Tuesday, November 7, 2017

Estate Tax Repeal

Last week we talked about President Trump's tax reform plan. Our discussion mostly centered on exemptions, deductions, fewer tax brackets and corporate tax rates in the United States. The repeal of the estate or "death" tax was briefly brought up. Do you think the estate tax should be abolished? Would eliminating the estate tax reduce charitable giving? Is the estate tax unfair to the wealthy? Do you believe we should keep the estate tax to reduce inequality? Do you think inheriting large sums without tax undermines people's motives to work hard in the future and, thus, undercuts the principles of capitalism? Is the estate tax a form of forced income redistribution? (If our discussion begins to dwindle from the estate tax topic, what are your views on inequality in the U.S. and what should be done about it?)

Trump GOP Tax Reform Framework Calls For Estate Tax Repeal

The inheritance tax, or estate tax, is a tax which the United States levies on the total taxable value of the estate of a deceased person. The amount of tax is calculated regardless of the method in which the assets of the estate are transferred to the person's heirs: assets included in a will, transferred automatically because the person died intestate or as an insurance benefit or account payoff. Inheritance tax is paid by the executor of the estate or by the person in charge of its assets.
The United States has a consolidated policy on inheritance and gift tax so that a person cannot give away his or her estate to potential beneficiaries shortly before death in order to avoid taxation; beneficiaries would simply pay gift tax rather than inheritance tax in this case. The federal government makes a distinction between the "gross estate" (all assets) and the "taxable estate" (assets less a certain number of allowable deductions such as funeral expenses, some charitable contributions and various other deductions).

In most cases, if the estate is left to a charitable organization or a surviving spouse, no inheritance tax is due. There are also exclusions for a certain portion of the estate; however, these have been frequently changed by recent tax legislation, and usually, it is worth consulting a professional to determine what amount of the estate is not taxable under current federal law. In part because these complexities make it possible for some wealthy people to establish shelters that let them avoid estate tax; the estate tax debate has been going on for years.


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    1. “No man should receive a dollar unless the dollar has been fairly earned. Every dollar received should represent a dollar’s worth of service rendered – not gambling in stocks, but service rendered. The really big fortune, the swollen fortune, by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means.”
      Theodore Roosevelt

      This was the basis of his logic when arguing for a graduated income and estate tax. Other reasons for estate taxes include providing an equal opportunity for current generations, preventing generational wealth, preserving democracy, encouraging innovation, and taxing appreciation of property. After personally seeing the lazy offspring of the very wealthy, I believe any person who can’t make do with over 5 million dollars in gifted money is a waste of space. IMO, it’s simply not in the interests of the states to allow for untaxed windfalls in excess of this value.

      The Heritage Foundation has outlined a number of objections to the estate tax: parents have a right to use their wealth as they see fit, the estate tax hurts farmers and small businesses, the estate tax reduces the incentive to save and invest, and the nation shouldn’t tax money that has been taxed previously. I’d like to discuss each point.

      First, the idea that parents should have a right to use their wealth as they see fit; risk-takers should be able to do what they want with their profits. However, the same logic could be used for the landed aristocracy of the monarchies of old. These lords and ladies took enormous risks, often including their own lives, yet we do not respect their claims. In almost all legal systems across the globe, monarchs have been turned into figureheads, even though noble parents might have wanted their children to continue to hold power, prestige and property. I see little difference between these claims.
      Second, there is an argument that the 40 percent estate tax will hurt farmers and small businesses. The Tax Policy Center found that only 20 small businesses and farms owed any estate tax in 2013, and those 20 estates owed only 4.9 percent. The individual exemption for the estate tax was about 5.5 million, and 11 million for married couples. I cannot see how an argument that farms and small businesses are being hurt can be legitimate. The Norman Rockwell-esque idea of the poor farmer or small business owner scraping by doesn’t hold when you realize that anyone getting over 5.5 million dollars in property has left the ranks of the poor and joined the top 1 percent.
      Third, there is the concern that the estate tax may interfere with the desire of people to save and invest. How so? A person has access to all their money and property when they are alive. The estate tax does not affect them. The estate tax only comes into play after they die. Do dead people really care about taxes? While I am not a man of great faith, I cannot help but point out that I have never heard from a deceased member of our nation about how the estate tax has harmed him/her.

      Finally, there is the idea that we shouldn’t tax money more than once. This is a misleading claim as the money isn’t really taxed twice. The income was taxed once when it was the parent’s. The money became taxable income for another person when it was later gifted to the inheritor. Further, the fact of the matter is that there is a huge amount of income being made that is untaxed. The Center on Budget and Policy Priorities found that fifty five percent of the value of large estates comes from appreciation, an untaxed capital gain. Further, under the tax code as of January 2, 2013, no capital gains taxes are paid for the sale of assets held for more than a year. There is a ton of money being made that never is taxed in the first place, and it should be. The estate tax is a convenient way to tax earnings that made their way through loopholes.