inheritance tax should be 100%.

[Lany Freelove Cassandra]

They would have to either sell it and buy a smaller farm with the 60% of 3m they'd have left or take out a mortgage like everyone else who wants to be a farmer but isn't lucky enough to have a wealthy parent has to. Perfectly feasible. Just not something people will vote to introduce.

In effect, having it taxed as income would destroy the family farm and small family owned businesses. These are not wealthy people I am talking about. It would all be big corporations owning everything in the end. Not much different for the regular folks than the government owning it.

[Guest Raidne]

But that Irrevocable trust is subject to the Gift tax. That's why it's the "Unified Estate and Gift Tax."

Okay, right, so any solutions applied to gift tax would solve our problems here as well. Okay, right-o.

An income tax on inheritance would have to exclude real property and equipment and only apply to cash, bonds, stock and jewelry and other semi liquid assets (coin collections, rare books, art, and so on, but not the land, buildings or equipment needed to run it)

Honestly, I think it would really suck to have to lose your mother's engagement ring because you couldn't afford the tax on it.

Of course it would work, if someone can't pay the assessed tax then there is a forced sale of the property. You can even include a grace period if you feel so inclined.

What about situations where the property doesn't sell for the value of the assessed tax? What will happen in reality in situations where it's close is that people will disclaim the inherited property and the burden will fall on the state to sell it, probably at a loss. I'm not sure this really works out in everyone's favor. I mean, theoretically, that just means some other schmuck is going to buy your property at auction for less than money than the tax the government wanted you to pay on it.

Unless we are assuming fiat power, legislation that can lead to those factual scenarios hasn't a chance in hell of passing. Nobody's getting re-elected on "the government sold my family farm for less than the tax they wanted me to pay on it" or "the government repo'd my mother's engagement ring."

[Ser Scot A Ellison]

Lany,

Where did the new screen name come from?

Raidne,

Okay, right, so any solutions applied to gift tax would solve our problems here as well. Okay, right-o.

But, again, if the Gift tax is lower that the Estate tax it simply encourages people to avoid the Estate tax with lifetime gifts.

[Lany Freelove Cassandra]

Lany,

Where did the new screen name come from?

I very pretty dress. :blushing:

and a few other things that would TMI here. ;)

[S John]

Why should the family get the farm? What makes farmers so much more special than everyone else in this scenario?

Nothing, I was just using it as an example. Something like a family farm holds more than just monetary value. I was just wanting to clarify if 100% meant everything you can put a price tag on, like cars, houses, property, etc... and not just the number in the bank account.

For the record I accept that taxes are pretty much a necessary part of life and don't oppose a modest estate tax. But a 100% estate tax as a means of establishing meritocracy seems flawed. Though, I guess we'd all be equally under the boot of the feds. I'd either leave the country or grow a really long beard and join a militia in Montana.

I understand that there is a certain level of animosity toward the small percentage of people who posses a disproportionate amount of wealth, but I also recognize that many of those people earned that money fair and square and I don't think its anybody else's business to come in and tell them what they can and can't do with it. The government already gets a piece of it. I support a level of taxation that allows us to have programs to support and build infrastructure, for national defense, and to provide for basic needs of citizens, ie food, shelter, and healthcare. Which, imo, is already being pretty damn generous with other people's money. Beyond that, the government can go fuck themselves.

[Balefont]

Watching my family do Medicare planning for my grandfather has given me a more to think about on this subject.

First, you'd need to bring trusts back into the fold. Because from what I understand - and Bale can correct me - anything in an irrevocable trust would be exempt from a 100% estate tax.

Certain irrevocable trusts are exepmt from estate tax. I'd really need to know more details in order to confirm whether or not an irrev trust is included in a decedent's gross estate. If say, grandpa puts $$$ in an irrev trust for himself yet retains the right to the income, the whole trust is still included in his gross estate just for retaining the life estate. (§2036 Transfers with Retained Life Estate)

I think the only issue, which is one frequently brought up - is the tax that would have to paid on property. So you get the family farm issue, and, now, you also get the issue where the person can't sell the property for even what the tax amount is. That's a lot of burden to put on your heirs.

I'd rather see specific relief for family businesses and farms than comletely throw away transfer taxes or possibly treating inheritances as taxable income.

But really, in the United States, the problem is this - all of it runs counter to the very fabric of the American Dream

To an extent, yes. I believe in a middle-ground tax: Not taxing all of your hard work and leaving your family with nothing but taxing some of it so you can give back and support the system that provided you with the opportunity to earn and accumulate wealth.

[AverageGuy]

But without a comensurate 100% gift tax the 100% estate tax is easy to avoid, just deed everything you own to your desired heirs before you die. Therefore, for a 100% estate tax to work there needs to be a 100% gift tax and all the problems that arrise therefrom.

Put a fairly low cap ($200,000 or so, adjust for inflation?) on lifetime gifts and limit gifting to dependents. Pretty hard to get around that.

[Ormond]

I've been in favor of the "tax inheritance as income" idea for years.

What we have in the USA right now is often wrongly called an "inheritance tax", but it is an "estate tax", which to my mind isn't the same thing. I don't think the burden of taxation should fall on the estate, but on those who inherit it.

Part of my problem with having an estate rather than an inheritance tax is that it doesn't give wealthy persons any incentive to reduce the concentration of wealth among individuals. With an estate tax, if one leaves 100% of the estate to one person, or 1% of the estate to 100 people, the tax is the same. In a system where the inheritor pays the tax, the total tax burden would be less if the wealth was spread around to more inheritors, and you would reduce the concentration of wealth in a few hands.

I would have no problem with writing exemptions into the law which protect the proverbial "family farm". I even would be in favor of a generous (half a million to a million, maybe) lifetime exclusion of inheritance from being taxed. But I think it would be fairer and a better social policy to shift the tax burden from the estate into individual income tax for the inheritors.

[Guest Raidne]

But, again, if the Gift tax is lower that the Estate tax it simply encourages people to avoid the Estate tax with lifetime gifts.

Right, but we could always set different limits on the gift tax. We could cap it. We could tax it at the going rate after one cap, and tax it at 100% at another cap, effectively banning gifts at a certain amount. I know you'd need multiple caps, actually - one set for lifetime amounts, and one set for annual amounts.

And I think it's okay to have some disparity there once you have caps in place, because people are not generally going to gift their entire estate to the heirs before their death, because they need something to live off of.

The irrevocable trust thing, though...that's an issue. But it's kind of shitty that people use it to avoid tax consequences anyway, no?

ETA: Bale - I know it pulls the $$ out of the calculation of wealth for medicare benefits, but that's about it. It really pisses me off that we only spent two days on trusts in my Decedants Estates and Trusts course in law school. Bastards. I should take a CLE.

[Usotsuki]

In effect, having it taxed as income would destroy the family farm and small family owned businesses. These are not wealthy people I am talking about. It would all be big corporations owning everything in the end. Not much different for the regular folks than the government owning it.

The inheritors would be receiving $1.65 million after tax, the property would go to where it was most valued. If the family farm is less efficient at extracting value than the major corporation then it should indeed perish.

What about situations where the property doesn't sell for the value of the assessed tax? What will happen in reality in situations where it's close is that people will disclaim the inherited property and the burden will fall on the state to sell it, probably at a loss. I'm not sure this really works out in everyone's favor. I mean, theoretically, that just means some other schmuck is going to buy your property at auction for less than money than the tax the government wanted you to pay on it.

Then the tax is levied on the realised sale value. Are you missing the point that this isn't 100% taxation but taxation at the relevant income tax level?

[Ser Scot A Ellison]

AG,

Put a fairly low cap ($200,000 or so, adjust for inflation?) on lifetime gifts and limit gifting to dependents. Pretty hard to get around that.

If you have a special needs child? Burning through that $200,000.00 is pretty easy. Heck, isn't that less than the average cost of raising a child? What if you pay for a child's college education? Should the cost of that education be taxed?

Ormond,

I think your idea for an "inheretance tax" makes sense.

Hakujingomi,

Then the tax is levied on the realised sale value. Are you missing the point that this isn't 100% taxation but taxation at the relevant income tax level?

So, if the property is sold to by bar buddy Jim for $5.00 I pay tax on the $5.00 before he gives me the property back? There has to be some "fair market value" determination to avoid this kind of strawman transaction.

[Balefont]

What's becoming increasingly clear is that you can't just have this hypothetical 100% tax without changing nearly every other aspect of the economy also. Would anyone even bother buying property if they knew it was all going to be reverting to the government on their death? Possibly not, so you'd likely end up with people just renting from the govt instead (which would, in effect, be the practical result of buying anyway). Same thing would be true for all other possessions as well? So Little Billy still gets his birthday bicycle, but when he outgrows it you can sell the lease to someone on Craigslist or just return it to the communal bicycle pool for redistribution...? Hmmm.

Thank you, Min. This ^^^ supports my feelings about how a nations tax laws reflect said nations values and how just "throwing away all the complicated tax laws and instating a flat tax because the tax law is just too confusing" is a flaming ignorant opinion.

[MinDonner]

If you have a special needs child? Burning through that $200,000.00 is pretty easy. Heck, isn't that less than the average cost of raising a child? What if you pay for a child's college education? Should the cost of that education be taxed?

Scott, where do you think the extra tax money is going to go, if not on social programmes like the above? What if you have a special needs child and DON'T inherit $200k? :rolleyes:

[Ser Scot A Ellison]

MD,

Scott, where do you think the extra tax money is going to go, if not on social programmes like the above? What if you have a special needs child and DON'T inherit $200k?

You're assuming government would cover everything. What about other services necessary for a special needs child? What about special education not covered by government services. There are all sorts of ways to burn through "gifts" to a special needs children that may not be covered by government services paid for with tax funds.

[eta]

I just realized you missed my point. This is not about having $200,000.00 sitting around to care for your special needs child. My hypothetical is about a regime where there is a 100% estate tax and a comensurate 100% gift tax with a $200,000.00 exemption from the gift tax. My point is that it would be easier than you think to burn through that kind of money (assuming this is a lifetime cap) when caring for a special needs child then hit the gift tax for any additional care given to that child.

[Guest Raidne]

Then the tax is levied on the realised sale value. Are you missing the point that this isn't 100% taxation but taxation at the relevant income tax level?

Ugh. This is the kind of tone that I am so sick of lately.

No, I'm not missing the point. The issue is that when you take property, it comes with a value, generally some sort of adjusted basis. That is what you would be taxed on. So, you find yourself, as the inheritor, unable to pay, say, a 22% tax on property with a $500,000 adjusted basis. Let's say it's on a condo in Florida. Now the property can't even be sold for $100,000. Nobody who going to come out even is going to bother - they are just going to disclaim the inheritance.

So, you say change the tax to the sale amount only. Fine, do that, but then you have to write that change into the tax code, because I don't believe that is normally how that tax would be assessed.

Of course, now you could just sell your property to another party for, say, $50,000, pay $10,000 in tax, and then buy it back from them. And even without that problem, you still end up with the problem where someone is getting the property for less than the amount of the tax that forced you to have to sell it in the first place, which makes for very unfavorable news coverage.

Bale, please correct me if I'm mistaken. I do not have access to my tax notes in front of me.

[MinDonner]

You're assuming government would cover everything. What about other services necessary for a special needs child? What about special education not covered by government services. There are all sorts of ways to burn through "gifts" to a special needs children that may not be covered by government services paid for with tax funds.

I'm not assuming anything, merely pointing out the flaws in your hypothetical. Combined with my other post, if a change this radical is made to the taxation system, then all other prior assumptions will have to be thrown out. And given that the idea behind this tax is a levelling of society, you still haven't answered why a rich special-needs kid should deserve better treatment than a poor one. Is his need so special because he is made of straw?

(sorry, and now I'm in meetings all afternoon so won't be able to continue the debate, I'm not running away on purpose)

[Ser Scot A Ellison]

Min,

I'm not assuming anything, merely pointing out the flaws in your hypothetical. Combined with my other post, if a change this radical is made to the taxation system, then all other prior assumptions will have to be thrown out. And given that the idea behind this tax is a levelling of society, you still haven't answered why a rich special-needs kid should deserve better treatment than a poor one. Is his need so special because he is made of straw?

(sorry, and now I'm in meetings all afternoon so won't be able to continue the debate, I'm not running away on purpose)

Please see my edit. It's not about a "rich" special needs child.

[Usotsuki]

Ugh. This is the kind of tone that I am so sick of lately.

Strangely enough, your present attitude isn't going to help my tone at all- save the sanctimony for someone who values your opinion rather more than I do.

No, I'm not missing the point. The issue is that when you take property, it comes with a value, generally some sort of adjusted basis. That is what you would be taxed on. So, you find yourself, as the inheritor, unable to pay, say, a 22% tax on property with a $500,000 adjusted basis. Let's say it's on a condo in Florida. Now the property can't even be sold for $100,000. Nobody who going to come out even is going to bother - they are just going to disclaim the inheritance.

Then they have refused the income and the asset goes to the state for auction - the putative inheritor has neither liability nor gain.

So, you say change the tax to the sale amount only. Fine, do that, but then you have to write that change into the tax code, because I don't believe that is normally how that tax would be assessed.

I fail to see the problem here.

Of course, now you could just sell your property to another party for, say, $50,000, pay $10,000 in tax, and then buy it back from them. And even without that problem, you still end up with the problem where someone is getting the property for less than the amount of the tax that forced you to have to sell it in the first place, which makes for very unfavorable news coverage.

Which would be tax evasion and a criminal offence.

[Filippa Eilhart]

it's weird finding myself disagreeing with Americans on this, since I usually have more socialist leanings :P

I don't mind taxes in general, but I find an idea of someone taxing stuff that had already been taxed unfair. I recently found out that in the UK, apart paying a standard interest tax on your bank interests (which I disagree with anyway, since the interest is on the money that had already been taxed), you have to pay an additional income tax if your regular income tax is higher than the bank income tax. So, what happens is this: I get paid. My salary is taxed. I put the remainder in a bank. The interest I make is taxed. And then I get taxed again. How on earth is this fair?

that's also why I am against taxing gifts (or inherintance). that money had already been taxed. How many times do I have to pay the damn tax???

maybe I just don't understand how it works. :P

[Ser Scot A Ellison]

Hakujingomi,

Which would be tax evasion and a criminal offence.

Not under your original scenario where only the results of the sale would be taxed. You made no allowance for "fair market value" or straw purchases.