The Estate Tax
Growing up in a conservative community I was taught that the estate tax was quite evil. It was, on occasion, the subject of many a confident curse and condemnation while drinking beer with the men in the church.
But I've been doing some thinking and some reading on FactCheck.org, and if it is the case that the point of the Estate tax is to tax unrealized capital gains (i.e. to tax monies gained over the course of ones lifetime that have not been sold i.e. converted into actual capital [like stocks]) then is it actually a "double tax" and therefor "evil" (i.e. contrary to one of our nation's general assumptions: you don't tax the same money twice)?
Basically I want to know more about this issue, but I've got work to do, and quite frankly, I know that smart folks like Nick and Scott have likely worked through this whole issue already and I'd like to hear their thoughts. I also seem to recall some type of complaint that the capital gains tax itself was a borderline "double-tax", at least as it related to particular types of real-estate investments. But again, I can't remember the whole thing.
Anyways, my final thought is that the estate tax is only occasionally a double-tax insofar as it taxes previously taxed earned income that has not been converted into capital-gains type assets such as stocks, bonds, etc. what it will "double tax" effectively is large cash amounts (over 1 million I believe).
So ye with far greater ethical-analytical powers then myself, do enlighten me!
Josiah Q. Roe | By Josiah Roe | 09:45 AM
Comments
My understanding is that the estate tax is on the gross value of the estate, minus certain small deductions (debts owed, funeral expenses, etc.) It is a double-tax, but everything is multi-taxed, so that's really a misnomer. When money changes hands, it's always taxed. When I buy a hot dog from the store, they pay tax on their portion of the profit. The hot dog manufacturer pays tax on his portion of the profit. The pig farmer also pays tax on his income. When a family member inherits the estate, they pay tax right now. I see both sides of this argument, but when you look at the real reason for this tax, I think people can agree it makes some sense. The base purpose is to keep the majority of the wealth distributed among the population and encourage charitable giving. I am one whose worth will be affected by the estate tax, but I am a supporter of it. I plan to give all of my money away to charities when I pass away. At least that way, I can choose how it is spent.
Posted by: mark at June 7, 2005 10:47 AM
You may be right that it would not necessarily be a "double-tax", but I would still question whether the government ought to collect capital gains taxes at all.
Posted by: RobU at June 7, 2005 09:26 PM
Mark, If you want to give everything to charities you need to do it before you die because at your passing your taxable estate is not it in your hands, as well as other aspects of the non living. Your executor can give it away but there had better be money left to pay the IRS for your tax obligation.
Estate taxes are calculated as of date of death regardless of intent of distribution
The point of discussion should be: is it reasonable for the government to take a portion of your estate regardless of whether it is to be converted to liquid assets, ie stocks, bonds and other like assets. Think farm land, watches, other personal possessions; they all go into the calculation
Posted by: Mark at June 7, 2005 11:05 PM
As the only tax that I do not have to pay until after I am dead, I'm all for it. Wouldn't it be wonderful if we could pay all of our taxes posthumously?
Posted by: smijer at June 8, 2005 07:20 AM
When my parents died, the family business got hit bad. All of us had worked in the business, but it was owned by my parents. My brothers worked longer in the business than I did and to see them put their lives into that business and have so much taken away was just sad.
Posted by: CL at June 10, 2005 09:21 AM
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