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Tax reform

JasperL said:
The estate tax already has a number of provisions to lessen the estate tax for an operating farm. The big one allows estates to value the land as a farm, and not at its highest and best use. Another allows heirs to defer the estate tax and pay off the bill over time. So as a general rule, no, I wouldn't favor repealing the estate tax on "farms" in the current system. A few years ago, I'd have supported it completely, but that was when the exemption equivalent was less than $1 million. Now it's $11 million and the slightest bit of planning should completely shield a farm from significant estate tax up to maybe $15 million in value, as a FARM, not if it's divided up and sold for homes or other uses. And frankly if a FARM valued as a farm is worth more than $15 million, the odds the family can't afford life insurance trusts or other ways to fund the estate tax is very low. So what we're looking at is a population of farms that are significantly affected by the tax of less than your fingers and toes per year, and only a small number of those will have a significantly hard time paying the estate tax, and they can defer tax for many years on the installment plan.

For all practical purposes, this worry about family farms just doesn't exist at current exemption levels - $11 million.
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I don't understand the $11 million figure you are using. Are you assuming that in most farmer families both spouses die the same day? The value of farm land has risen quite a bit the last decade, how is that accounted for.

I do think that there should be an estate tax, it should not be wiped out completely but rising with inflation makes some sense.
 
washunut said:
I don't understand the $11 million figure you are using. Are you assuming that in most farmer families both spouses die the same day? The value of farm land has risen quite a bit the last decade, how is that accounted for.

I do think that there should be an estate tax, it should not be wiped out completely but rising with inflation makes some sense.
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Basically the way it works is each PERSON can pass $5.5 million during life or at death to heirs tax free. For married couples, the amount is doubled, and if Pa uses $3 million of his $5.5 million exemption when he dies, then Ma has $8 million left - her $5.5 plus what Pa didn't use. In the old days we used to have to have credit shelter trusts and other means to artificially "use up" that 5.5 million on dad's death but thankfully that's gone. Now a married couple gets $11 million.

And you're right about farm land, and anyone close to or worried about estate tax would have been getting farm land out to heirs YEARS before he or she died. I don't want to get bogged down in the weeds, but the idea is to put the farm in an LLC or other entity like an S Corp or something, and then give shares or interests in the entity to heirs over time. And let's say the farm is worth $20 million and you put the farm in an LLC. Well what would an outsider pay for a 10% interest in that LLC, if Pa controls all the voting shares? NOT $2 million, that's for sure. Well, let's say an outside would pay $1.5 million, or a 25% discount to FMV. THAT is the value assigned to a gift to Junior of a 10% interest in the LLC. So Pa gives Junior, Sissy, and Bubba each a 10% interest, FMV of $6 million, estate value of $4.5. And now all the future appreciation of that third happens outside the estate. Etc. That's the simplest case scenario really and done all the time. But the key point is there are ways to get assets out of the estate at big discounts to FMV and in a way that shields the future appreciation from tax.
 
JasperL said:
Basically the way it works is each PERSON can pass $5.5 million during life or at death to heirs tax free. For married couples, the amount is doubled, and if Pa uses $3 million of his $5.5 million exemption when he dies, then Ma has $8 million left - her $5.5 plus what Pa didn't use. In the old days we used to have to have credit shelter trusts and other means to artificially "use up" that 5.5 million on dad's death but thankfully that's gone. Now a married couple gets $11 million.

And you're right about farm land, and anyone close to or worried about estate tax would have been getting farm land out to heirs YEARS before he or she died. I don't want to get bogged down in the weeds, but the idea is to put the farm in an LLC or other entity like an S Corp or something, and then give shares or interests in the entity to heirs over time. And let's say the farm is worth $20 million and you put the farm in an LLC. Well what would an outsider pay for a 10% interest in that LLC, if Pa controls all the voting shares? NOT $2 million, that's for sure. Well, let's say an outside would pay $1.5 million, or a 25% discount to FMV. THAT is the value assigned to a gift to Junior of a 10% interest in the LLC. So Pa gives Junior, Sissy, and Bubba each a 10% interest, FMV of $6 million, estate value of $4.5. And now all the future appreciation of that third happens outside the estate. Etc. That's the simplest case scenario really and done all the time. But the key point is there are ways to get assets out of the estate at big discounts to FMV and in a way that shields the future appreciation from tax.
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I think you make fair points. Not being a tax expert or really understands the IRS view of these transactions I probably need to do more work to better understand this issue.
 
JasperL said:
It's not really envy so much as a rejection of an entitlement to that money. And we're not "punishing" anyone - especially not at current levels of $15 million or more effectively. Those heirs will be in the top 1/10th of 1% in wealth and they did NOTHING to earn that status besides get born to the right parents. How is that punishing them?

And quite honestly IMO a hereditary nobility is inconsistent with the ideals of this country.
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I think it is punishing people. How people get their money is irrelevant as long as it is legal. We have no hereditary nobility in this country. We have some wealthy people but none with noble titles. You would rather the government decide what to do with an estate than the owner of the estate. That is what goes against the "ideals" of this country, whatever those are.
 
fmw said:
I think it is punishing people. How people get their money is irrelevant as long as it is legal. We have no hereditary nobility in this country. We have some wealthy people but none with noble titles.
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But the effect is the same thing - dynasties who exert immense power through their INHERITED wealth. It's one thing that people like Gates and Buffett have amassed a fortune of $50,000 million - they earned their position of influence. Their heirs didn't, but in our system, money is power and we'll have generations of people exerting immense power and all by virtue of their birth, not merit, all of it unearned. It's no different than a European style aristocracy, without the formal titles.

You would rather the government decide what to do with an estate than the owner of the estate. That is what goes against the "ideals" of this country, whatever those are.
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I don't see any evidence the Founders believed in awarding power to individuals by virtue of their birth, as opposed to merit. They could have, for example, established an equivalent to the House of Lords, but did not.
 
JasperL said:
But the effect is the same thing - dynasties who exert immense power through their INHERITED wealth. It's one thing that people like Gates and Buffett have amassed a fortune of $50,000 million - they earned their position of influence. Their heirs didn't, but in our system, money is power and we'll have generations of people exerting immense power and all by virtue of their birth, not merit, all of it unearned. It's no different than a European style aristocracy, without the formal titles.
Yes, people wield power with money. But I refuse to say that one kind of wealth is good and one is bad. Wealth is just wealth.



I don't see any evidence the Founders believed in awarding power to individuals by virtue of their birth, as opposed to merit. They could have, for example, established an equivalent to the House of Lords, but did not.
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No they didn't but that doesn't mean they were involved in awarding any kind of power except to people in government through election. The power of wealth comes from society, not anything the founders did. I realize you dislike people who inherit wealth but I just ignore that. It doesn't mean anything to me.
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fmw said:
Yes, people wield power with money. But I refuse to say that one kind of wealth is good and one is bad. Wealth is just wealth.
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One is earned, and one isn't, and I don't think it's a good thing for society to be dominated by people who haven't earned their influence.

No they didn't but that doesn't mean they were involved in awarding any kind of power except to people in government through election. The power of wealth comes from society, not anything the founders did. I realize you dislike people who inherit wealth but I just ignore that. It doesn't mean anything to me.
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You're not really addressing my point. Has little to nothing to do with whether I "like" them or not. It's really about wielding power. I'll just cite this - says what I believe much better than I can:

https://www.economist.com/blogs/lexington/2010/10/estate_tax_and_founding_fathers
 
Rich123 said:
We are being told that this newly proposed Tax reform bill will benefit all tax payers. I would just like to examine one aspect of this proposal, "Estate Tax".

While most people would think that the elimination of an estate tax would be beneficial to all tax payers , the truth is it only benefits people who's estate is valued of more than 5.49 million for a single person and 10.98 million for a married couple. That is, those amounts are totally estate tax free. Only amounts in excess of 5.49 or 10.98 million is subject to estate tax. So if your estate is worth 5.50 million as a single payer, then only .01 million or $10,000.00 is subject to estate tax. So my question is, how does the elimination of the estate tax benefit the average blue collar worker? Why is this even part of this bill? This bill gives rise to many questions but let's take one question at a time and see if this bill really benefits all of us.:2razz:
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To me the problem with the estate tax is not its existence, it's the rate, which I think is way too high. Lower the rate to 15-20% or something. No need to change anything else.
 
<alt>doxygen said:
To me the problem with the estate tax is not its existence, it's the rate, which I think is way too high. Lower the rate to 15-20% or something. No need to change anything else.
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No need to charge tax on the estate's asset value since any income that those assets produce once in the hands of their heirs, even by their later sale, is subject to taxation.
 
ttwtt78640 said:
No need to charge tax on the estate's asset value since any income that those assets produce once in the hands of their heirs, even by their later sale, is subject to taxation.
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I'm actually more of a believer in treating all income equally when it comes to taxation. The mess we are in now is largely the result of trying to either do social engineering using the tax code or by congress creeps doling out or selling tax favoritism. I'd prefer to wipe the slate. That said, I have no problem with exempting the 1st 5-10 million, as the current law does. Keep that exemption and lower the rate to something sane.
 
<alt>doxygen said:
I'm actually more of a believer in treating all income equally when it comes to taxation. The mess we are in now is largely the result of trying to either do social engineering using the tax code or by congress creeps doling out or selling tax favoritism. I'd prefer to wipe the slate. That said, I have no problem with exempting the 1st 5-10 million, as the current law does. Keep that exemption and lower the rate to something sane.
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I guess I just look at it from another point of view. Assuming that these are income producing assets then taking them temporarily out of service to re-sell to others does little, if any, good (especially if their new owner is in a lower tax rate bracket or, as you have suggested, taxed at lower rate anyway). Worse yet, if they must be liquidated to pay the estate taxes due such as stocks or farm land, they may drive down the price of that stock or land by flooding the market with their forced sales. I would just as soon leave them be and continue to collect the income taxes that they would continue to generate when passed on to the heirs.
 
ttwtt78640 said:
No need to charge tax on the estate's asset value since any income that those assets produce once in the hands of their heirs, even by their later sale, is subject to taxation.
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Bill Gates is a good example. Let's say he's worth $90 billion. I'm not sure but let's say $80 billion of that is Microsoft stock, and for all practical purposes it's got a cost basis of $0, and so $80 billion of untaxed capital gains. The rules say that stock is written up to FMV on the date of death, so to $80 billion, and if his heirs sell the stock the day after he dies, they'll owe $0 in capital gains taxes or any other taxes.

Point is without an estate tax that $80 billion in unrealized and unrecognized gain is NEVER taxed. At 25% capital gains tax rates, that's a $20 billion tax freebie or loophole we would give to Gates' kids because dad can hold onto appreciated property until he dies. If your mom has to sell her appreciated stock to live, she pays the capital gains tax on the gain, and you only get to inherit the after tax amount.

Some way or another, we'll get rid of that loophole for the Gates kids if we eliminate the estate tax.
 
<alt>doxygen said:
I'm actually more of a believer in treating all income equally when it comes to taxation. The mess we are in now is largely the result of trying to either do social engineering using the tax code or by congress creeps doling out or selling tax favoritism. I'd prefer to wipe the slate. That said, I have no problem with exempting the 1st 5-10 million, as the current law does. Keep that exemption and lower the rate to something sane.
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5-5-17tax_f2.png


https://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax
 
JasperL said:
One is earned, and one isn't, and I don't think it's a good thing for society to be dominated by people who haven't earned their influence.
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You have made that clear.

You're not really addressing my point. Has little to nothing to do with whether I "like" them or not. It's really about wielding power. I'll just cite this - says what I believe much better than I can:

https://www.economist.com/blogs/lexington/2010/10/estate_tax_and_founding_fathers
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Unfortunately the social science of economics has no credibility with me. It is just opinion not worth any more than yours or mine.
 
Rich123 said:
Ya they pay the lion's share of their liquid assets to the Cayman Islands. Seagate Technologies is just one of 18,857 corporate entities that use South Church Street in George Town in the Cayman Islands. While the U.S. corporate tax rate is 35%, Seagate Technologies paid an effective tax rate of 5% in the year 2008. So all that money is sitting in places like the Cayman Islands. Those corporations are dodging their corporate responsibilities to the Nation which provided a business environment conducive to them making all that money in the first place. The communication grid for them to network, The courts which are always utilized by them for all kinds of corporate issue, The schools and colleges that provide them with an enlightened work force. The police force which provides them a safe place to do business . A military which protects their interest in troubled places through out the globe. All these things WE THE PEOPLE PROVIDE BY OUR TALENT AND OUR TAXES FOR THESE CORPORATE ELITES TO DO THEIR BUSINESS. HOW DO THEY THANK US. THEY HIDE THEIR MONEY, SO THAT WE THE PEOPLE HAVE TO SHOULDER THEIR RESPONSIBILITIES. I'm not saying that they all do that but one building in the Cayman Island houses 18,857 corporate entities. What does that tell you?
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Ii think you've nailed it!!!
 
JasperL said:
Bill Gates is a good example. Let's say he's worth $90 billion. I'm not sure but let's say $80 billion of that is Microsoft stock, and for all practical purposes it's got a cost basis of $0, and so $80 billion of untaxed capital gains. The rules say that stock is written up to FMV on the date of death, so to $80 billion, and if his heirs sell the stock the day after he dies, they'll owe $0 in capital gains taxes or any other taxes.

Point is without an estate tax that $80 billion in unrealized and unrecognized gain is NEVER taxed. At 25% capital gains tax rates, that's a $20 billion tax freebie or loophole we would give to Gates' kids because dad can hold onto appreciated property until he dies. If your mom has to sell her appreciated stock to live, she pays the capital gains tax on the gain, and you only get to inherit the after tax amount.

Some way or another, we'll get rid of that loophole for the Gates kids if we eliminate the estate tax.
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That seems easy enough to do since it cost the heirs $0 per share (or acre) to acquire them so the tax value basis for all inherited assets is then $0 - if they are later sold then the CG tax on them is not lost. Not only that, the first $X million is no longer tax free if it is later sold.
 
fmw said:
You have made that clear.

Unfortunately the social science of economics has no credibility with me. It is just opinion not worth any more than yours or mine.
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LOL, OK, but the article quotes the founders. Whatever....
 
jghiretire said:
Ii think you've nailed it!!!
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Except for the part about dodging their corporate responsibility. The primary responsibility of corporate management is to protect the company's interests and maximize profits over a long period of time. If they weren't reducing taxes the best they can, they aren't doing their job. The corporation's purpose is to do business profitably not to take care of government. If the government doesn't like that they can and perhaps should change the tax laws.

The wealthy take advantage of every opportunity to reduce their tax liability legally. So do I. Don't you?
 
ttwtt78640 said:
I guess I just look at it from another point of view. Assuming that these are income producing assets then taking them temporarily out of service to re-sell to others does little, if any, good (especially if their new owner is in a lower tax rate bracket or, as you have suggested, taxed at lower rate anyway). Worse yet, if they must be liquidated to pay the estate taxes due such as stocks or farm land, they may drive down the price of that stock or land by flooding the market with their forced sales. I would just as soon leave them be and continue to collect the income taxes that they would continue to generate when passed on to the heirs.
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That's part of the problem. Neigh impossible to get into farming/ranching just starting out w/o wealth. Land prices are insane and are too high to support a farming/ranching operation and pay for themselves. Guess who's buying all the land up?
 
Winchester said:
That's part of the problem. Neigh impossible to get into farming/ranching just starting out w/o wealth. Land prices are insane and are too high to support a farming/ranching operation and pay for themselves. Guess who's buying all the land up?
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Around here it is real estate developers - replacing 50 head of cattle with 250 double-wide homes and about 1K folks. I still have more cattle than people for neighbors but that is changing fast.
 
ttwtt78640 said:
Around here it is real estate developers - replacing 50 head of cattle with 250 double-wide homes and about 1K folks. I still have more cattle than people for neighbors but that is changing fast.
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We have billionaires. 3 in our county, one in the neighboring county about 30 miles away, not to mention the all the folks on the "poor" side that are worth 20-50mil.
 
Winchester said:
We have billionaires. 3 in our county, one in the neighboring county about 30 miles away, not to mention the all the folks on the "poor" side that are worth 20-50mil.
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I do handyman work for a couple of millionaires (they live in Houston & Dallas) on their (220 & 330 acre) ranches in the area. Most of my customers are far less wealthy.
 
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