You are really touchy. My point is that it is dangerous for politicians that want to increase taxes to also define who is "rich".
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Obama's economic plan - Soak The Rich
- Thread starter kallsop
- Start date
Even inheritance taxes that only tax estates valued in the millions? I'm a bit confused: are we switching the definition of "middle class" again?
As for taxes already having been paid, that depends on how the inheritance tax is designed. Stocks are only taxed on their capital gains when the stock is sold. If someone bought $1 million in google stock and sold it for $11 million they would pay capital gains tax on $10 million, or $2 million at the 20% rate. But if the person dies, the cost basis for the heirs is the value at the time of death. They inherit the $11 million in stock and pay no capital gains tax at all if they sell it immediately.
Well right now there is a 2 million dollar exemption and then a 45% lump sum tax on every thing above that BUT that is only temporary and after 2010 it will fall back to everything above 600k will be taxed at 45%.
The make up of the estate such as stocks, bonds, real property is irrelevant. It is the only the liquidated value of the estate that would be taxed. For example, if the estate was only a single holding say a mansion valued at 6 million then the estate tax would be 6 mil- 2mil=4mil*.45=2.7mil that would be owed. Ether the mansion would have to be sold to pay the tax or the estate beneficiaries would have to pay out of pocket.
Tricky
Briefly immortal
You're right. I don't understand it. Money is not something that, once taxed, should never be taxed again. I spend money and I pay sales tax. The person who gets that money spends it, and they pay sales tax. Is that wrong?
Simply, when money changes hands, the government takes a slice. That's the way taxes work. To think that changing hands from parents to children should be exempt from this is ridiculous.
Now you can argue all you want about whether or not taxes are a good idea, but I personally feel that we have benefitted from having a strong government, even if they tend to be greedy and wasteful many times. Arguing that taxing money you give to your children is more wrong than taxing money you give to your employees is a poor argument.
But it isn't exempt from taxation. The kids will just pick up the tax burden the parents had before death. The kids are not getting "free" money as far as taxes are concerned in fact they will more than likely pay more that their parents did. The problem with the estate tax is that it is confiscatory and punitive.
Tricky
Briefly immortal
The solution to that is to make rules that distribute income more equitably. When you have several orders of magnitude of difference between CEOs and the grunts who make their wealth possible, there is something wrong with the system. Put those 50% well above poverty level, and they'll pay taxes. Of course, the ultra-rich will have to pay for that distribution, even if it is in reduced income, not in taxes. Socialistic? Yeah, a bit. So what? I'm more concerned about what is good for the country. This economic disparity, I believe, is not good for the country.
Geeze. How much should a CEO make? I fully support holding Executive salaries to the performance of the company and its stock price. CEO pay, in my opinion should float with both the profit the company makes along with the value of its stock but to try to tie his salary to a multiple of the "grunts" as you call them would not work since you could lead to a serious wage inflation just so the CEO could get his salary up which would harm the company's ability to compete and also the corps fiduciary requirements to the shareholders.
The first million dollars in any persons estate are exempt from inheritance taxes. On top of this, there are special rules for valuing family farms and small businesses that allow most of them to avoid inheritance taxes. The middle class doesn't leave estates large enough to be subject to the inheritance taxes.
The wealthy do indeed pay estate taxes, including the Kennedy's.
That just isn't true. There are many middle class families that have total assets that are subject to the ET. Those that have paid for homes and have invested well over the years in 401k plans or other investment vehicles. The problem for boomers is that they have not done the ground work their parents did and less more than 50% of them will have only social security to live on when they retire.
So the argument that appreciated stocks and other real property have "already been taxed" does not hold. Not only are capital gains taxed at a level about half my marginal income tax rate, but the taxes are deferred, and if the person dies the taxes are never paid. Would you agree to closing that loophole?
NO capital gains taxes are and cannot be deferred unless they are reinvested in a tax deferred vehicle such as a 401k. Believe me I know since I paid a butt load of CG this year from my mutual funds and I didn't touch the money. CG and dividends are taxed as "imputed income" and the tax is due in the year they are accrued not when you take them as real income. When a person dies, the IRS only looks at the present value of the assets held and if over 2 million they asses a tax of 45% of that value up front.
If a person dies and his assets are in a 401k that 401k is not transferable to any person other than a surviving spouse, otherwise it must be liquidated and placed in a taxable portfolio.
One other quick point. I think many people use the term "trust fund babies" are misinformed. There are no types of trusts that can be used to avoid taxes other than the ones that can put you in the pokey. Trusts are simply vehicles to either avoid probate or are set up to control the spending of under aged heirs. I have a living trust whose only purpose is to avoid the probate process when I kick-off but it is very expensive since any capital gains taxes accrued to the trust is taxed at 35% instead of 15% so I make sure I have heavily weighted in dividend paying bond funds and tax exempt municipal bonds.
It's time for a quick lesson in how estates work. I know this stuff because I am currently the executor for an estate.
When someone dies, the executor pays all the bills the deceased owes. If the estate is large enough, (net value over one million) estate taxes are paid. The remainder is distributed to the heirs. Most of the money the heirs receive is not taxable income and does not have to be reported to the IRS. For the heirs, it's a tax free windfall.
If the estate earned interest or other income before being distributed, that income is taxable. Each heir will pay taxes on their share of that income.
Not that simple. The money is distributed to the heirs and if they just take it in cash and spend all of it immediately then yes it is not taxed. However, in the case of an estate that is subject to the ET that is not what happens. If the money is invested or earns interest then the heirs are taxed on that income. Estates large enough to be subject to the ET are generally held in a living trust and the heirs if young usually receive their share in the form of their own trust until the age that is specified in the grantor trust that allows them full control over the inheritance.
The probate process in my state is rather simple. What is the problem with probate in your state that makes it worth spending a lot of money to avoid it?
You refer to capital gains distributions, not unrealized capital gains.
Scenerio 1:
If I have stock that has appreciated from $1 million in value when I bought it 20 years ago to $11 million in value and I sell it today, I owe capital gains tax of 2 million. That tax was not due until the stock was sold: I owe no tax on the unrealized gain, so my taxes are deferred until I sell. Pay the tax, net 9 million. I die, my heirs inherit 9 million that as you point out has already been taxed.
Scenerio 2:
If I have stock that has appreciated from $1 million in value when I bought it 20 years ago to $11 million in value and I die today, my heirs inherit stock worth 11 million that that has never been taxed because it was never sold. So passing the stock on to my heirs avoids a 2 million dollar capital gain. Their cost basis becomes $11 million, not the $1 million I originally paid. If they sell before the stock price changes, they owe no capital gains tax at all.
The same goes for other assets that appreciate in value, like real estate, classic cars, art, etc. For estate purposes their value is calculated based on the date of death, but there is still no capital gains due.
Under this system, if great grandpa has a stock that is worth $1000 that pays a 5% dividend, he pays tax on the $50 dividend per year.
He dies and leaves it to grandpa. It's now worth $10,000, and pays a $500 yearly dividend. Grandpa pays tax on the dividend but no capital gain on the inherited stock
Grandpa dies and leaves it to your mom. It's now worth $100,000, and pays a $5000 yearly dividend. Mom pays tax on the dividend but no capital gain on the inherited stock.
She dies and leaves it to you. It's now worth $1,000,000, and pays a $50,000 yearly dividend. You pay tax on the dividend but no capital gain on the inherited stock.
You now have an asset worth $1 million dollars that was originally purchased for $1000 that has never been taxed. You sell the stock for $1,000,000. You owe no capital gains.
I see this as a loophole that ought to be closed. $999,000 of wealth has been created tax free.
It is not complicated it is just time consuming it is also more private than the probate process.
No. When grandpa dies his estate is then valued on the assets it holds and the appreciated value is treated as a capital gain of the estate by the IRS. The IRS has the first bite at the apple before any of the heirs get theirs. There is no such thing as the ability to die and just pass all assets to a child to avoid capital gains taxes. The same holds true for real property like houses or land. The asset is valued on the date of death and any gains since time of purchase are taxable to the estate. Once grandpa dies that creates a taxable event to his estate. If the heir is his surviving spouse then there are different rules but Uncle Sugar is Johnny on the spot for its cut before non-spousal heirs get their greedy little hands on the money.
Kevin_Lowe
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Whether we call it one tax or two taxes or fifty taxes is utterly irrelevant. That's just a matter of book-keeping. I have no idea why you think "Waah, it's been taxed twice!" is a compelling argument.
What matters is who pays and how much, not whether it's one entry in the ledger or two.
Well if facts are unimportant and "let's eat the rich" is the argument then yes it does not matter. I am just disappointed that fellow Americans could be so damned petty and envious of others.