Goldy points to The Seattle Times’ endorsement of the repeal position on the estate tax advisory vote. We just voted for an estate tax like a few years ago, didn’t we? Whatever. But what I find interesting is The Seattle Times’ insistence on calling it a “death tax” as if that’s a thing.
Reading that got me thinking about their other insistence regarding taxes. Specifically, that taxes harm whatever you’re taxing. So they’ve been taking the line for years that you can’t increase taxes during a recession/recovery because it will harm the economy.* But if that’s true, they should support a “death tax” because it will stop people dying. By The Seattle Times’ logic, The Seattle Times wants more death. QED
*FWIW, I generally think that’s true. I also think spending cuts hurt the economy and that’s why I’m pro deficit spending during economic trouble. So when The Seattle Times also insists on balanced budgets, it undermines their position. If we have to chose between spending cuts or tax increases, I’m generally in favor of tax increases, and would prefer them on people who can afford to pay.
The Money has already been taxed. Double taxation because you keel over is hardly a fair thing. It destroys family farms and businesses even though Owebamma’s economy is destroying every business in this country.
Enough is enough…..
@1. gs
ALL money has already been taxed. Those who belly-ache that THEIR money is double-taxed are like any other whining baby crying because the government won’t let them have free candy.
Here’s what needs to happen.
As soon as someone dies, all assets the person owns immediately becomes property of the great collective (aka the government). The person who just passed away certainly doesn’t need it anymore nor can he/she/it use it any longer. Therefore it should go to the place it can be most useful, the government.
It is not a death tax, but a donation to the greater good.
Screw the children, screw the spouses.. all belongs to the government
@3. dutch
Are you sure you couldn’t be just a tad bit more melodramatic?
First, the tax on payment of assets to other individuals doesn’t kick in until AFTER the first $2 million. So it’s a hair short of a sure bet that your belly-aching is theoretical at best.
Second, when an employer pays an employee, the employee pays an income tax on the value received. Go complain about that before complaining about the estate tax–it’s FAR more regressive and far-reaching.
Third, the government in this country is comprised of “We the people” (I’m assuming you accept the original text of the Constitution as valid), not a king. So the treasure of the government is the treasure of the people–the children, the spouses, and all. You sound like a cry-baby who throws a screaming fit when you’re told to share with your siblings.
We’ve decided not to tax the first $2 million of assets transferred from a dead person to a live person. That is a far, far better deal than the tax imposed on transferring assets from a live person to another live person. Only people interested in preserving a permanent aristocracy based on being born into riches instead of earning one’s keep could justly argue against the estate tax–because it affects only aristocracy.
If you actually earn your keep, virtually every other tax is a MUCH bigger burden, and you are FAR better-off ignoring the estate tax so you can fight against taxes that actually are imposed on you.
Well Dave, you gotta understand, the wealthy are just SPECIAL, ya know. I mean, I know that I paid my tax. And when I pay a grocer, he pays his tax. And when he pays a deli worker, they pay their tax. So that’s already quadruple taxed or something like that. So really, when a bank pays an investor, you have to understand, that’s just different, because investors are wealthy and that means they are SPECIAL. You know, like SPECIAL. So the SPECIAL investor who got paid money by a BANK is the only one double taxed here. Because they are SPECIAL. And a person inheriting money got money from their parent and that’s SPECIAL. You know, they are just SPECIAL and that’s why it’s just not the same as me giving the grocer money or him giving the salad clerk money, because wealthy are SPECIAL. And really, if you buy the argument that the money shouldn’t get taxed just because it changes hands JUST LIKE EVERY OTHER TRANSACTION IN THE WORLD, well I think you are pretty SPECIAL too. Like go have your own “Olympics” kind of special, ya know?
@1. gs
Destroying family farms, by the way, is a myth. One of the easiest things to do in this country is to create an LLC or C-corporation. Put the assets of the farm into the corporation, and it’ll never be subject to an estate tax.
Frankly, it doesn’t make sense not to do that if you own a family farm. You’d be missing-out on substantial tax benefits and risk/liability mitigation if you don’t.
The fact is that the “destroys family farms” excuse is nothing more political bullshit spewed upon us because to most people–who aren’t aware of or don’t understand the accounting and tax details–wholesome and all “Americana”.
It’s the bullshit reason Senators Cantwell and Murray used to to cast the deciding votes against the estate tax at the federal level.
The only reason for eliminating the estate tax is to ensure a permanent aristocracy (plutocracy, to be more accurate). It has nothing to do with family farms. Show me a family farmer, and I’ll show you an owner/member of an LLC.
@5. MadSat
Yes, that is the exception: Businesses are not taxed on money they receive if they use that money to pay business expenses, salaries, or wages.
Everyone else pays taxes on money that has already been taxed.
I should note that service companies in Washington State don’t escape the tax at the state level–they are taxed on every penny of GROSS revenues–before expenses, salaries, and wages.
Dave, I had no idea you were an estate expert and tax lawyer.
Can you pls explain to the audience than how forming an LLC will prevent Estate taxes in general? With a properly drawn estate plan and continuation plan for the LLC, the corporation (family farm) would continue, but the estate of the deceased still has to pay estate taxes (if over the limit). I assume you are well aware of gifting strategies to the heirs and applying discount rules for minority owners or non-voting members of the LLC. But I would like to hear your justification on why forming an LLC will prevent all those myths you are talking about.
@1 “The Money has already been taxed.”
Bullshit. You don’t know what you’re talking about. Most large estates consist mostly of unrealized (and therefore untaxed) capital gains, and heirs get a basis step-up, which means neither they nor the previous owner will ever pay any income taxes on those capital gains. Without an inheritance tax, most of the income of the very rich not spent by them during their lifetimes would never be taxed.
I’ll offer you a deal, gs. I’ll agree to repeal the inheritance tax in exchange for repealing the basis step-up and taxing inheritances as ordinary income of the heirs. Would you agree to that?
@2 You don’t know what you’re talking about, either. Capital gains aren’t taxed until the gain is realized (i.e., the asset is sold). Most wealth of the very rich consists of unrealized — and, therefore, untaxed — capital gains. When a rich person dies with assets that have appreciated (stock, real estate, a business, etc.), the heirs get a basis step-up that effectively wipes out the capital gains tax. Let me illustrate hoiw this works.
Grandfather bought a farm outside Growing City in 1950 for $100,000. This land is now inside the urban boundary, and is currently worth $10 million, but Grandfather still owned it at the time of his death, so he never paid any income taxes on the $9.9 million capital gain. His will leaves the land to his three Children, who therefore inherit $3.3 million each from Grandfather. A year or so later, a developer offers them $10.6 million for the land, and they accept this offer and sell it. Their taxable capital gain is $200,000 each, not $3.5 million each, because their tax basis in the land is $10 million, not $100,000, due to the basis step-up. The other $9.9 million of gain is completely tax-free, both to Grandfather and Children.
That’s the way things really work. The inheritance tax is the only tax paid on the unrealized capital gains that comprise most of the monetary value of nearly all multi-million-dollar estates (which are the only estates subject to inheritance tax).
The tax code is designed to tax income and gains only once, and it does that, with one major exception. Wage earners are not allowed to deduct their costs of earning income — education costs, commuting costs, work clothing costs, etc. If the rich received the same tax treatment as wage earners, an investor would pay taxes on the entire proceeds of a stock sale, not the difference between what he paid for it and what he sold it for. And he would pay the ordinary income tax rate, not the preferential capital gains rate the rich get. So, yes, workers are doubled taxed. Nobody else is.
@6 Back in the 70s, when the rich and their wingnut lackeys tried to repeal the state inheritance tax by initiative, they put up billboards showing a picture of granny sitting on the curb with her belongings in front of her little cottage with the picket fence.
This, of course, was complete bullshit. Only millionaires pay inheritance taxes; and, generally speaking, inheritance taxes mostly hit capital gains that otherwise would never be taxed. The assertion that the inheritance tax breaks up family farming businesses is a myth of the same magnitude.
@8 I’d be more than happy to replace the B&O tax with a revenue-neutral income tax.
9. dutch
You just agreed with the entirety of my point–the family farm is protected. Your question now regards the personal estate over $2 million of a member of the LLC. That’s a different question.
11. Roger Rabbit
I was addressing money that IS taxed, not money that is NOT taxed. The point is that being “double-taxed” because some OTHER entity, distinct to the IRS, was taxed when it received money that it consequently pays-out to someone else who pays a tax on it–is not at all unique to capital gains.
The only reason it SEEMS be unique to some is when a person who owns a business structured as a C-corportation sees their business pay taxes on profit at the end of the fiscal year. They think, hey I’M paying that tax!! They’re not; the business is.
Then, when they distribute that money as a dividend or as salary/wages to themselves the following fiscal year, they complain they already paid taxes on it. They didn’t; the business did.
Arguing that a business is both distinct and the same as the individual who owns it is disingenuous.
Bottom line is that if a business owner/investor wants to complain that they are being “double-taxed”, then they should be complaining that all employees are being “double-taxed” as well. Welcome to the club.
no, my friend, you are wrong. It is not protected. The Estate of the deceased still has to pay for the estate taxes (if over the limit) and if no money is at hand, the estate has to liquidate assets aka its shares of the farm or whatever. So while the farm is “protected” in your mind, it is not a given.
@16. dutch
That could be roughly true assuming the business was [1] being run poorly and [2] the LLC is a single-member disregarded entity, employing little more than boilerplate articles of organization and operating agreement.
As you surely must be aware, there are numerous instruments available for transferring LLC interests to family and other LLC members, including trusts and discounted LLC interests. And there are plenty of cost-effective ways to eliminate–or at worst substantially reduce–the exposure to estate taxes of a family farm.
Just fractionating shares among two Family Farm LLC members (father and son?) already brings the value of the farm to over $4 million before one penny is subject to the estate tax–and that’s only if no other business instruments are used to control exposure.
There is NO reason (other than ignorance and negligence) for LLC units to be subject to probate. Tax consequences to the business as the result of the death of one member can be accurately estimated, mitigated, and incorporated into the operating agreement. The estate tax is not a threat to family farms properly organized as LLCs or C-corporations.
All you’re left with is whether surviving members of the Family Farm LLC can escape capital gains taxes (at some point in time). That’s an entirely different topic.
As I’ve said before, I’ll be happy to trade the estate tax for eliminating the basis step-up and taxing inheritances as ordinary income of the heirs.
Of course dead people don’t pay the death tax — but if they did, what would be wrong with that? If we have to take money from someone to pay for our government — and we do — then why not tax dead people? They’re, um, dead.