Even philanthropic donations are effectively tax-shielded ways to further your particular interests (even if noble). Is it better that the Gates foundation is pushing COVAX rather than government institutions? (Which presumably could be funded by taxes on Gates’ wealth).
Gates Foundation does great things, but perhaps same things could be accomplished more effectively by government.
Otherwise way too much of a feudal vibe.
Perhaps. You could say the same thing about any economic activity. But go too far and you end up with, you know, Stalinist or Maoist communism with tens of millions of citizens dying of starvation. I’ll take the market economy, thank you very much.
The step up in basis also avoids a logistical nightmare, as it can be extremely difficult to determine the cost basis of an asset owned by someone who is now deceased.
If we're not taking in enough from inheritances, we should change how the estate tax works, but eliminating the step up in basis generally would just result in a substantial increase in administrative overheads.
Finally, to the extent that there is a problem with gains totally escaping taxation (e.g. via trusts)-- the article doesn't use any of its massive felony private violation to make a case for that.
(In general, brokers and similar institutions track basis, so I don’t think the death of the owner makes determining the basis especially difficult.)
I regret repeating the double taxation point, I agree it's the weakest point-- plus, if we want to double tax as a matter of policy, we can do that. Step up really just avoids a logistic mess.
I think regardless of where you think taxes on inheritance should be, we're much better off with the step-up. If we're not collecting enough decrease the thresholds or up the rates (and if we're overtaxing earned wages as a result-- provide a method to exempt some of those from estate taxes, it's an easier accounting issue that not having the step up in basis).
If you can defer for a hundred years or more, many scenarios are possible.
Also, couldn’t you make the same argument that wage income, and every other kind of tax should be deferrable if the money gets invested? We should all just not pay the government and the government should give us an IOU until eternity? I suppose the modern monetary theory people would be on board.
The difference between this and deferring wage income is that wages don't need to be liquidated. And that's not a small difference.
Citation needed.
You can, for example, shield stuff in trusts, which is tax-efficient. But when an heir wants to realize gains to buy stuff, it's going to be taxed. All you're doing is deferring, which is fine from the gov's POV as their share of the pool isn't changing, and the pool is in most cases growing a rate that exceeds their borrowing costs.
That said, if Congress wants to make estate/inheritance laws more strict, sure, fine! I think most would be ok with that. Or they could even put a max window on gains realization. But the thing to do there is write an op-ed directly calling for the desired policy, not some sort of alarmist piece about the rich and their "true tax rate".
But to diverge, why not simply increase interest rates for people putting their money in the bank (so they stop buying multiple houses to increase their wealth ( making home ownership unaffordable for most of us) and instead give them similar returns for leaving their money in the bank to lend it to these people who borrow against their wealth...
Is it because higher interest rates leads to the boogeyman inflation?
Which just goes to show rich people live under an entirely different system that gives them a huge advantage. I'm 39, and have never purchased my own home (can't afford it - prices in Canada are insane).
If I could have put off paying my taxes I'd have enormously more money on hand right now that I do, and I could buy a house without having to pay interest, I could buy shares.. I could do all kinds of things that would help me accumulate more wealth. .. then I could just pay my taxes on my death bed when I don't need it anyway.
Instead, I have to pay taxes now, keeping my down, and rich people don't.
A person with 10M (or 100M or >1B) only gets to live on a few hundred thousand a year and doesn't have to pay tax.
I live on ~$50k a year and pay tax.
I'm not sure there's any universe where there is anything other than an unfair playing field here.
Now, sure, there's a way in which you can just keep rolling over loans with new ones until you approach some max % of your collateralized shares. But this has practical limits, and you're still not really avoiding anything. What's happening practically is that the gov has an IOU for 20% of those shares, where the value of that IOU is growing faster than the servicing costs of their own debt. So pushing out the date of realization is basically fine. The rich person may never pay those taxes within their own lifetime, but someone will. And the gov has no meaningful reason to care who pays or when, so long as the increase in share value outpaces their borrowing costs (pretty easy).
EDIT: Should have said 15-20% to be precise, as lowest rate is 15% for long-term holdings.