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View Diary: The Estate Tax: Tough Questions and Honest Answers (49 comments)

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  •  The elephant in the room (0+ / 0-)

    The problem with the present estate of affairs is that it is inconsistant. Inheritors presently inherit positive equity from the estate of a deceased as if the decedent were still a person with full legal control over their assets. They get this benefit without ever being liable for a negative equity. If a person dies while in debt, that debt evaporates. I would argue that if recognize that a person has no obligation to continue to pay debts after his or her demise, then it follow that this person also has no right to distribute assetts after death. Hence, the government should confiscate all assetts after death.

    `But it isn't fair to tax the dead. That is the ultimate taxation without representation. What about the Children? Widows?''

    My reply begins with a question. Who is it more fair to tax, the dead or the living? A total death tax has the potential to bring in enough money to eliminate most forms of income tax. Not many people would be better off retaining 100% of an inheritance rather than not paying any income taxes. Those that would be can almost (but not always) afford to lose the entire inheritance because they are already wealthy.

    Secondly, this reduces (but does not eliminate) inheritance as a mechanism for creating artificial inequality. Ever since the time of Rousseau, it has been recognized that artificial inequality largely stems from inheritance. If the US is going to be a level playing field where people are to prove themselves on merit, then the growing artificial inequality needs to be retarded or eliminated.

    Lastly, some neat things could be done that would reduce the hardship of the death tax such as birth grants. A certain portion of the tax receipts could be redistributed on an egalitarian basis at birth to provide a fund for the care and education of newly born US citizens.

    But go back and review the first paragraph and consider the recent bankruptcy ``reform.'' I predict that if corporatists stay in power it will only be a matter of time before debt becomes inheritable once again. The argument they will use is the same one based on consistency. Why should inheritors only inherit positive equity?

    •  Huge estates should be taxed hugely... (2+ / 0-)

      because there's such a thing as enough.  That doesn't mean completely, just hugely.  The surviving spouse should be able live in something resembling the lifestyle to which they've become accustomed.  But you can live quite well without $25 million in the bank.

      Small estates (up to a couple of million) should be taxed lightly, simply because it's fair to the middle class.

      An "all or nothing" approach--the same treatment for everyone in order to be philosophically consistent--is  unjust at either extreme.

      •  I agree. I am one of those who (2+ / 0-)
        Recommended by:
        April Follies, PKinTexas

        stands to benefit from elimination of estate taxes, but I am definitely for keeping a certain level of taxation. On a practical level, people will never agree to complete confiscation of all property at death. What about the beloved vacation home (I wish!), or the farm, or a bit of inheritance that everyone has been looking forward to, to help things out.

        People should also be rewarded for saving, and for providing well for their families. Such people often (not always, of course) give to the common good as well. If they save throughout their lives, they should be able to dispose of some accumulated wealth as they see fit.

        A balanced, just approach is usually fairest to everyone.

        •  Just one point (2+ / 0-)
          Recommended by:
          April Follies, Simplify

          People should also be rewarded for saving, and for providing well for their families. Such people often (not always, of course) give to the common good as well. If they save throughout their lives, they should be able to dispose of some accumulated wealth as they see fit.

          People cannot be rewarded after they die. People are welcome to give as much as they want while alive under pretty much an theory of property rights. But the question is over how much control a person should retain over their possessions once they are dead.

          I can understand a moral argument for doing so if one presupposes that there is more to existence than matter. But it is relatively rare for government policy to be built around the idea of the immortality of the soul.

          •  I understand your point. (0+ / 0-)

            I suppose it is more the typical idea of the "will" and bequeathing goods and such to those one designates. The state isn't going to confiscate that cherry sideboard from Aunt Tilly, who really wanted it to go to Betty and her family, but wanted to keep it until she died, and etc.

            If you change the estate tax laws to try to take everything, my hunch is that the rich will pay professionals to find ways around it, to "give" the money while still retaining control while alive, and that the situation will not improve.

            And I see the ability to will some of one's possessions and wealth to those one designates, as a benefit to the living. It is of tangible comfort to many who are elderly or dying, from what I have experienced. It matters a great deal to many people.

            •  And besides, we'd miss the fun (0+ / 0-)

              of all those fights over vases, earrings, and power tools. Why miss all the drama?

              •  Those items generally aren't evaluated (0+ / 0-)

                Exceptions arise, like if somebody owned a few hundred power drills, but the vast majority of sentimental items have little value or make up a minor part of the estate.

                •  Not if you're my client (1+ / 0-)
                  Recommended by:
                  means are the ends

                  I value everything--I don't get appraisals on all, but it all gets assigned a value.   It all gets reported on the Form 706 and the Form IH-6.. even if there's no tax due, esp. with collectibles, it forms the evidence for  your stepped up basis.

                  •  Is your service representative of average America (0+ / 0-)

                    Because I'm of the opinion that the largest segment of Americans don't have personal belongings that add up to enough to make the effort worthwhile. Particle board furniture and inexpensive home decor purchased from Wal-Mart don't add up to a significant amount even if assigned a value.

                    •  In Indiana (0+ / 0-)

                      we have an inheritance tax that can kick in at as little at $100 in assets, so we do assign values to everything.   We don't pay to have everything appraised, but we will at least have the perosnal representative inventory it all and assign it a good faith value.   Technically, I believe the IRS requires perosnal property to be inventoried if it totals more than $3000.

                      Now, you are right.. the vast majority of families in this country deal with the passage of property on death in a very informal manner, never consulting a lawyer or anyone else.   Therefore, there is not double that my clientle is not a representative sample by a long shot.

            •  If it is a benefit to the living ... (0+ / 0-)

              Then it should be the living that get to decide how to split the estate rather than the dead and wills and testaments should have no binding force.

              You're certainly correct about the avoidance issue, but I think that is a minor issue for two reasons. First, a huge number of people never give any thought to dying and aren't prepared. It isn't clear to me that this would fundamentally change. Second, I'm fine with redistribution of wealth while people are still alive. This power flows from property rights. It also gets taxed.

              •  Well, good luck with that. I'm not sure (0+ / 0-)

                how much support people will give to having their wills voided.

                And in my experience, people with stuff often care very, very much what goes to who. I have spent much time with dying relatives and friends, and they have cared. Their decisions often mirror their feelings about the people they love, rather than any materialistic bias, and are quite complex; sometimes making up for regrets, making amends, affirming love, etc. Not a scientific sample, but from my middle-class perspective, these people would be outraged and upset to be told that they had no right to decide about anything at all. Also gives unfair advantage to those who have time to settle their affairs, vs those who die without warning.

                I have no legal expertise, just thinking out loud.

          •  Actually, they can't give an unlimited amout (0+ / 0-)

            there is a federal gift tax, for which you can use %$1.0 million of the $2.0 million of credit you can used against the estate tax

            the idea is to tax the transfer of wealth... whether during life or death.. in order to avoid income shifting

            interestingly enough, when the estate tax is repealed in 2010, the gift tax stays to avoid shifting assets to family members in lower tax brackets

      •  I can understand your position (0+ / 0-)

        But I think that you hold it mostly because of the present consequences of ages of artificial inequality. Society is so unequal that at times, inheritance is the only realistic way to fill needs basic needs such as housing, food, education, retirement funds. But if those needs were already being met, then there would be far less need for inheritence.

        Not to mention that I don't see any rush to immediately put such a policy in place. It may make good sense to slowly phase in an inheritance tax so that it increases as inequality decreases.

        But if you accept that inheritance is a valid means of wealth distribution, you are implicitly accepting the idea that a person's control over their possessions extends past their deaths. How then would you argue against a right wing legislature that ``in the interest of justice'' allows debts to be inherited because ``it isn't fair to the creditors.''

        •  Our friend Jefferson (0+ / 0-)

          said something like "The earth belongs to the living."

        •  I would argue against allowing debts... (1+ / 0-)
          Recommended by:
          April Follies

          to extend to the next generation simply because I don't like the idea.  It usually takes a lifetime to build up any sort of estate to pass on; debts can be incurred in an instant, especially crushing medical bills in old age.

          I would allow reasonable transfers of wealth at time of death (not exorbitant, as in tens of millions, or even billions), but not debts.  What constitutes "reasonable" in any given age can be worked out by elected representatives.

          If that's inconsistent as between inheritance of wealth versus debt, so be it.

          As Ezra Pound put it, "Consistency is the hobgoblin of little minds."  (though I'm not saying that about you, rest assured!).

          So even fascists are occasionally right!

          •  I'd quibble with Ezra (0+ / 0-)

            Being inconsistant, as a matter of practicality, leads to monstrosities like the present US tax code and budget bills that span thousands of pages that no one really understands. Complaints with cheap quotes aside, I'm not as opposed to a graduated solution as I might appear provided that the solution concedes that it is an imperfect solution.

            IMO, all laws should start off with a preamble to explain why they are needed and when the law deviates from a fundamental principle, it should explain the deviation. A law for an estate tax should start out with ``Whereas property rights are a function of material being and whereas the deceased, having passed on to the next life, no longer have material being and no longer have any right to own property ...'' I wouldn't think it unreasonable to include a clause further down to the effect of ``But as survivors of a decedent attach great sentimental value to the former material affects of said decedent, we hold it compassionate and necessary to make the following exceptions ...''

            The problem is that those exceptions are likely to grow and be abused. But that is really another discussion altogether.

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