Hitting all your points in order:
1) 1 million dollars is a lot of money to come out of nowhere. It's simply dishonest to pretend that isn't a life changing amount for a middle class family. At the very least it's going to be like you said- modest home paid off(100-500k), car loans all paid off(50k), and student loans paid off(300k if your kids went to expensive schools and you have 3 of them). I'm really not seeing why anyone should be entitled to never work again simply because their parents made a lot of money. (With that said, my parents didn't choose to bury themselves in debt and could have retired instantly if they received this inheritance when combined with the investments they already had)
2) It's absolutely a lottery. Trying to cloud this issue with "oh well the parents potentially weren't there as much and that emotional cost is easily worth a few million" is disingenuous. It makes the assumption that money has no influence on the quality of the child's upbringing and "time spent with kids/day" is the only metric worth mentioning.
3) Being taxed when you're dead isn't a tax to me. At all. I understand this is a personal opinion but you should have the same understanding regarding your own opinion here. When I'm dead I no longer feel entitled to anything I gained in my lifetime- it's not like I'm ever going to use it again. I also don't feel my kids are entitled to it just because they happened to be born (effectively via lottery) to me.
To suffice:
Let the fruit of my efforts benefit society/humanity as a whole. It was my goal in life and ought to be in death.
And 'wealth' isn't all gold buried in the back yard. Its also investments in businesses (either stocks or directly) as a corporation or even a proprietorship. Who runs the restaurant after you die? The government? Preposterous.
You could own 5 restaurants of that size and not pay estate tax.
[1] http://sellingrestaurants.com/news/how-much-is-a-restaurant-...
On your last point- a traditional corporation won't fail if one person dies as the issue of ownership is inherently divested from any individual person. Stocks are one of the easiest assets to liquidate on this planet- I'm not seeing an issue there. The restaurant? It would be sold. If I have a family member who I actually think could run it adequately they would be able to purchase it like anybody else and I would encourage them to do so while I was still alive.
More Polyanna thinking that anything you can make up in a minute, won't be gamed to death by anybody and everybody. Why? Because almost everybody wants to increase the chances of their children/heirs succeeding. Its built into the species.
Obviously such a system would need significant safeguards- this is something we're both fully aware of as intelligent human beings. Mentioning them now is just a strawman unless stated as the overall opinion "it's 100% impossible to stop abuse".
On your last point, I find it silly to assert that a belief in humanities ability to overrule animal instincts is somehow "Pollyanna thinking". Everything we've achieved thus far as a species has been based on that belief.
But everything in the tax law is a testament to how this is playing out in reality. Try as you might, 10,000 lawyers will push their pointy noses through loopholes to benefit their clients, which is everybody.
[1] http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employ...
Just because something is idealistic doesn't mean it's incorrect.
> You trust the govt to spend your wealth, more than say a relative?
Dear God yes.
Because, their parents earned it. People slog their bones off, make a lot of sacrifices and after a life time of work get to such a position.
If some body's parents doesn't want to leave a inheritance, or don't to earn or whatever. I would leave that at calling it as their personal decision.
>>It's absolutely a lottery.
Its really strange to see the way you like to put it like absolutely no real effort was involved in building that wealth at all.
Their PARENTS earned it. Not the kids. That's my entire point- I don't think children should be entitled to assets their parents "slogged their bones off for" simply because they won the lottery of being born with those parents.
You disagree and that's fine, I was merely presenting the other side of this debate (and the one I personally sit on the side of).
If there is no incentive to get rich, or benefit by making money over a long term for you or your descendants the very motivation to contribute something valuable and make money along the way, goes away. So after a time you will be left wondering why a few capable people aren't sacrificing their lives making up for every body else.
Welcome to Soviet Russia!
Large estate taxation schemes always need to carve out exceptions for ag and then the loophole-thread pulling begins.
I work, I get paid, my money is taxed. I buy a chocolate bar, the sale is taxed The money that is spent on the chocolate bar goes in part to the shop who makes a profit (that is taxed) and to the company that made the chocolate bar who make a profit (that is taxed). The company pays the worker that made the chocolate bar (that is taxed) Etc, etc, etc.
Transaction are always being taxed - that's how the tax system works.
Finally, there are many incorrect statements in the description of the estate tax above that would probably lead you to believe that you have to pay 40% of 5.3m, which is not true
1. You get deductions (like outstanding mortgages and medical bills)
2. You pay the tax on the net OVER 5.3m.
So, in the case described above, the estate tax would be $0.
Also, Companies actually contribute more in taxes than people like to admit. They pay workers' wages..and those wages include tax money that goes to the government.
That's still a tax on the workers' wages, not a tax on the company. If we shifted all income tax into a payroll tax, then by your definition workers aren't taxed at all? Anything that increases the cost of employing a worker will reduce the marginal net benefit of employing that worker, which will result in either lower salaries, fewer employees or both.
My point is that they are providing the income that is taxed and used by the government.
Capital Gains? The company increased its value.
Dividends? Comes out of earned revenue.
Sales Tax? Comes out of sales by the company.
Tell that to Twitter employees
Yes really. I have many issues with the estate tax (and I also have many issues with not having an estate tax), but when you find yourself complaining about how little a million dollars is, you really need to stop before you lose your entire audience.
An estate worth $5M, which is then taxed at 40%, the remainder of which is distributed amongst any number of heirs, each of whom may then be obligated to pay an additional income tax on that - ends up being far less.
Especially in a country where you're expected to pay for your own education, health care, and retirement.
That's not how the estate tax works. The first $5 million (or so) is not taxed.
> where you're expected to pay for your own education, health care, and retirement
You can pay for your kids' education directly, no estate tax involved. You can put significant amount of money into 529 savings accounts for your kids and your grandkids, effectively increasing estate tax limitations if (like most upper class) education is a place where you will expend significant resources.
In much of Europe the first two and a good chunk of the third are largely provided as public goods. Establishing a reliable "floor" standard in all three makes it much easier for people to truly stand on their own merits rather than being handicapped by parental poverty.
If I work very hard and earn $100,000 in a year I get taxed. If someone else dies and I inherit $100,000 (in the U.S.) there is no tax. In case 1 a person works for it and pays tax and in case 2 there is no tax. Consider another case. Suppose I walk down the street and find $100,000. I have to pay tax on it. (At least I'm supposed to pay tax on it.) Estate taxes are too little in this country.
A family can perpetuate a shared set of values over hundreds of years without leaving $x million to the children.
"The deceased is considered to have sold all of his or her capital property for fair market value immediately prior to death. This includes, with certain exceptions, all the deceased person’s non-registered assets (personal belongings, cars, investments, business assets, etc.).
If any of these assets have gone up in value since their acquisition, the estate will owe taxes on the capital gain in the year of death. Capital gain is the difference between the fair market value of the item when purchased and the fair market value item of the same item at the date of death."
See this website:
In Canada, if you die with $20M in cash, you are free to give it to heirs with no tax penalty.
I have little sympathy for those who the estate tax hits
A net $6m estate would pay about 4% (264k), not 40%.
She then burned through the entirety of her share paying for her stay in a nursing home when she couldn't speak or wipe her own ass, so the taxpayers didn't have to.
Everything's not as simple as you think.
The estate tax issue is not in any way related to the issue of health care for the elderly.
If the government took most of that money, this grandmother would have burnt through the remaining money quickly and ended up on government-assisted healthcare with much less choice about the kinds and quality of care. It's very pertinent.
It appears to be possible from what you've said about your grandmother's situation that even if her inheritance was not taxed at all she would have still ended up using up all of her savings on care. If your point wasn't that you believed she should have been able to pass along the millions to her children while receiving care at the expense of society then I don't see how it was relevant.
I just thought the downvotes were uncalled for. And I think your threshold for what's a reasonable estate is both arbitrary and too low.
$5 million sounds like a lot, but give it a decade. Many family businesses are already valued over $5 million. Should functioning businesses be liquidated because the founder died? Soon, family homes in places like NYC, SF, and DC will be within spitting distance of $5 million. Should the family have to get a new mortgage or move because grandma died?
Besides, I don't have confidence that the general fund of the federal government would better spend that money than someone seeking health and indirectly pouring money into better medical science and technology.
An estate of 5 million pays $0 in estate tax. The tax is on the amount (net of deductions) OVER 5.34 million.
A net $6m estate would pay about 4% (264k), not 40%.
As a third-generation American, I find the estate tax, even in its current form, extremely offensive, because it strives to reset every generation to zero instead of letting families establish themselves over time by building on the sacrifice and efforts of the parents.
The current level of taxation, even though it's been recently, "graciously" increased, greatly extends the runway for families to achieve true financial independence. Currently, $5.3M and above estates fall under the 40% tax. That's far too small of an estate and far too large of a tax.
People will say, "wow five million dollars, that's a lot!" Not really. Three heirs take home a million each - pay off a house and student loan debt for their families - god forbid they don't have something like outstanding medical bills - and sock away a partial retirement fund with the rest. Not enough to quit working and start their own business, or invest in anything riskier than an index fund.
You might say that's not a bad deal. It's certainly better than nothing. But this, "oh, it's just a lottery" attitude is nonsense. If your parents started with nothing and are leaving you $5M, chances are you watched them bust their asses for forty years, and only got to see them a couple hours a day - at times, if at all. That doesn't sound like much of a lottery ticket to me.
To top it all off, it's a double tax. That money has already been taxed, as far as the family as a unit is concerned. And wiping the slates clean every generation greatly reduces the ability of a family to weather multi-decade economic cycles. I hate to have climbed on my soapbox, but a statement like that only makes sense if you consider the family a method of perpetuating a shared set of values over hundreds of years - and if you can't, I find that sad.