Da Noive of Dese Ultras. Da Gall!

 

23F23B5C-F8E4-4B3E-839E-56294D12C65A_mw1024_mh1024_sProponents of the death tax would be less likely to insist the state raid a dead man’s wealth if they were required to attend the funeral, crowbar open the coffin, and pull the rings off the corpse. Some would. Sorry about that cracking sound, but it’s all for the greater good. But most are content to have unseen agents of the state perform the task.

I’m glad these people want the death tax, because it shows them for who they are: statists who believe the government has a right to your purse the second you lack the strength to hold it. But now and then someone really gives the game away, and that brings us to James Kwak. Writing in Medium today about the mythical family farm threatened by estate taxes, he says:

The mainstream argument for repealing the estate tax is that a “small” family-owned business — say, one worth “only” $20 million —would have to be sold or liquidated to pay the estate tax. At a 40% rate, the tax on such a business would be about $4.5 million. It’s theoretically possible, though not particularly plausible, that an estate including such a business might not have $4.5 million in additional assets to pay the tax, and not be able to borrow $4.5 million against the value of the business, and not be able to sell a $4.5 million stake to other family members.

The ability to pay a tax is now an argument for its necessity. Got it. But here’s the fun part:

Even then, you have to ask what the real harm is. Where does it say that the ultra-wealthy — $20 million puts you in the 0.1% — have a right to pass their businesses on to their children, as opposed to just their wealth?

Lovely, isn’t it? And honest: he may say that this non-existent right should be called into question dealing with ULTRAs, but of course the argument scales nicely. Where does it say you get the right to give your children that horseshoe your great-grandpa handed down from his Civil War days? It should be in a museum where everyone can see it. Where does it say you get to do what you want with your any of your possessions, really?

He also makes the argument that you could buy insurance to cover the death tax, admitting that it would be expensive, but hey, it’s better than liquidating the business, right? As for whether that money could be better spent on the business, improving facilities or raising wages, well, don’t be silly. We’re talking the Ultra-Wealthy here. They can trot out to the barn and squeeze another golden egg out of the goose.

I’m sure it makes some people feel virtuous to craft endless justifications for using force to destroy the business of a dead man who wished his heirs to carry on, but I’d like to think I would stop because it made me feel like a miserable little thief.

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  1. user_216080 Thatcher
    user_216080
    @DougKimball

    You forgot those gold fillings.  Find me some pliers.  The guvmint needs a new pair of everything.

    • #1
  2. user_199279 Coolidge
    user_199279
    @ChrisCampion

    I think it was last year or the year before here in Vermont that the state’s budget shortfall was more or less “saved” due to the death of someone with a large estate, and the estate tax levied managed to cover some several (I think 10-20) millions.  Voila.  Budget problem solved.

    It’s pretty nauseating to see that we’re looting the corpses so effectively.  Let’s note, in case anyone forgets, that the estate is what’s left over after you’ve been taxed on income and assets all your life.  Uncle Sam now wants a slice of the pie he let you keep after he took a big chunk of the first slice you earned.

    The estate tax is double-taxation, typically at hideously higher rates than incomes tax rates.  It should horrify Americans.

    • #2
  3. Stad Coolidge
    Stad
    @Stad

    Estate taxes and property taxes are the two things that tell citizens “You don’t really ever own property in this country”.

    Property tax means the government (mostly local) has a permanent lien on your property, which in turn means if you don’t pay the tax, you’re in permanent danger of losing real property – typically your home, your cars, etc.

    Estate tax means the taxes you have already paid on that income earned, don’t mean a dang thing.  Your heirs (if the amount is large enough) cannot benefit from the hard work you did to ensure their future is secure.

    This is one reason why I can support 1) a flat income tax only (no other taxes), or 2) the Fair Tax.

    I prefer the latter, but I would settle for getting rid of withholding altogether, and have everyone pay the tax.  What does Obama always say?  Skin in the game.  If the poor have to pay taxes, then bleeding heart liberals would have to keep the tax rates as low as possible . . .

    [Hey Blue Yeti!  My word editor changed from normal, to typeover.  Screwed up my post for a while.  Did I do something wrong?]

    • #3
  4. Bryan G. Stephens Thatcher
    Bryan G. Stephens
    @BryanGStephens

    The Left is Evil. There is no level of freedom they won’t take, no wealth they won’t take from you. Tyrants always justify it in their minds. But they are evil.

    • #4
  5. Yeah...ok. Member
    Yeah...ok.
    @Yeahok

    I thought the wealth tax didn’t apply to estates under some minimum value, maybe a million. Since that’s the case, I hardly think the 20 million estate is in the top 1% of estates subject to tax.

    Ah, who am I kidding. The real answer is we should be glad they don’t take it all. Whatever did Clive Bundy do to avoid jail?

    • #5
  6. Ricochet Moderator
    Ricochet
    @DougWatt

    Am I missing something here, isn’t 40% of 20 million 8 million?

    • #6
  7. viruscop Member
    viruscop
    @Viruscop

    Bryan G. Stephens:The Left is Evil. There is no level of freedom they won’t take, no wealth they won’t take from you. Tyrants always justify it in their minds. But they are evil.

    I’m part of the Left. I don’t care about the death tax, and I don’t think this is an issue of Good vs Evil.

    • #7
  8. PsychLynne Member
    PsychLynne
    @PsychLynne

    viruscop:

    Bryan G. Stephens:The Left is Evil. There is no level of freedom they won’t take, no wealth they won’t take from you. Tyrants always justify it in their minds. But they are evil.

    I’m part of the Left. I don’t care about the death tax, and I don’t think this is an issue of Good vs Evil.

    That makes sense.  Are there taxes you do care about?  just curious

    • #8
  9. John H. Member
    John H.
    @JohnH

    To me, the troubling thing about any taxation is not that it exists, or that it might be exorbitant, or that its proceeds might be misspent, or that its administration might be complicated or cavalier, but that its legal underpinning is creative. People can think up ways to tax other people…and that’s OK!

    • #9
  10. Ricochet Moderator
    Ricochet
    @DougWatt

    anonymous:

    Doug Watt:Am I missing something here, isn’t 40% of 20 million 8 million?

    If you are a U.S. citizen or permanent resident you have to subtract the exclusion (US$5.34 million in 2014), then apply the progressive estate tax rate which varies from 18% to 40% at the maximum of US$ 1 million above the exclusion.

    This leaves out myriad details which employ armies of estate tax lawyers and accountants. What remains clear is that it’s theft of after-tax savings, plain and simple.

    This may seem to be something which applies only to fat cats, but it is a gut-shot to family farmers whose land has appreciated and owners of family businesses who wish to pass them on to the next generation.

    Okay I get it now. I might as well confess to all the Ricochetti that I failed “You didn’t build that” mathematics.

    • #10
  11. Ricochet Moderator
    Ricochet
    @DougWatt

    Bryan G. Stephens:The Left is Evil. There is no level of freedom they won’t take, no wealth they won’t take from you. Tyrants always justify it in their minds. But they are evil.

    viruscop:

    Bryan G. Stephens:The Left is Evil. There is no level of freedom they won’t take, no wealth they won’t take from you. Tyrants always justify it in their minds. But they are evil.

    I’m part of the Left. I don’t care about the death tax, and I don’t think this is an issue of Good vs Evil.

    From Rerum novarum written by Pope Leo XIII May 15, 1891
    5. It is surely undeniable that, when a man engages in remunerative labor, the impelling reason and motive of his work is to obtain property, and thereafter to hold it as his very own. If one man hires out to another his strength or skill, he does so for the purpose of receiving in return what is necessary for the satisfaction of his needs; he therefore expressly intends to acquire a right full and real, not only to the remuneration, but also to the disposal of such remuneration, just as he pleases. Thus, if he lives sparingly, saves money, and, for greater security, invests his savings in land, the land, in such case, is only his wages under another form; and, consequently, a working man’s little estate thus purchased should be as completely at his full disposal as are the wages he receives for his labor. But it is precisely in such power of disposal that ownership obtains, whether the property consist of land or chattels. Socialists, therefore, by endeavoring to transfer the possessions of individuals to the community at large, strike at the interests of every wage-earner, since they would deprive him of the liberty of disposing of his wages, and thereby of all hope and possibility of increasing his resources and of bettering his condition in life.

    What James Kwak proposes is evil

    • #11
  12. civil westman Member
    civil westman
    @user_646399

    Perhaps it is time to recur to open-air immolation at death. Fuel the flames with the paper currency proceeds of one’s entire estate. My own view is that if the state can prevent my heirs from having it, I can prevent the state from taking it. Call it a “scorched-death policy,” which would give me the last laugh and go down as another cause of risus sardonicus. Tee off the EPA at the same time with the carbon.

    • #12
  13. viruscop Member
    viruscop
    @Viruscop

    PsychLynne:

    viruscop:

    Bryan G. Stephens:The Left is Evil. There is no level of freedom they won’t take, no wealth they won’t take from you. Tyrants always justify it in their minds. But they are evil.

    I’m part of the Left. I don’t care about the death tax, and I don’t think this is an issue of Good vs Evil.

    That makes sense. Are there taxes you do care about? just curious

    Mainly taxes on capital gains and investment. I’m not sure what their optimal level is, but they have a powerful effect on the economy. Also, sales taxes should be abolished during recessions, and we really shouldn’t worry so much about income and death taxes. We are far post the point where lowering income taxes will have any benign effect on the economy.

    • #13
  14. Belt Member
    Belt
    @Belt

    Two comments.  1) As others have noted, this can be catastrophic for a small business or a farm.  My dad and his brothers have put the family farm into a trust to protect it, and to provide income and legacy.  We’re doing okay, but it took planning and foresight to manage that. If someone dies unexepectedly, and can’t make provisions, they’re as likely to lose everything.

    2) Those who are able to afford lawyers and accountants to manage everything don’t mind, because no matter what ‘death taxes’ come along, they’ll be able to avoid or mitigate them.  The losers are those who don’t game the system.

    • #14
  15. user_138562 Moderator
    user_138562
    @RandyWeivoda

    James Lileks:It’s theoretically possible, though not particularly plausible, that an estate including such a business might not have $4.5 million in additional assets to pay the tax, and not be able to borrow $4.5 million against the value of the business, and not be able to sell a $4.5 million stake to other family members.

    James Kwak is ignorant.  You can bet that extremely few businesses or farms evaluated at $20 million have $4.5 million cash on hand.  Oh, but they could borrow it, he thinks.  Does he have any idea how long it would take to pay that off?  Even in prosperous times there are lots of businesses that operate on a profit margin of way less than ten percent.  In hard times you might do a fair amount of transactions and still not break even.

    If the estate tax is fair, it ought to apply to everybody.  Forget about the graduated rates and forget about the exemption of the first however many dollars.  Your parents died and left you their $100,000 house?  Fine.  Fork over $40, 000 or forfeit the house to the IRS.  Don’t worry, we’ll give you a few months to raise the money.  Your brother died and left you his $10,000 pickup?  That will be $4,000 please.

    If we had a law that really hurt people, but the proponents said “Hey, don’t worry.  this only affects a tiny portion of the population.  We’re just punishing the very shortest people, the very darkest people, or the very smartest”, I wonder how the left would react?

    • #15
  16. user_409996 Member
    user_409996
    @EdwardSmith

    viruscop:

    PsychLynne:

    viruscop:

    Bryan G. Stephens:The Left is Evil. There is no level of freedom they won’t take, no wealth they won’t take from you. Tyrants always justify it in their minds. But they are evil.

    I’m part of the Left. I don’t care about the death tax, and I don’t think this is an issue of Good vs Evil.

    That makes sense. Are there taxes you do care about? just curious

    Mainly taxes on capital gains and investment. I’m not sure what their optimal level is, but they have a powerful effect on the economy. Also, sales taxes should be abolished during recessions, and we really shouldn’t worry so much about income and death taxes. We are far post the point where lowering income taxes will have any benign effect on the economy.

    Tell that to California, Illinois and New York, who are losing businesses and taxpayers to Texas, with its lower income taxes.

    The only world where the Inheritance Tax makes sense is the one portrayed in Children of Men, where there are no children to inherit anything anyway – and by the way no future to look forward to and therefore no reason to build anything.

    I so want to live in that world!

    Spoiler alert, that world got saved.  Let’s not be so stupid as to let matters get that far just because we cannot imagine someone having anything worth $20 million who isn’t a Robber Barron who made his living living off of the fat rendered from orphan children.

    Children of Men

    • #16
  17. user_409996 Member
    user_409996
    @EdwardSmith

    What I find annoying is that the people who most favor the Inheritance Tax don’t admit that the weak Dollar weaker and playing games with the Housing market has made a lot of people’s land and houses worth more.

    The house my grandparents sold to my parents for $35,000 in the early 1960’s did not increase in value to $150,000 in 1989.  The 1989 dollar bought what you could buy for a dime, well, maybe fifty cents 30 years before.

    So stop calling people rich just because there are more zeros floating around.  A lot of those zeros are empty calories.

    • #17
  18. Ricochet Member
    Ricochet
    @WardRobles

    Great post! There is lots to rant about here. I find the estate tax offensive, because it is simply confiscation, applying to all assets, regardless of previous taxes paid. The farmer in the above example could have sold his land, paid capital gains tax, and then paid all over again on death. The income and capital gains tax at least only ask the taxpayer to come up with a portion of his or her net gain when received. The estate tax feels more like a stickup than a contribution to civilization.

    A family with a free and clear property might get the IRS to accept what is essentially a mortgage. So, after the parents scrimp and save for decades to pay off the big family investment, the kids get to start over with he federal government as lender, except that they did not actually borrow anything.

    With some creative financial planning far in advance, families can reduce this tax burden, but with millions on the line it doesn’t come cheap. A family with an estate like the one discussed can expect legal and accounting fees of a quarter of a million dollars.

    Bill Gates and Warren Buffett are on board with the estate tax, though. They set up trust funds for their kids decades ago that will pass free of estate tax and free of capital gains tax on their deaths. The bulk of their remaining estates will pass free of estate taxes to foundations in which their kids are involved. The Kennedys made the same maneuvers. Ted Kennedy even got a special bill passed creating a special loophole just for his own family.

    I say eliminate the estate tax, the unlimited charitable deduction, and the step-up in basis on death (which eliminates the capital gains tax). It probably would not cost the treasury anything, would eliminate most of a whole parasitic industry, and let Democratic elites finally pay their fair share.

    • #18
  19. viruscop Member
    viruscop
    @Viruscop

    Edward Smith:

    viruscop:

    PsychLynne:

    viruscop:

    Bryan G. Stephens:The Left is Evil. There is no level of freedom they won’t take, no wealth they won’t take from you. Tyrants always justify it in their minds. But they are evil.

    I’m part of the Left. I don’t care about the death tax, and I don’t think this is an issue of Good vs Evil.

    That makes sense. Are there taxes you do care about? just curious

    Mainly taxes on capital gains and investment. I’m not sure what their optimal level is, but they have a powerful effect on the economy. Also, sales taxes should be abolished during recessions, and we really shouldn’t worry so much about income and death taxes. We are far post the point where lowering income taxes will have any benign effect on the economy.

    Tell that to California, Illinois and New York, who are losing businesses and taxpayers to Texas, with its lower income taxes.

    The only world where the Inheritance Tax makes sense is the one portrayed in Children of Men, where there are no children to inherit anything anyway – and by the way no future to look forward to and therefore no reason to build anything.

    I so want to live in that world!

    Spoiler alert, that world got saved. Let’s not be so stupid as to let matters get that far just because we cannot imagine someone having anything worth $20 million who isn’t a Robber Barron who made his living living off of the fat rendered from orphan children.

    Children of Men

    I was talking about federal. Obviously, there is work that the states could do, and taxes are just part of a basket of reasons for why some people are moving to Texas. Also, I didn’t like Children of Men.

    • #19
  20. user_138562 Moderator
    user_138562
    @RandyWeivoda

    Ward Robles:Bill Gates and Warren Buffett are on board with the estate tax, though. They set up trust funds for their kids decades ago that will pass free of estate tax and free of capital gains tax on their deaths. The bulk of their remaining estates will pass free of estate taxes to foundations in which their kids are involved. The Kennedys made the same maneuvers. Ted Kennedy even got a special bill passed creating a special loophole just for his own family.

    I have read that Gates and Buffett have both said they want to leave very little to their heirs and give most of their fortunes to charity.  That’s fine, they should be able to give their money to whoever they want.  But they don’t think that others should be able to make a different choice without a stiff government penalty.

    What doesn’t occur to many people is that oftentimes in the case of a family business, those heirs may have really earned that business.  Lots of people probably picture Paris Hilton when they think of someone inheriting a business empire.  But for every Paris Hilton there are probably a hundred people who have worked in their family business since they were kids.  Quite possibly making less money and putting in more hours than the non-family employees, because they are sacrificing for the good of the family business.

    • #20
  21. Ricochet Member
    Ricochet
    @PainterJean

    I’m part of the Left. I don’t care about the death tax, and I don’t think this is an issue of Good vs Evil.

    Thievery is evil, whether it’s the government or the Artful Dodger picking the pockets. Working hard, being prudent with one’s money, desiring to help one’s children — those are good. Seems a straightforward, good-and-evil scenario to me…

    Also, I didn’t like Children of Men.

    Well, that settles it! How could I have been so blind??

    • #21
  22. user_124695 Member
    user_124695
    @DavidWilliamson

    As bad as it is in the US, it is worse in the UK – where the Death Tax exclusion is about $1 million. And Red Ed would like to make it zero (except for himself).

    But, of  course, Mr Obama wants to fundamentally transform the US into a Red-Ed UK (Red and Blue being swapped when crossing the Atlantic).

    It is amazing to me that the GOP somehow got that $5 million exclusion through while Mr Obama was President for Life, err, I mean President for 2 terms.

    • #22
  23. Ball Diamond Ball Member
    Ball Diamond Ball
    @BallDiamondBall

    Meanwhile Comrades, Apple Chief Itunes Ruiner Tim Cook has pledged to give his fortune away, *after* paying for his son’s college or something.

    First off, how dare he attempt to control wealth (a public good) even after his death?  It’s bad enough he has hoarded a bunch of it now, but since when does he have a right to declare that some entities will eceive it and some wil not?  That’s a job best left to government.

    Second, what has his son done for us?  How does he deserve a college tuition?

    I call Shenanigans.

    • #23
  24. profdlp Member
    profdlp
    @profdlp

    Randy Weivoda:

    …If we had a law that really hurt people, but the proponents said “Hey, don’t worry. this only affects a tiny portion of the population. We’re just punishing the very shortest people, the very darkest people, or the very smartest”, I wonder how the left would react?

    If it affected only the very smartest the left wouldn’t have much to worry about.

    • #24
  25. Valiuth Inactive
    Valiuth
    @Valiuth

    I am not sure I agree with peoples logic on this issue. Isn’t the estate tax levied against the inheritors? Isn’t the receiving of an estate equivalent to the receiving other salary/gifts? Can’t you just avoid this problem with a business by bringing your family into it and making them co-owners before you die? To me it seems that even if you had a flat tax you would still have to tax the proceeds gained from the inheritance of an estate, it might just have a lower marginal rate.

    • #25
  26. Ricochet Contributor
    Ricochet
    @TitusTechera

    Valiuth:I am not sure I agree with peoples logic on this issue. Isn’t the estate tax levied against the inheritors? Isn’t the receiving of an estate equivalent to the receiving other salary/gifts?

    If you think an estate is like making a gift, you mean that family has no legal expectations that strangers do not have already. You should consider the implications of that opinion-

    • #26
  27. civil westman Member
    civil westman
    @user_646399

    There is another component of the death tax which is overlooked and  would become even more important if obama’s (sic) proposal to deny stepped-up basis to heirs ever passes. That is, the tax is on nominal gains, rather than inflation-adjusted gains. A house or a farm bought 40 or 50 years ago has nominally increased in dollar value in significant measure due to inflation. Measure the value in constant dollars (or purchasing power of those dollars) and you will see that this is largely a tax on inflation, not on purchasing power.

    So, first the government creates inflation and then taxes it to the extent one has foregone present consumption in order to store any wealth for future generations. As I see it, all savings are already subject to the hidden tax called inflation, of which the government is the prime beneficiary.

    • #27
  28. Valiuth Inactive
    Valiuth
    @Valiuth

    Titus Techera:

    Valiuth:I am not sure I agree with peoples logic on this issue. Isn’t the estate tax levied against the inheritors? Isn’t the receiving of an estate equivalent to the receiving other salary/gifts?

    If you think an estate is like making a gift, you mean that family has no legal expectations that strangers do not have already. You should consider the implications of that opinion-

    Wait? So under your logic if Bill Gates were to bequith his wealth to me (a random stranger) then taxing that would be okay, but if I were his son it would not be? You tax peoples income, regardless of where it comes from. If you work for your family business does that mean you shouldn’t pay income taxes on your salary? Why not pretend like it is an inheritance?

    To me it seems what we want from a tax code is a simple to define rule that is universally employed. Ie. every citizen is taxed on 10% of all income received. If in 2015  I inherit 1 million bucks that means in 2015 I made my salary + 1 million dollars in income so I pay 10% of that. Seems fair to me in principle. We can squabble over the tax rate but as long as income is taxable I don’t see why inheritances are some sort of extra special form of income, other than naked sentimentality. Money is money and assets are assets.

    Now I happen to think that you should only tax cash, so if someone leaves you a farm unless you liquidate it there is no income tax to be paid because a material good isn’t income. But if you get 100 dollars in a bank account that is income. So I agree that taxing a good based on its assumed value is dishonest, unless the government will also accept payment in durable goods. Ie. if they want to tax your farm you should be able to pay them off in acres instead of cash.

    • #28
  29. Ricochet Contributor
    Ricochet
    @TitusTechera

    Valiuth: if Bill Gates were to bequith his wealth to me (a random stranger) then taxing that would be okay, but if I were his son it would not be? You tax peoples income, regardless of where it comes from. If you work for your family business does that mean you shouldn’t pay income taxes on your salary? Why not pretend like it is an inheritance?

    Under my logic? I did not present a logic. I pointed out what you were implying, that is logical necessity. Why you cannot think on that but instead try to find something to attack about me is not obvious to me.

    For my logic, I would defend a special exception or what have you for bequeathing in the family, at least to a certain extent, not unqualifiedly, but enough such that only the very rich would have to bother–in fact, if America got going again economically, I could find no reason to keep bothering even the rich…

    Naked sentimentality. Money is money and assets are assets.

    I pity the man who thinks this way. I do not think of myself as sentimental, but I believe the family has to be defended in various ways. Frankly, it is people who think in the way you outline that are the problem, not the money itself. The thought that the state is no respecter of family, but that in gov’t-economic logic all there is is an individual.

    Now I happen to think that you should only tax cash, so if someone leaves you a farm unless you liquidate it there is no income tax to be paid because a material good isn’t income. But if you get 100 dollars in a bank account that is income. So I agree that taxing a good based on its assumed value is dishonest, unless the government will also accept payment in durable goods. Ie. if they want to tax your farm you should be able to pay them off in acres instead of cash.

    This proposal could be worth something, although I’m no expert–I’d like to see states try to implement it, although of course the federal burden & federal spending would have to be pared back significantly before it’s really feasible on a large scale. But maybe on a small scale it would make an impression, prove something worthwhile even to people who might disagree with your opinions, & spread.

    • #29
  30. MLH Member
    MLH
    @MLH

    Titus Techera:

    Valiuth:

    Gentlemen, let’s not get personal.

    • #30

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