Sen. Banks’ SB 57 rewards those Hoosiers with the good sense to be born to rich families, phasing out the inheritance and estate taxes starting in 2013 and eliminating the completely by 2018.
I’ve been through this before, but I don’t see the moral justification for tackling the inheritance tax before, say, the income tax. I get the “taxation is theft” argument, even if I don’t agree with it. But, my contention is that a worker has a stronger moral claim to his or her earned wages than an heir has to the assets amassed by a decedent over his or her lifetime. So, if there is flexibility to reduce government spending and, therefore, the need for tax revenue; income taxes should be lowered before estate taxes.
Hmm. “Rich” is now defined as having more than $100k in assets? Because that is the exemption amount for a parent with one child.
What about homosexuals that have a $100 exemption if they want to give money to their partner, with a 15% tax bracket for any amounts over $100k (not to mention the 20% bracket if the deceased is a millionaire and gives to their partner)?
Hmm, no.
Make it a million dollar exemption if you like. Two. I’m generally o.k. with an exemption that folks are willing to cite as attainable by ordinary people without blushing.
But, even so; reduce taxes on earned income first.
What level do we have to reduce income taxes to before you will sign off on reducing or eliminating the inheritance tax? Do all counties have to be at that rate?
I can understand your argument that the state income tax should be reduced before we eliminate the inheritance tax (even if I may disagree with you), but let’s raise the inheritance tax exemption up to the million dollars or some other high number now. Let’s also give unrelated people an exemption of $50-100,000 or so. True story, if a decedent gives his heirs $101,000 of assets, the tax return costs more than the extra $1000 of benefits. Same is true when a guy gives a specific bequest of his $300 gun to his shooting buddy on his death.
I’ll start at zero for the income taxes but would be willing to negotiate if there was some reason for using any wiggle room in the budget to reduce estate taxes instead of income taxes.
Maybe as a compromise, we could get rid of the estate tax but tax inheritance income as ordinary income. Then the income tax reduction would benefit both kinds of income.
Hmm. Your compromise would benefit the children (and other heirs) of the superrich the most. Instead of paying 10-20% on inheritances over one million dollars (depending on relationship type) the heirs would pay a much smaller amount.
Are you saying the cost of hiring a C.P.A. to do the paperwork for the taxes (plus whatever the tax comes out to be) exceeds the additional $1000, or the taxes themselves exceed the $1000?
Also, when did Article 4.1 of Title 6 become named “Death Taxes”? Was it always this way, or was it just some legislators’ idle posturing in a dull session?
To me, income that is earned by producing something real gets the lowest tax, if any. Next, income that is earned without production (capital gains). The highest tax should be on income that you did nothing to earn.
What is more important to the USA? Producing things, or making money?
Where does service fall under that regime, Jason? You’re working and providing value, but you’re not producing things. (My guess is that you’d put that under the first category, but from your formulation, I wasn’t sure.)
If the inheritance tax gets high enough, rich people with the good sense to learn of the tax policy can relocate to other jurisdictions with lower rates. Is that the consequence you seek, Doug?
I’m not in line for any inheritance that I know of, but I’ve always told my wife that if there was to become aware that suddenly there was to be a ridiculous income windfall in my favor, I would expeditiously set up a residence in Nevada. It’s a no-brainer for one who has the means to do so, and the greater the windfall, the greater the incentive.
Doug stole my thunder. I was just writing this:
Jason- Can you define ‘something real’? Does ‘writing a novel’ count? If yes, must it be in a format that consumes natural resources, or does a digital format count? Does ‘writing a song’ count? What about being an actor on Broadway? What about a teacher? Or a mental health professional?
You do know that every federal bill to eliminate the death tax makes the inheritance subject to capital gains taxes when the asset is sold by the heirs, right?
That seems fair to me. Then heirs don’t need to sell the family business when the proprietor dies, but nobody gets a free ride. Seems like the perfect compromise.
They don’t step-up the basis for the heir?
They don’t step-up the basis for the heir?
I’m not sure. Even this SB is unclear if the inheritance is taxable as capital gains or not.
Just to clarify a couple things:
(1) Generally, Attorneys do inheritance and estate tax returns, not CPA’s. Long story…
(2) In 2010, when there was no estate tax, there was a limited capital gains basis adjustment for people that died that year. The amount was between 1 and 2 million dollars.
(3) Congress can change their mind on whether or not go give basis adjustments when they decide (almost annually now) to change the estate tax.
(4) None of the above (3) relates much to what Indiana does with the inheritance tax. However, if we utilized Doug’s compromis, people that were about to inherit large amounts of money would have an incentive to move to other jurisdications in much the same way we now give elderly people (and their money) an incentive to move to states without an inheritance tax.
Jason: I note that by your logic, gifts should also be taxed more than anything else. Do you really agree with that? If so, what is to stop me from paying my son $10,000 a day to run errands for me?
Something real, production = Service, music, art, consultation, etc. Things that require the output of time.
Something not real = buying something for $100,000 and selling it for $200,000. That $100,000 profit did less to our economy than $100,000 widgets produced, or $100,000 in legal consulting, or $100,000 in art produced.
Jason: I note that by your logic, gifts should also be taxed more than anything else. Do you really agree with that? If so, what is to stop me from paying my son $10,000 a day to run errands for me?
Nothing, but there is still the duty to pay Social Security, etc. I don’t expect to see a system with no income taxes, so there would still be some tax load.
I just think the harder you work for something, the more claim you have to the “sweat of your brow”, so to speak. Putting money in a bank & earning interest is hardly coming from the “sweat of your brow”, and getting money from Grandma is even less effort.
I have more right to my money I get from work than someone does that gets it for a gift.
The problem with imposing a value judgment manner of assigning tax rates is that the judging if very subjective. You’re essentially saying every retailer or restauranteur is essentially ripping people off, because their markup on what they sell is often right around 100%. I’m sure these people would like to take vigorous issue with that.
But what about the right of a person who worked ‘by the sweat of their brow’ to do what they like with that money? What if what they want to do is to give it to a relative of theirs? Isn’t it the objective of every parent to see that their children and grandchildren have a better footing in life than they had? Are you saying you value giving to charity above giving to your offspring, only because the recipients of charity are unknown to the giver?
They can do what they like with their money. They can give it to their kids or they can give it to the guy who is handing them a flatscreen TV in return. The way to avoid value judgments is to make it a taxable event in either case.
Isn’t it the objective of every parent to see that their children and grandchildren have a better footing in life than they had?
Straight up, point of fact, no. That is not the objective of every parent, or even the majority of parents.
But that is a completely different blog post.
I don’t think that Doug has considered any of the sociological/ psychological motivations impacted by the estate tax, not to mention the supply side effects that cascade from it.
I mean, isn’t it so damn interesting that Warren “I’m giving it all away” Buffet is making moves so that his “soybean farmer” son will have control of Berkshire when he’s gone?
The way to avoid value judgments is to make it a taxable event in either case.
Why should death be a taxable event? I can understand taxing the asset when it is sold (by the heir in the case of death), but not taxing it upon death.
I don’t think death should be the taxable event. Transfer should be. If the decedent wants to be buried with the asset; I guess I wouldn’t view that as taxable. (Grave robberies would likely spike, however.)
Jason, we have discussed this before, but I still disagree with your capital gains as “income” idea.
If I had $100k in cash in 1980. I use that cash to buy a Babe Ruth game-worn jersey for $100,000, and I then sell the asset for $250k today, we note the following:
(1) I will be taxed about $22.5k (150k “gain” times 15%).
(2) $100k after inflation would be $261k (or something like that). Thus I actually “lost” $36k after inflation.
(3) After paying my tax bill, I can no longer afford to purchase the same asset I could purchase in 1980. Thus, I have lost money twice.
I wonder if that effect would give people an incentive to keep their money working instead of just burying it in a mattress or game jersey.
Paul C, why are you more entitled to your $150k of money that you did absolutely nothing to earn than I am to the $150k of money I worked 60 hours a week for?
It isn’t my job to protect you against inflation. The best way to fight inflation is to keep working, as your salary will increase along with inflation.
Note, we can have a separate debate on retirement, I can see some validity there. My main beef is with people that are the same age as me that make their money by moving it from one stock to another, yet they get taxed less than I do. Or a real estate prospector that simply buys land, does nothing to it, and sells it for profit later.
What value did a day trader give by riding a stock for a few minutes? What value did the land bring? Why does it get less tax than I do for my hard work?
Mike, if you want to call every dime that I didn’t own before & now possess “income” and make it taxable at the same rate, I’d be 100% fine with that. I was more illustrating my own personal view on how I’d do it if I were king.
Point is, it is currently very subjective saying that those that are given money by sharing genes with someone that died don’t get taxed at all, and those that get money by parking it in a stock or asset get a low, flat rate, while those that work for their money are taxed highest of all. You’re against that too, right?
“Paul C, why are you more entitled to your $150k of money that you did absolutely nothing to earn than I am to the $150k of money I worked 60 hours a week for?
Money is relative. The $250k of 2011 is less, relatively speaking, than the $100k of 1980. The goal of taxation is not wealth redistribution as you suggest, but to tax INCREASED buying power associated from receiving income. In the example above, I do not have increased buying power, I have less.
And I assume you recognize that whether you worked 60 hours a week or 5 hours a week to receive your $150k is similarly disregarded?
Doug: “They can do what they like with their money. They can give it to their kids or they can give it to the guy who is handing them a flatscreen TV in return. The way to avoid value judgments is to make it a taxable event in either case.”
See, this is normally where we fall on such things, isn’t it. Because my take is: “Or non-taxable in any case, or taxed at the same rate.”
Jason- I agree with what you are saying here, in large part.
At the end of the day, I think taxing income of any kind is a poor way of funding government. Why put any disincentives on work, saving, investing, or keeping wealth local? I am against all of that.
I almost put “(or not)” when I wrote that originally. But, at some point, we do need a reliable way of funding government.
We do! And in a recession, if dependent upon reaping from income, government is in a world of spending hurt. Kinda like now.