Estate Lunacy

Here is how you game that tax ...

If you are a small business owner you incorporate and pay yourself a "minimum" wage given your occupation and industry standards.. Payout all of your earning as dividends, which are taxed aat a lower 15% rate.

 

Obviously, (or maybe not), my example was fairly simplistic. Don't allow loopholes. Any money you disburse into any non-charitable entity gets taxed. Of course it is not a switch we can turn on and off and there would be a lot of effort involved and it is not a simple thing to do.

 

Which is why the tax code is more than a few paragraphs long

Lots of ways to address this, I'm sure. If only they had the direction and will to do it.

 

As of 2003 there were 3.8 million "millionaire" households in the U.S. If you include, 401K, annuities, real estate, etc, that number jumps to 7.8 million (roughly 7% of U.S. households). While all of those households won't have to pay estate tax, it is certainly something that every one of those households needs to be concerned with.

 

Why are you tossing out fake and irrelevant numbers to scare people? Unless everybody in the US died tomorrow, this is simply not relevant.

Studies I have seen generally show that the number of estates subject to the estate tax is something like 10,000 per year. That equates to less than 1/2 of 1% of all deaths.

 

So you support a whole tax structure and the related industries that spin from that for a few thousand tax payers? Seems very inefficient.

Why not just raise the top rate 1%. Would likely bring in a bunch more money...and take away the planning dance.

Or tax the accrued gains rather than the capital?

But you wanted an example? Here's one:

A non resident buys personal real estate in the US. (Over the threshold amount).

He dies. He's now subject to estate tax on the value of the property -- with no consideration given to what he purchased it for -- nor where the funds came from --- nor how it was originally taxed.

Glynch -- I don't like the uber rich any more than you guys do. I just think the US estate tax, as it is currently structured, is conceptually flawed.

 

My main point is that no matter the tax code people with money will try and game it to get lower taxes.

A flat tax on income, dividend, interest, and capital gains would go aways to simplifying the tax code. For example, tax everything at 15%. Given personal exemptions to protect the poor.

I am also not against a VAT consumption tax.

 

Most of the tax act's complexities are defining what is income. The math is pretty straight forward.

It's always a chess game. People try to lower their tax hit...and if it's perceived there's an unfairness...the rules are changed to capture that. I don't see how you avoid that whether you go flat tax, consumption tax or otherwise.

 

I don't understand how you guys have to come up with all sorts of tortured hypotheticals about the estate tax in order to pull it apart.

The fact is, you can do that for any law/policy in existence to make it seem over or under inclusive. So the fact that somebody can dream up a hypothetical about a rich man bequesting away 1$ each to 25 million homeless people is cute but ultimately meaningless - especially since the estate tax affects such a tiny number of households, which means the likelihood of your nightmare scenarios is greatly lessened.(see, e.g., the family farm estate tax propaganda vs. the reality)

I don't understand what's not to like about the estate tax: it raises revenue, is fairly simple to understand, not very disruptive as far as interfering with incentives compared to other taxes, and above all fair insofar as it falls mostly on those most able to pay.

If you're really concerned about unfair taxes that increasingly affect regular folks, then get worked up about the AMT. Of course it's not a political football and doesn't have a cutesy name like the "death tax" so nobody ever bothers with it.

 

Agreed but ...

The game is usually how to dress up income (with the highest tax rate) as something else (with a lower tax rate). If the tax rate is all the same for all types of income, the game shifts to deductions (What can I do to make my family vacation look like a business expense?) My approach to deductions is to get rid of them, except for some minimal personal exemptions. Games should then be mostly over.

 

simplification would certainly be nice.

 

Why do you think these are fake numbers? Here is the link (but as you say, any drunk should be able to google this):

http://money.cnn.com/2003/09/29/pf/millionaire/q_millionairesmultiply/

I would think that anybody with an estate over $1,000,000 should look into how the estate tax may affect them.

 

They're fake because they're utterly misleading in any discussion of who's likely to be affected by the estate tax. Most people I know who have $1m or more by age 30 don't plan on hoarding the money for 50 years and then passing it on to their kids - rather they plan on retiring and living off the money.

If your argument is that the current exemption/retention levels where it kicks in is too low, then fine, raise it, or even better index it to inflation so that it rises each year. However, the fact remains that as of right now it is indisputable the estate tax only affects a handful of households each year and even at the $1m limit, while the numbers would rise, would still only affect a tiny minority of households.

 

They would be fools not to look into it.. What is that old adage about a fool and his money?

Millionaires are one charitable trust away from not paying any estate taxes.

 

link? Not that I don't believe you

 

I am only stating that if you have $1 million+ it is wise to look into how the estate tax may affect you. Sure, folks aren't necessarily going to horde their money, but if they are 30 and already have $1 million+ in assets, imagine what they will have when they are 70. Also, they may die tomorrow so anyone with that amount of money should investigate the estate tax.

I am also not arguing that the actual paying of the estate tax only affects a handful (percentage wise) of folks every year.

Do you think it is a bad idea for households with $1 million+ to do estate planning?

 

I have nothing better to do than to post fake numbers .

The link is in my response to SamFisher's response that I was posting fake and irrelevant numbers a few posts up.