Apparently Dayton wants to re-negotiate the estate tax change amongst other things. MPR Dayton Veto Now I think MN should get rid of their estate tax since they are one of the few states that have one. Therefore it encourages many wealthy households to relocate out of this State.
And yet I get so frustrated when Conservatives say things like this. "Rep. Greg Davids, R-Preston, chair of the House Taxes Committee, describes the estate tax as "not very Minnesota nice." People who already pay taxes on their wealth should not be hit again when they die, he added. "I want to work every day to try and raise those numbers so more families can keep more of what their mothers and fathers and grandfathers and grandmothers have earned."
The strange thing from what I understand is that dying is one good way to ensure you do not pay your capital gains taxes.
And yet I get so frustrated when Conservatives say things like this. "Rep. Greg Davids, R-Preston, chair of the House Taxes Committee, describes the estate tax as "not very Minnesota nice." People who already pay taxes on their wealth should not be hit again when they die, he added. "I want to work every day to try and raise those numbers so more families can keep more of what their mothers and fathers and grandfathers and grandmothers have earned."
The strange thing from what I understand is that dying is one good way to ensure you do not pay your capital gains taxes.
"Much of the money that wealthy heirs inherit would never face any taxation were it not for the estate tax. In fact, that’s one reason why policymakers created the estate tax in 1916: to serve as a backstop to the income tax, taxing the income of wealthy taxpayers that would otherwise go completely untaxed.
Under the current tax system, capital gains tax is due on the appreciation of assets, such as real estate, stock, or an art collection, only when the owner “realizes” the gain (usually by selling the asset). Therefore, the increase in the value of an asset is never subject to income tax if the owner holds on to the asset until death.
These unrealized capital gains account for a significant proportion of the assets held by estates — ranging from 32 percent for estates worth between $5 million and $10 million to as much as about 55 percent of the value of estates worth more than $100 million. (See Figure 4.)
The estate tax also serves as a modest corrective to other tax rules that provide massive tax benefits to income from wealth, such as the fact that capital gains are taxed at lower rates than wages and salaries. The top 0.1 percent of taxpayers — those with incomes above $3.1 million — will receive 56 percent of the benefit of the preferential capital gains rates in 2017, worth more than $600,000 apiece. Other tax rules allow part of the income of the very wealthiest to go completely untaxed, even with the estate tax.
Since the estate tax serves, in part, to tax capital gains that have not otherwise been taxed, some people have proposed taxing estates at the top capital gains rate, currently 23.8 percent. This argument is flawed: the capital gains tax rates typically apply to nearly all capital gains income, whereas the estate tax applies only to the part of an estate that exceeds the exemption level. (The estate tax’s average effective rate of 17 percent in 2017 is below the capital gains rate.) "
29 comments:
CNBC Trump Plan for Eliminating Estate Tax. Now that makes more sense.
It's an interesting outlook and I can't say it's wrong or unfair. I simply point out that the FAIR tax eliminates all the quibbles on this score, while the natural consequences of inheritance, established centuries ago, take care of the rest. That is, a man works hard and acquires great wealth. He has 4 children and, unlike in Europe, divides his estate among all his children, not just the first-born son. Each of those four kids has four kids and so, by the second or at least third generation, that great wealth is dissipated unless some of the kids bootstrap it back up, and they should be able to benefit from that just like anybody else. What entitles the GOVERNMENT to the fruits of anybody's labor, just because they have been more successful?
The opposite side of the question is why should people who use money to make money be allowed to avoid paying the same taxes as people who use labor to make money?
Under the FAIR tax, they wouldn't. Let's go back to definitions:
Wealth is the ability to provide "things" for people.
The only way to increase wealth is through people working.
Capital is accumulated wealth and, capital increases the productivity of work.
Therefore, taxing capital reduces economic growth and wealth in ways that taxing income does not. For example, say I run a grocery store and make $100,000 from the operation. Half of that I take (and spend) as income, and the other half I plow back into the business to make a bigger store or start a chain of stores. I get filthy rich on paper, with my chain of stores, but continue to live on $50K/year. When I die, I leave my 3 kids each 1/3 of a business worth $3 million, employing 700 people and generating annual profits of $150K. I have a "capital gain" of $2M.
If I pass this to my kids and they have to pay an estate tax of 40%, they have to sell the business and all of that wealth created, along with 700 jobs and the taxes on those, are in jeopardy, along with the taxes my kids would have paid on their annual $50K. If they have to pay a 20% capital gains tax instead, same problem-- the income doesn't pay the taxes. Why not accept that total national wealth has increased, benefiting everybody, and pay taxes only on actual income when earned, or better yet, when spent, like the FAIR tax, so that capital investment is actually encouraged?
Actually wealth is defined as... "an abundance of valuable possessions or money"
And this is so wrong... "The only way to increase wealth is through people working."
And for better or worse a great deal of wealth does not get invested in in "business capital". People collect and invest in a lot of strange things that increase in value over time with no work being done...
You are talking the dictionary definition of wealth, whereas I am talking about the useful definition. I can accumulate a huge equities portfolio or art collection, but "you can't take it with you." Meanwhile I will have capitalized numerous companies, and allowed numerous art dealers and artists to create "things for people" to appreciate. Most very wealthy people, in fact, turn to philanthropy late in life and "do things for people" with the wealth they will never be able to spend on themselves. And buying things for yourself counts, too, because you are "people."
And I want to know how you create wealth unless someone creates it? You cannot create it out of thin air. Somebody has to produce goods and services for there to be goods and services to consume.
I said that capital was "accumulated wealth," and wealth is "people working." Therefore the transitive property of definitions says that capital is "accumulated work." Imagine, for example, that every time Apple wanted to bring out a new Iphone they had to invent the transistor, the integrated circuit, the Internet and the phone system? It took generations of work, each building on the "capital"-- knowledge and tools-- created by the previous, to build the wealth we have today, in the form of a billion+ Iphones.
Again, the point is that we should tax personal consumption, not wealth or capital. It is silly to "eat the seed corn."
I think we will need to agree to disagree.
Personally I think people should need to settle up their taxes due at the end of their life. They took advantage of all the goods and services of living in this country, and then they get to avoid paying capital gains by dying seems silly.
Also, I think it makes people do silly things like hold assets that they should sell later in life. All in the name of avoiding the payment of taxes.
"They took advantage of all the goods and services of living in this country, ..." Don't you mean they CREATED the goods and services in this country? You are talking about a tax on /production/ and that is the surest way to get less of it. The cure is to tax consumption, so that those whose extravagant living creates envy in all of us pay the taxes accordingly, while those who live more modestly, save and invest to pass it on to their kids and grow the economy are rewarded.
And WHAT assets should they "sell later in life"? The family farm, or the family business? Stocks that are temporarily down in value? The family home, even while still living in it "late in life"? I would think that common sense and common decency would suggest that those taxes SHOULD be avoided however possible, and it would be easiest of they were simply repealed.
As we have discussed before, I stand to benefit greatly from being lucky enough to have ancestors who were learners, risk takers, workers, savers and investors who had very few children....
So I personally think abolishing the death tax is excellent!!! Remember what I am challenging is this lie.
"People who already pay taxes on their wealth should not be hit again when they die," The reality is that no one paid taxes on the land becoming worth more because of time and inflation. No one paid more on Trump's assets appreciating for the same reasons.
Also, I think taxing consumption excessively could be very bad for our economy that relies on it.
Consumption itself is fine, it is when people get excessively in debt that is bad.
Not a lie at all, and in fact it is almost common sense. Let's say I start a little company, call it Microsoft. I produce some things that people "consume," and that lets me grow that company, hire a few folks, which lets me sell more of the product and grow the company. Now I and my employees have produced a LOT of wealth that lets people produce more wealth for themselves, my employees have created personal wealth for themselves, buying houses and food, and along the way I make more money than Croesus. Contrary to Obamanomics, /I/ created all that wealth, of which I got only a tiny fraction. Now rather than just toss that money into the government sinkhole, I endow a charitable foundation that creates even MORE wealth, in the form of better-educated kids, and more. Of the 100s of billions of dollars of wealth I created, I will probably die with a few hundred million left. So how much of ALL that other wealth do you want government to have a piece of, for doing absolutely nothing?
As for things appreciating in value, there must be some recompense for assuming the risk of an investment. It's why we have capital gains taxed at a lower rate, so just set the rate to zero, watch capital investment increase, and then tax the consumption that ensues after the gains are realized. Is there anything sillier than making you pay taxes on the interest on a 5-year CD every year, when you don't actually get the money until year 5?
Nobody is talking about taxing consumption "excessively." The FAIR tax is basically price-neutral to the consumer and revenue-neutral to the government. Those who buy million dollar yachts are going to pay more in tax then the guy buying a 14-foot john-boat, but shouldn't that be the case?
Jerry,
For better or worse the FAIR tax is not coming anytime soon. And likely never.
As for this silliness...
"Contrary to Obamanomics, /I/ created all that wealth,"
You make the error of believing that people operate in a vacuum. That our country, laws, security, property rights, public infrastructure, public education, etc had nothing to do with Bill...
I do wonder how Bill Gates would have fared if he had been a teenager in a lesser country?
And yet Conservatives do not seem to want to acknowledge that our country, education system, government, society, laws, property rights, etc that enable our personnel success.
Such pride...
Oh, so Bill Gates prospered only because he lived in a free, capitalist country? I never knew that. :-/
But you are right in one way. I created only that ADDITIONAL wealth. Somebody else created the capital upon which I built. For example, if Xerox hadn't invented the mouse...
I don't think anyone says this...
"prospered only because he lived in a free, capitalist country"
I believe people say that our country and his knowledge / efforts both contributed to his success. Therefore a portion of the that success / wealth will be used to support our country, and enable future entrepreneurs to succeed.
It is a great win/win relationship.
Here is an example of someone who has made a fortune putting tons of other businesses out of business and eliminating tons of jobs. Though different businesses have prospered in his wake...
Guardian: Will Jeff Bezos Become Less Stingy?
I am not sure if he truly created any wealth for our society like Microsoft did, though he certainly has found a way to increase his own and keep it. It will be interesting to see if he changes with time.
"Therefore a portion of the that success / wealth will be used to support our country, and enable future entrepreneurs to succeed."
Exactly! Because of free market capitalism, Bill Gates was able to make a huge contribution to the wealth of this country, which in turn let others make a huge contribution to the wealth of this country. Why government should get a "cut" of that, just to fritter away, makes no good sense.
As for Bezos, pretty much all is explained by noticing how young he is. As his time on Earth gets shorter and he realizes that "he who dies with the most toys wins" is not the way one wants to be remembered, he will become far more philanthropic, and CERTAINLY will not choose to let government have a big chunk of his "toys." And his charity will do a LOT more good then the same money frittered away by Big Government.
In short, I am perfectly happy letting the wealthy keep their earned wealth and engage in naturally occurring voluntary philanthropy, rather than the phony and wasteful "philanthropy" of government.
Unfortunately the Buffetts, Gates, Zucherbergs, etc are the minority lately...
The Waltons, Bezos, and other greedy folks seem to occur more often.
My point again is that working people pay taxes on their incomes and the capital gains people should do so also.
People DO pay taxes on their incomes, when realized. But capital gains do not produce income until the asset is sold. Death does not and should not create the sale of an asset-- it should pass to the heirs and THEY will pay income taxes when the asset is sold.
"Greedy"? Did they really take a piece of your income at the point of a gun, as government does? I'm surprised you don't mention the Koch brothers. I see their mention on the Arts and on PBS all the time. Imagine if ALL charities were not only tax deductible but free of all taxes (that is, given with pre-tax dollars, as the FAIR tax enables)? Charities aren't funded by poor people. Even with what little people like John Kerry and other rich liberals donate, it probably dwarfs what you and I are able to give. You want to end that, or allow it to increase?
I guess I disagree... Individual citizens are just that... They are not corporations that live forever.
Each individual or married couple should pay their taxes during their life or at their death.
As we know, the wealthy can already shelter a lot of money by giving to charity. Just think how much more they would give if they had to pay ALL Capital gains due at death. And they could avoid this by being charitable.
Individual citizens are not corporations, but they are families. People should and must pay taxes during life-- what kind matters, of course-- but why should they pay a tax to die? The ONLY things "death taxes" do is create a lot of work for estate planners to help avoid those taxes, and otherwise destroy the wealth built up in small businesses or family farms. The 16th amendment allows government to tax incomes, and the constitution permits government to tax sales. Where does it get the right to tax wealth, and isn't that basically Marxist theory at work?
Settling one's tax bill at death is not taxing wealth...
It is taxing the "change in wealth" that occurred due to that individual's choices, investments and efforts. Just like taxing someone's "change in wealth" due to working.
And as the Liberals here will remind you, the vast majority of family farms will never exceed the current Federal exemption.
One of my friends in Iowa avoided it by triggering the transfer of half the estate when the Father died. And the second half will move when the Mother passes.
I am not sure what my Parents have planned... Hopefully they just stay healthy and living for another decade or more... I know changing their residency to SD was a good start.
I do agree that MN taxing the wealthy exorbitantly is not good for the State with all these wealthy baby boomers retiring.
I don't think the exemption is what is being argued here, but rather the principle. Suppose dear old Dad worked all his life and saved the maximum 401k out of his meager salary, and the company matches that. He retires with about $300K in his account. He dies shortly thereafter. How much of that is the government entitled to take? 50%? Why? Why can't it be passed on to his heirs?
And you keep talking about legal ways to avoid the tax and do not seem to find those morally objectionable. Why not just do away with the tax and avoid the foolishness? Is it that "Minnesota needs the money" argument?
First of all. Dear old Dad should owe taxes on the money because the 401K was a tax deferred savings instrument, not a tax exempt instrument. He avoided paying taxes for years by funding the 401K.
I have no problem using the tax code to my benefit, just as I have no problem paying the taxes that it mandates. And changing my residency someday to a more tax friendly State is a no brainer. I guess it is the rule follower in me.
Ah, but the 401K was created to encourage savings, was it not? The theory being that it would be withdrawn in old age and taxed at that time (at the "lower rate" seniors pay). The FAIR tax simply eliminates all that paperwork and foolishness. Every savings account and investment is tax free (an "IRA") and the only tax paid is when that money is withdrawn or the gain realized, and spent. Everything else passes on to the heirs, who will pay taxes when and if THEY spend it. The underlying wealth never gets destroyed by taxation.
Why should the working man who saves get taxed like this, just so that you can tax the wealthier guy who makes his money by invested capital?
Post a Comment