tax and higher rates for dividends (corporate income has already been taxed so that's double taxation).
To clarify on estate taxes, the person receiving the inheritance does not pay tax on it. That would be called inheritance tax and it does not exist within the US at a federal level (anymore?). Estate tax is assessed at the estate level before the estate assets are distributed to heirs.
(I'm going to ignore the specific examples you gave to focus in on this.)
The person who earned it only pays taxes once. The person who receives money pays taxes once.
It just seems to me as a non-expert that we pay taxes on already-taxed things all the time. Sales taxes on income that has already been taxed, for example. Why do we call one double taxation but not the other?
Fair question. I don't know. But that's the standard conservative argument against estate tax and higher rates for dividends (corporate income has already been taxed so that's double taxation).
To clarify on estate taxes, the person receiving the inheritance does not pay tax on it. That would be called inheritance tax and it does not exist within the US at a federal level (anymore?). Estate tax is assessed at the estate level before the estate assets are distributed to heirs.
what's the difference? there's ten million in assets when mom & dad pass away, to be distributed to the two kids. Before they hear about how much there is, it becomes 6 million because of a 40% estate tax and they get $3mil each.
Or, they receive 5 million each, then pay a 40% inheritance tax.
what's the difference? either way the kids receive the estate minus taxes right?
The difference is its taxed at the estate rate rather than each heirs' personal rate.
Knowledge is good. I did not know that estate taxes were set up this way.
So that 5 million dollar exemption number, that only gets applied once, correct? (I'm not sure what the exact number is.) If I leave my four heirs 20 million dollars in a regular savings account, 5 million is exempt and 15 million gets hit with the tax? It's not that I can leave 5 million dollars to each of them, correct?
The difference is its taxed at the estate rate rather than each heirs' personal rate.
Knowledge is good. I did not know that estate taxes were set up this way.
So that 5 million dollar exemption number, that only gets applied once, correct? (I'm not sure what the exact number is.) If I leave my four heirs 20 million dollars in a regular savings account, 5 million is exempt and 15 million gets hit with the tax? It's not that I can leave 5 million dollars to each of them, correct?
Right.
But plot twist! If you die second, you get your dead spouse's unused exemption, too. Here's how that works. Husband dies first with $3 million estate. Uses up $3 m of his exemption. The wife gets his other $2 m plus hers. So up to $7 m of her estate is shielded from tax when she dies.