Rich Getting Richer, ever wonder why?

well, you may want to consider some of the online bloviating about Ross Douthat's take on meritocracy. I'm pretty fond of Megan McArdle's discussion. Reading it would be a profitable exercise.

BTW, Tocqueville had plenty of other things to say, as well. Cherry-picking quotes is easy.

I'll have more to say about Paris and Kim another time.

 

actually, loquitor, if you want a discussion about tocqueville, have at it. i know the whole book pretty well. it's one of the more interesting modern texts about democracy. the enemy of democracy, really, as tocqueville saw it was as much capitalism (associated in the text with the cities) as the various backwater attitudes about religion that occupy so much space. and there's not a whole lot of doubt about what he meant on inheritance law. but sure, have at it if you want.

 

It is neither my Constitutional obligation nor my responsibility to fund cancer research.

 

One of the myths perpetuated by those opposed to an estate tax is that it would hurt hard working family farmers and small businesses, when it fact, that is not the case.

The exemption right now is < $5 million, with numerous credits beyond (particularly for the above mentioned estates) so that in effect, less than 1/2 of 1 percent of all estates are ultimately taxed.

But if you're in that 1/2 of 1 percent and you dont want to meet your Constitutional obligation, you can always build a moat around your property to keep the revenuers out.

 

redux, I'd really be interested to know what the justification is for taking away people's property that has already been taxed once, simply because they die. And why the proper disposition of that property is to give it to politicians to dispose of in support of their political self-interest. You're simply assuming your conclusion. You need to justify it.
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RB, it's been a looooooooooong time since I read Tocqueville. Suffice it to say I didn't take away from it what you did.

 

loquitur.....for the most part, there is no double taxation, particularly on those assets that have appreciated in value and would not otherwise be taxed until they were sold. If those assets are held until death, they are unrealized capital gains that have never been taxed.

 

I don't know enough about it to give an intelligent answer so I will have to resort to common sense.

The very wealthy deceased dude who owned the estate prior to his death is not going to be the recipient of the capital gained from it, despite how you almost suggest that he is.

Any taxes taken from the estate will not be taken from the deceased (unless he's been planning on spending it in the afterlife and is kicking up a storm from the grave)

The proceeds of the estate will go the inheritor(s) who will receive it as income. ( "Gift" sounds nice, but it's still income for them, which adds to their wealth)

They still tax income, don't they?

The fact that they don't tax inheritance over $5 million sort of makes this conversation a bit silly for the majority of you worrying about the IRS coming after your portion of Daddy's estate.

Simplistic and unintelligent but that's the way I view it.

 

Redux, your point is an argument in favor of eliminating step-up of taxable basis upon death, not an argument in favor of estate tax. In fact, getting rid of the step-up is a far better way to capture revenue upon the realization of gains on sale - it doens't impose tax upon an economically irrelevant event (death of the owner). If you and I agreed to get rid of the step-up, and also to get rid of the estate tax, would we both be satisfied? I know I would - that's an eminently fair and sensible result.

And no, joniemack, a gift is not income. Check the internal revenue code. It just isn't. Also, the amount that the person leaves is wholly irrelevant to the moral issue. Again, your'e just assuming your conclusion. I still would like to hear why it's moral to deprive anyone of the ability to dispose of his/her own property after they die and compel them instead to turn it over to politicians and their flunkies. Makes no difference if it's $1 or $1 billion, the moral issue is the same. (it's like the old joke about "we know what you are, we're just haggling over the price." I say the price makes no difference). And I have yet to hear any justification offered other than that "it's there, we think it should be used in a way other than the way the owner wants, and we think the owner doesn't really need it (even though no one asked the owner), therefore we are justified in taking it." Sorry, that just doesn't fly - that's simple force.

 

So I ask again, if a company paid their CEO $1/year and then gave him/her a "gift" of $10 million each year, should that "gift" go untaxed?

 

Nope. I dont agree.

Much (most) of the accumulated wealth at the very top (the top 1/2 of 1 percent of tax payers) is not in the form of increased income, but in increased-valued assets and investments. Doing away with both the step-up provisions and the estate tax would potentially exclude this wealth from ever being taxed. I dont think that is eminently fair at all.

 

Did I say that gifts were income? No, I didn't. But they are taxable (with some provisions) so I imagine that the IRS probably considers them so. The primary difference here being that it would appear that the gift donor is taxed rather than the recipient - while in an inheritance situation, it appears that the recipient is taxed or the estate is taxed prior to transfer to the recipient. But of course, this is not the real issue for you, is it?

You take moral umbrage against the whole idea, so whether or not a gift tax or inheritance tax should be regarded as income is really a moot point with you.

Morality and ideology, being the subjective entities they are, are unlikely to accept justification from opposing moralities and ideologies.

Besides, I think you've already been given the best justification there is:

Baraka Guru posted:

 

no, Derwood, the company won't give the CEO a "gift" of $10 million and a salary of $1. For one thing, people aren't stupid -- it's perfectly obvious what's going on in that scenario and it would never pass muster. For another, as a legal matter corporations or LLCs can't just give gifts because that's corporate waste -- i.e. a theft of shareholder assets. Corporate gifts to, say, charities, are viewed as investments in goodwill, which is why they aren't waste. But a gift to an individual? nope.

No, redux, it doesn't work that way. for one thing, you're missing the point - why should the death of the owner matter if the gain on the asset isn't being realized through a sale? Death of the owner isn't an economically significant event in itself, particularly if the asset continues to be used the same way as it was before. The point of taxation should be the point at which the asset is conveyed and monetized -- i.e. when it's sold, either at a loss or at a gain. Otherwise, it's just sheer opportunistic pocket-picking. For another thing, I'm puzzled about why you say that increased-value assets would escape taxation forever if there was no estate tax. It's just not true, except for heirlooms that get handed down for generations. Otherwise, an asset generally isn't worth much unless it's eventually monetized (you can't eat gold) -- and if it's an income-producing asset, the income always gets taxed. So no, you have not responded to my query -- I still want to know why it's moral to deprive the owner of stuff, the guy who created it or earned it, of the ability to direct what happens to his property, and instead give the property to politicians and their cronies to spend on their own political self-interest? Political rapaciousness and power-lust, accomplished with other people's money, seems not to bother you a bit.

J0niemack, maybe I missed what you said, but I didn't see any justification there. I infer that your reference to "economic aristocracy" means that you think people's wealth should be confiscated at their death in order to prevent aristocracies. That doesn't follow at all. To begin with, it's very very dangerous to tell people they can't try to make their kids' lives easier if they choose. It's simply not the government's job to tell me how much to spend on my kids and whether to spend it before I die or after. Once I earn money and pay taxes on the earnings, it's MY decision. Yes, there are rich people who have idiot children and no, it's not attractive to watch them spend daddy's inheritance on fripperies. But it does not follow that therefore the money has to be forfeit to the government. And it doesn't follow that because SOME people don't use their money well, therefore EVERYONE has to be restricted. There is precisely zero evidence that the govt makes better decisions about the disposition of money than testators. (Just as an aside, my law partner who does wills and estates tells me that most of the people who have estates big enough to warrant worries about estate tax tend to give pretty sizable bequests to charities -- your confiscation scheme would probably wreak havoc on a fair number of hospitals, universities, foundations, museums and soup kitchens).

I find this entire exercise mystifying. The govt is filled with human beings who have the same greed, power-lust, egocentrism and self-regarding instincts as people in the private sector. Why is it moral to compel people to funnel their money to people who didn't earn it, merely because they are in the government?

 

I stand by what I wrote. For the very top of top 1/2 of 1 percent, that accumulated wealth from assets and investments is so great (I'm talking the billionaires) they simply could pass it from generation to generation and maintain their lifestyle off the growing interest alone and never see those assets taxed.

I recall a study of the Forbes 400 and the fact that more half were from inherited wealth...an accident of birth. What did those second, third, etc. generations create or earn?

How does the wealth of the Walton family benefit the economy? By providing low wage jobs with no benefits and supplying cheaply made products imported from China?

What is mystifying to me is why you would characterize it as "funneling money to people in government." It is funding programs and services that benefit the country as whole or at the very least, providing a social safety net for those less fortunate.

 

I applaud the charitable contributions of the Walton's. In fact, I have worked with Walmart on several programs (funding to NGOs that in turn funds local government programs - per our other discussion) despite that fact I despise how they treat their workers.

And yes, charitable contributions should be deductible but passing the wealth to the next generation is not philanthropic.

 

Regulations can't protect stupid! Rule number one for investors is to do your homework and understand what you are investing in.

 

Once you get ino the world of derivatives, that gets tricky, especially when other financial services corporations have repackaged products and hidden the risk (because they could).

Derivatives NEED regulation.