Taxes & Wealth Distribution

[Karma Police]

Each individual has a $2 million exemption from the federal estate tax, which will soon increase to $3.5 million. Also, it's possible to give away substantial amounts during your lifetime, and take other steps to reduce the estate tax.

So, with proper planning, only families with substantially more than $4 million (soon to be $7 million) are subject to the federal estate tax. The statistic of 1 to 2% is about right (might be a bit high, actually).

In addition, when you die, your assets receive a stepped up basis for income tax purposes, which means that all of your unrealized capital gains escape the capital gains tax forever.

Interestingly, the Republican's proposed estate tax "repeal" would have actually increased taxes on families with estates of up to $4 million in order to benefit families with more than $4 million. But, they forgot to mention that when they were trying to justify estate tax repeal.

[Doku]

Please pardon the long-winded reply.... I missed a few posts.

Originally Posted by topher1181

I would favor moving to a flat sales tax. I also favor raising the minimum wage, at least for full-time workers.

Full time workers aren't the ones who need to worry about minimum wage. It's the part-time sales clerk at your huge neighborhood discount store. Also, lack of healthcare is more of a problem than minimum wage. Those at or near the minimum wage level are generally w/o healthcare as well for a double kick in the nuts. If you must give them something, give them healthcare, not higher minimum wage.

Originally Posted by gberardi

It sounds like being taxed for giving away your property, a gift tax, only it is involuntarily.

This is essentially what it is... a gift tax.

Originally Posted by topher1181

Also, are you a member of the top 2% of the country that actually has to worry about the estate tax?

I am not currently, but I plan on it. According to Wikipedia, I am in the upper class. (top 5%... if my went back to work, we'd be top 1.5%)

Originally Posted by topher1181

As for income taxation, a flat tax wouldn't be "fair" since a dollar is worth more to someone who has less. $100 in taxes is a huge hit to someone on minimum wage, but $1000 isn't nearly as painful to someone who has millions.

Sure it is! The rich get rich by paying attention to the pennies. The poor stay poor by not paying attention. That 100 bucks is every bit as painful to the rich guy as the poor guy. The poor guy knows that it's a hundred bucks. The rich guy knows the value of that hundred bucks.
I know both sides of this coin. As a kid, family income was around 17,500 a year. Now, it's considerably more. This is due, in part, because now I realize the value of 20 bucks instead of just knowing what a 20 dollar bill was. Mindset.

Originally Posted by topher1181

But then, I am probably middle class financially, and maybe I just don't see it objectively enough.

Correct. The main problem that people have with taxes is that it is an emotional issue. They can't sit back and look at it intellectually.

Originally Posted by Brutha

Why isn't the middle class also able to move their bucks like the lower middle class?

I think that Stephen was talking about the lower middle class's ability to spend money before they earn it, then wonder why they are in debt.

Originally Posted by Brutha

The right question is: "Why should some people who have rich parents get money without working for it?"
The estage Tax is some sort of compromise, you get something which you didn't earn but not as much as when you would get the whole heritage.

Because they are your children. Does the state charge your children tax on the toys you give them? the food? the clothes? No. You have already paid the tax.

Originally Posted by Karma Police

6. I don't care whether you think I'm "in agreement with the basis of America or capitalism." State your position or opinion, but please don't characterize me or my beliefs. By the way, many American capitalists, like Warren Buffett, agree with me.

Buffett's oposition is an extension of one of his other statements: ""I want to give my kids enough so that they could feel that they could do anything, but not so much that they could do nothing."
Buffett absolutely DOES care who gets it. That is why he has picked his charities and donated the money now so that there is not much of anything left when he kicks it.
I will do the same for my children, and will probibly give away much of my wealth as I have been doing all throughout my career. I do not, however, feel that the government should steal from my children to re-distribute how it sees fit. My wealth distribution should be my choice... same as Buffett.

Originally Posted by gberardi

Can you point me to info that states how many actually get hit with the estate/death tax?

12,600 people in 2006.

Originally Posted by gberardi

I don't know if you missed it above, but no one addressed my argument against the claim that taxes had already been paid and shouldn't have to be double-taxed.
You can argue against capital gains or the gift tax, but then I think eventually you will just be arguing against any tax.

I paid the tax before I put the money into the RothIRA. There is no tax on withdraw. I paid the tax before I bought the stock. Transfer ownership at the cost basis that I bought it at. I paid the tax before (income), and when I bought the house(transfer), and while I lived there(property). Transfer as-is. If they want to sell, that's their choice.

My main point here is that I feel that the government should not be able to dictate how much of my money I can give to my children.

[ahimel]

Originally Posted by KevinG

Corporations don't pay taxes.

Ever?

Why should the rich pay more? They already pay the most, why should they pay an unfair percentage? Do you advocate punishing achievement?

"Why do you rob banks?"
"Because that's where the money is."

[KevinG]

Originally Posted by ahimel

Ever?

Never. Ever.

[KevinG]

Originally Posted by gberardi

And the idea of being taxed multiple times is addressed at Estate tax (United States) - Wikipedia, the free encyclopedia

This is inaccurate.

They are talking about capital gains, but an estate tax is a tax on your estate value, your worth, no?

The land, property, and everything else was paid for with after-tax dollars. The estate tax taxes "worth" not "income", therefore a lot of the value is being double taxed.

[KevinG]

I ask again...

Why should ANYONE be paying an estate tax? Not to mention that people who support these kinds of taxes and the progressive tax code we have now align themselves with the views of Karl Marx.

Congratulations to anyone who does; you'd make a great communist.

[stephencp]

"I am playing word games with you; because the government is playing games with us all.
Corporations don't pay taxes because they have the power of pricing. Consumers pay taxes, corporations don't."

This is similar to the argument that anyone who is getting thier money (civil servants, military, contractors, charity) from the government does not really pay taxes either since they are only RECIEVING tax dollars and do not contribute to the overall tax base. The gov't could give them a slightly lesser amount "tax free" and it would be the same.

Stephen
Power-Book Library: Free personal development, success, inspiration and motivational classics

[Brutha]

I think that Stephen was talking about the lower middle class's ability to spend money before they earn it, then wonder why they are in debt.

He said that the lower middle class is good in spending money, you argument would suggest that they are bad (because the are in debt).

Originally Posted by Doku

Because they are your children. Does the state charge your children tax on the toys you give them? the food? the clothes? No. You have already paid the tax.

If you would give your children toys in a value that exceeds the estate tax limit you would have to pay taxes for it.

Sure their are reasons that you have your 4 million limit.
The purpose of the tax is to tax capital, capital who's ownership is guaranted by the state.
States don't need to have laws that probit people to take money from those with a lot of money (and killing them if they resist).

But if you have those laws, you need another solution to the problem that rich people inherit their capital and create different classes (that become inherited) in the process.
Sure the estate tax isn't high enough to fully accomplish that goal, but it reduces those class differences.

[Karma Police]

KevinG, your style of argumentation is emotional and illogical. Your constant references to Marx and communism are classic examples of Godwin's law. Following are my final responses to those types of arguments:

1. KevinG asserts that our current progressive income tax and estate tax are in aligned with the principles of Marx and communism. Yet, our country has prospered and made amazing advancements since those taxes were enacted in 1916, while communist states have failed. So, the actual historical evidence doesn't support Kevin's emotional arguments.

2. KevinG asserts that anyone who dares disagree with him must be a Marxist and communist. Yet, I'm an strong supporter of a free market economy and private ownership of property for those who've earned it. So again, the actual facts don't support Kevin's arguments.

3. KevinG asserts that our income and estate taxes punish the rich. Yet, study after study shows there is a widening gap in our country between the super rich and everyone else. Once again, the actual evidence doesn't support Kevin's emotional arguments.

[gberardi]

Originally Posted by Karma Police

2. KevinG asserts that anyone who dares disagree with him must be a Marxist and communist. Yet, I'm an strong supporter of a free market economy and private ownership of property for those who've earned it. So again, the actual facts don't support Kevin's arguments.

Only a communist would believe you. B-)

Without a tax, I guess we'd finally have flying cars, and all of the other predictions from the 50s about what life would be like in the year 2000 would have been realized.

Oh, and 12,600 out of 295,734,134 Americans is 4e-5. Not as many as people claim? Apparently...

[Doku]

Originally Posted by Karma Police

3. KevinG asserts that our income and estate taxes punish the rich. Yet, study after study shows there is a widening gap in our country between the super rich and everyone else. Once again, the actual evidence doesn't support Kevin's emotional arguments.

The taxes do punish the rich. The rich are just smart enough and strong willed enough to overcome and persevere. Of all of my friends, only one of the milionaires drives a car that she bought new. All of the rest bought used cars. Of my non-milionaire friends, there are MANY that bought new cars. The fact that the rich stay rich is because they teach one another about finance. They teach their children about finance. I learned my financial skills from a rich guy who used to hang around and chat with me while my father and I were repairing his airplanes. The poor stay poor because they never learn any financial skills. I bootstrapped out of the slums because I paid attention. My parents and sister, however, are another story.

Originally Posted by gberardi

Oh, and 12,600 out of 295,734,134 Americans is 4e-5. Not as many as people claim? Apparently...

That's 12,600 out of the number of people that die... not out of the number of men, women, and children living in the US. (according to the The CIA World FactBook, 20% are under 15, and I would wager that most of them do not pay taxes.) Lies, Damn Lies, and Statistics.

[Karma Police]

It depends on what you mean by "punish." If it's punishment to have to pay taxes, then everyone who pays is being "punished," not just the rich. There seems to be the view that the rich pay much more in taxes than regular people. Let's take a look at a couple of examples, using round numbers:

1. Middle Income Wage Earner with $80,000 Income (not rich)

In 2005, the marginal income tax rate applicable to ordinary income of an unmarried individual with taxable income between $53,500 and $115,000 was 28%. In addition, such an individual would bear employment taxes of wabout 15% (employee and employer portions). So, the total tax on this person's income was around 43%.

2. High Income Executive with $1,000,000 Income (rich)

In 2005, the marginal income tax rate applicable to ordinary income of an unmarried individual with taxable income above $250,000 was 35%. However, such an individual would bear employment taxes of only 2.9% (employee and employer portions) on wage income over about $90,000. So, for the first $90,000 or so, he would pay tax at a combined marginal rate of around 43%. For amounts over 90,000, he would pay tax at a combined marginal rate of no more than 38%, which is significantly less than the 43% rate paid by the middle income worker.

The super-rich taxpayer who does not work for a salary pays a 35% rate on ordinary income and a 15% tax on capital gains and dividend income, which are not subject to employment or self-employment taxes.

A husband and wife can make an unlimited amount of money and never pay any gift or estate taxes during their lifetime. If the estate tax applies, it doesn't affect the person who created the wealth, but only reduces the wealth received by heirs, who did nothing to create it.

From the heir's perspective, it hardly seems like "punishment" to receive $10 million for doing nothing instead of $20 million for doing nothing.

[Brutha]

[quote]. (according to the The CIA World FactBook, 20% are under 15, and I would wager that most of them do not pay taxes.) Lies, Damn Lies, and Statistics.

Does the fact that those children pay no taxes makes them no citizen in the US?

[Doku]

Originally Posted by Karma Police

1. Middle Income Wage Earner with $80,000 Income (not rich)
<<SNIP>>
2. High Income Executive with $1,000,000 Income (rich)
However, such an individual would bear employment taxes of only 2.9% (employee and employer portions) on wage income over about $90,000.

You are talking about the Social Security tax. I wholeheartedly agree with killing the tax after the first 90k. Why? Because that guy earning 80k will recieve a social security benefit as if he earned 80k when he decides to retire. The guy earning 1M will get a social security benefit as if he earned 90k when he decided to retire. If you want to give him retirement as if he earned 1M, then by all means, tax him for it. If not, then don't. The social in-security system is more messed up than any other tax related thing in the US. It is not a "tax" as much as it is a "forced bass-ackwards savings plan."
OR, since the money that I "put in" is used to pay people who are currently retired, and not actually "invested", one could more accurately call it a Ponzi Scheme

Originally Posted by Karma Police

The super-rich taxpayer who does not work for a salary pays a 35% rate on ordinary income and a 15% tax on capital gains and dividend income, which are not subject to employment or self-employment taxes.

When I was earning less than the 80K that you list as being a "Middle Income Wage Earner", I saved more than 10% of my money, and I paid capital gains tax. The capital gains tax isn't for the rich, it is for the smart.

Originally Posted by Karma Police

From the heir's perspective, it hardly seems like "punishment" to receive $10 million for doing nothing instead of $20 million for doing nothing.

?? From the heir's perspective, guido said, "Your old man had an 'accident.' We found 20M under his bed. Here's your 10M. I'm sure you won't mind our 50% handling fee. Have a nice day. It was a pleasure doing business with you."

Brutha: Yes, they are citizens. The "statistic" usually stated is that 2% of estates are subject to the estate tax. You can't count the people that don't die. It's kinda like saying that since 8% of all cars are sold are subject to the gas guzzler tax, then 8% of the entire population pays the gas guzzler tax. No.... the correct would be that 8% of the population that happened to buy a new car had that vehicle subject to the gas guzzler tax. But you could skew the results by saying that only .2% of people who bought a car paid the tax (because of used car sales). Or .003% of the population was subject to the gas guzzler tax last year (because of the entire population, that's how many bought such a vehicle). Statistics are all about what you decide to include or not. ie: Lies, damn lies, and statistics. (note: numbers are whipped out of my butt, and only as an example of how messed statistics are)

[Doku]

Originally Posted by Karma Police

From the heir's perspective, it hardly seems like "punishment" to receive $10 million for doing nothing instead of $20 million for doing nothing.

On the other hand, one could look at as the government fining me $10 million for doing nothing wrong.

[Karma Police]

Originally Posted by Doku

On the other hand, one could look at as the government fining me $10 million for doing nothing wrong.

Yes, you could look at it that way, if you believe that someone should be entitled to inherit unlimited wealth solely based on the fortuity of being born into a wealthy family.

It's interesting that many who argue the "poor" shouldn't be rewarded with government payments for doing nothing, will argue that heirs should be rewarded with large inheritances for doing nothing. I can hear Paris H. now, "$30 million, and I have to do nothing but hang out in clubs? That's hot."

Why is it so terrible for poor people to be lazy, but not equally terrible for rich heirs to be lazy?

[Karma Police]

According to this analysis, the correct statistic appears to be about 1/2 of 1% of estates are subject to the estate tax:

'Death Tax' Repeal Unfair to Those Who Owe 'Birth Tax'

[Doku]

I didn't say that it was not terrible for rich heris to be lazy.

Why should the rich heirs give up 50%+ of their inheritence, and poor heirs give up zero?

[Baltar]

Originally Posted by Karma Police

Why is it so terrible for poor people to be lazy, but not equally terrible for rich heirs to be lazy?

I completely agree with you on the moral level, but I also think that when someone earned money they have the right to do with it whatever they want. Even spoiling their kids into oblivion. Although gift tax should still apply since inheritance is technically a gift.

[Karma Police]

Doku,

I didn't mean to suggest you said that. Just making a theoretical point.

Baltar,

Society sets limits on what you can do with your money. For example, even though you earned it, you can't finance terrorist activities. (As bad as some children are, I'm definitely not saying giving an inheritance is the same as financing terrorists. ) I'm just making the point that there are legitimate moral limitations on what you're allowed to do with money you've earned.

[Doku]

Originally Posted by Karma Police

According to this analysis, the correct statistic appears to be about 1/2 of 1% of estates are subject to the estate tax:

'Death Tax' Repeal Unfair to Those Who Owe 'Birth Tax'

That sounds about right.... It was around 2% before the estate tax law changes. It now stands at around .5%, and in 2010, it will be 0%. That is because of changing the cap at which estate tax kicks in.
And I would not call that the "correct statistic" as much as the "currently correct statistic" in 2009 when the caps change again, that .5% won't be correct any longer. (lies, damn lies, and statistics)

Now, let me ask a question... just so I can get this straight. Your entire argument FOR the estate tax is "lazy ass heirs" ?? and that it's unfair for children of rich parents to be rich?

[Karma Police]

Here's the thing I thing many of you are losing sight of. Government has to take the money from somebody who doesn't want to give it. That's the nature of ANY tax. Sorry, that's life, and you can only get money from people who have it.

So, the question is, "What is the least objectionable kind of tax and who should pay it?"

--Poor people who can't afford it?

--High income earners who can afford it, but might be less motivated to produce more as the tax rate climbs?

--Heirs who, even after application of the estate tax, are going to receive a great deal of money for doing absolutely nothing and who will have an incentive to be more, rather than less, productive?

[Doku]

Originally Posted by Karma Police

So, the question is, "What is the least objectionable kind of tax and who should pay it?"
<<SNIP>>
--Heirs who, even after application of the estate tax, are going to receive a great deal of money for doing absolutely nothing and who will have an incentive to be more, rather than less, productive?

And now we get to the meat of the matter. You are for this tax simply BECAUSE it is a "soak the rich tax", and BECAUSE it will make the rich more poor.

[Karma Police]

As I said, you can only get taxes from people who have money. Where would you get it?

[Doku]

Any place that is fair and equally painful to all. Discrimination sucks. You want to tax estates at the nose bleed rates? FINE. Tax them all, damnit. Don't just tax the elite few.

[Karma Police]

Doku,

That's an interesting proposition, which would be fine with me, because I think an estate tax on people who haven't earned the wealth is fairer than high income taxes on those who are earning the income. But there would still be some discrimination. Those who don't inherit any money wouldn't have to pay the tax.

[Karma Police]

By the way, I have nothing against rich people, and this is just a theoretical discussion for me. Some of my friends are quite wealthy, and they're spoiled (their word) but not evil.

[Doku]

Originally Posted by Karma Police

Doku,

That's an interesting proposition, which would be fine with me, because I think an estate tax on people who haven't earned the wealth is fairer than high income taxes on those who are earning the income. But there would still be some discrimination. Those who don't inherit any money wouldn't have to pay the tax.

And so it is that we have gone full circle. The only way to be fair about the estate tax is to eliminate it.

[Baltar]

Originally Posted by Karma Police

Here's the thing I thing many of you are losing sight of. Government has to take the money from somebody who doesn't want to give it. That's the nature of ANY tax. Sorry, that's life, and you can only get money from people who have it.

So, the question is, "What is the least objectionable kind of tax and who should pay it?"

Nobody likes to pay taxes of course, but they're necessary for civilization to be possible. However, there's certainly a difference between a flourishing civilization and a stagnant civilization. Let's recap why we have taxes in the first place. The government is responsible for public services like education, road construction and maintenance, sewage systems, public safety (police, fire department, army) and so on. These are all funded by taxes. The issue here though is that to be truly fair, taxes have to be charged in proportion to how much of the public services a person uses. The reality is that a wealthy person may use slightly more than a poor person but certainly not a huge amount more. Taxing wealthy people a greater amount fundamentally means that someone else (the government) decides what a "good enough" standard of living is for someone, at which point any further income can be taken away. This is socialism at best, communism at worst and no healthy free market economy can exist under these conditions.

I think what others have said in this thread is makes a lot of sense. Poor people are poor for a reason, and wealthy people are wealthy for a reason. Wealthy people did something right to get to where they are, and poor people are doing something wrong. Taxing wealthy people more just because they have more money is equivalent to compensating for incompetence of poor people by punishing the success that the wealthy have achieved. Government services apply roughly equally to the wealthy and poor (and the poor actually get more in the forms of Medicaid and Welfare). Wealthy people essentially have to cover the fee that poor people should technically pay for these services. This is happening already by the way, with 96% of federal tax revenue in the US being paid by 50% of the population.

The only solution I can provide is to reduce the size of government and increase the amount of private services. This isn't possible for everything, but it certainly is possible for many things. Private industry is always more efficient, cost effective, and eclipses the government in value creation. This reduces the need for taxes in general. Wealthy people can use their money to create privately funded public services, and do a better job at it than the government. So my answer is that the least objectionable kind of tax is no tax at all. And if you're going to have taxes, they should be applied fairly, not based on who can afford to give up more income, because nobody has the right to decide how much income is "enough" for someone else.

[Karma Police]

Doku,

I don't get your last comment. How is applying the estate tax to everyone going full circle to eliminate it? I'm a fairly smart guy, but I'm not following you.

Baltar,

You said:

"Wealthy people did something right to get to where they are, and poor people are doing something wrong. Taxing wealthy people more just because they have more money is equivalent to compensating for incompetence of poor people by punishing the success that the wealthy have achieved."

I've been talking about the estate tax, which doesn't tax the "wealthy people" who did something right, it taxes the wealthy people's children who did nothing "right" to generate the wealth that's being passed to them. Are you suggesting that the children of wealthy people are somehow more inherently deserving of having wealth than the children of poor people?

Also, I think it's far too simplistic to say that poor people are poor because they are doing something wrong and deserve to be poor. Often, the main thing they've done wrong is being born to the "wrong" nation, neighborhood, or family.

Yes, I understand it's possible for someone to be born into poverty, work hard and achieve financial success. But, there are several other factors that come into play, such as intelligence, a supportive family, inherited personality traits, etc. From personal observation, I believe it's much easier for someone of average intelligence to be a "success" if the person is born into an upper middle class family instead of a lower income family. I'm not making excuses for anyone, but I don't think it's fair to "blame" someone for conditions they didn't create.