Income taxation and morality

[Tamas]

The federal estate tax exemption is $5.45 million

That is just ridiculous.

It really is.

It's £325,000 here. The rate is 40%.

Well I sure hope there are exceptions in place for direct relatives and such, because I would not like to be a not-rich heir of someone who has seen their 80k flat propel into 400k value.

[The Minsky Moment]

The federal estate tax exemption is $5.45 million

That is just ridiculous.

That's per individual - unused portions of an exemption can carry over to a spouse for a combined exemption of over $10 million

In addition, with respect to small businesses in reality the exemption is much higher, because under the existing rules, small businesses subject to estate taxation calculate their value subject to various valuation discounts.  The treasury has started to crack down on that but its not clear yet how it will play out.

[Gups]

The federal estate tax exemption is $5.45 million

That is just ridiculous.

It really is.

It's £325,000 here. The rate is 40%.

Well I sure hope there are exceptions in place for direct relatives and such, because I would not like to be a not-rich heir of someone who has seen their 80k flat propel into 400k value.

I know. You'd have to pay £37,500 just to own a £400,000 property. Who the fuck would want to put up with that shit. Better off just gifting it to charity.

[Berkut]

The federal estate tax exemption is $5.45 million

That is just ridiculous.

It really is.

It's £325,000 here. The rate is 40%.

Well I sure hope there are exceptions in place for direct relatives and such, because I would not like to be a not-rich heir of someone who has seen their 80k flat propel into 400k value.

Yeah, that would really suck, having to inherit something that used to be worth 1/5th its current value. What a bummer.

[frunk]

I know. You'd have to pay £37,500 just to own a £400,000 property. Who the fuck would want to put up with that shit. Better off just gifting it to charity.

Or even worse, selling it for £400K to pay the £37.5K instead of getting to sell it for £80K without having to pay any of that awful tax.

[Tamas]

Ok ok, I didn't realise at first its 40% on the above-375k part

Still, I'd like to point out, that especially with the property prices in the UK, I can very easily imagine a situation where the heir does not have the value they need to cough up.

Sure, they can take a loan, but that still makes this a very annoying an -gasp- unfair tax.

[Tamas]

I know. You'd have to pay £37,500 just to own a £400,000 property. Who the fuck would want to put up with that shit. Better off just gifting it to charity.

Or even worse, selling it for £400K to pay the £37.5K instead of getting to sell it for £80K without having to pay any of that awful tax.

What if you do not want to sell it because it hold sentimental value, or would be a property you could move your own family into to have better quality of living?

[grumbler]

Sure, the overall average benefit is small, but the average harm is even smaller.

I think the overall average benefit is next to nil unless you do very punitive rates, and I strongly disagree about the average harm.

Arguments by assertion are arguments by assertion.

[frunk]

What if you do not want to sell it because it hold sentimental value, or would be a property you could move your own family into to have better quality of living?

Assuming they don't have the money they should be able to get a loan, which most likely will be less than the rent/mortgage on their current place.  If they can't even get that then i would think they would be better off selling for the 363K net profit.  I don't think we should structure tax policy to make sure everybody gets to live where they want.

[grumbler]

If we assume that the overall taxation rate is a constant, then presumably if they tax you more at death, they are taxing you less at earning.

If you do not make that assumption, then we are not arguing about what kind of tax is better, but overall taxation levels, which is a completely different discussion.

Even if we assume that, one does probably not come from the other.

I guess it heavily depends on the country in question but I doubt anything but an obscenely high inheritance tax could compensate for any noticeable decrease in any earning-side taxes, unless you talk about replacing another minor tax with an inheritance tax.

And in that case, my previous argument stands: there are far better taxes in terms of their level of impact on citizens. For example, a tax on dividends (while still under my moral issues of double taxation, but whatever) is far more fair as it does not result in an unexpected and disproportionate financial strain for the non-privileged.

The moment you start using words like "fair" your argument is pretty toast. That is purely subjective.

And how is an inheritance tax "unexpected"? Are you thinking your parents will never die?

Finally, most inheritance taxes are specifically designed to handle issues like property taxes on family homes and businesses. There is typically a very large floor under which there is no tax - I think in the US it is something obscenely high like a million or so.

Death and taxes are supposed to be the two things we can all count on - taxes on death ought to be pretty darn non-surprising, and should in fact be planned for...

And the argument that receiving a behest results in "an unexpected and disproportionate financial strain for the non-privileged" is ludicrous on the face of it; if receiving the behest would be too great an imposition, the heir could simply refuse the behest and have no strain whatsoever.

[Tamas]

What if you do not want to sell it because it hold sentimental value, or would be a property you could move your own family into to have better quality of living?

Assuming they don't have the money they should be able to get a loan, which most likely will be less than the rent/mortgage on their current place.  If they can't even get that then i would think they would be better off selling for the 363K net profit.  I don't think we should structure tax policy to make sure everybody gets to live where they want.

Not but you could structure tax policy in a way that people do not face the decision of having to sell a property with great sentimental value, just to meet tax obligations.

Even if this is a very rare scenario, surely there must be other ways to get the same amount of tax income without causing the same controversy.

I guess this may be a cultural thing. Your societies might be more mobile in general, better accustomed to the concept of just throwing the property your parents (and probably you) lived in for decades, just to pay a tax bill.

[grumbler]

I was talking about the situation where they would be hit with a sizeable inheritance tax. Check my example above.

Just have the estate pay the tax.  if the taxes excede the value of the estate, no one owes anything.

I concede this issue is theoretical if there is a sufficiently complex law in place to protect these cases, but as Minsky pointed out, complex taxes are a problem in themselves.

That's why inheritance (after the estate is taxed and goes through probate) should be treated as ordinary income.  No special rules needed.

[Gups]

What if you do not want to sell it because it hold sentimental value, or would be a property you could move your own family into to have better quality of living?

Assuming they don't have the money they should be able to get a loan, which most likely will be less than the rent/mortgage on their current place.  If they can't even get that then i would think they would be better off selling for the 363K net profit.  I don't think we should structure tax policy to make sure everybody gets to live where they want.

Not but you could structure tax policy in a way that people do not face the decision of having to sell a property with great sentimental value, just to meet tax obligations.

Even if this is a very rare scenario, surely there must be other ways to get the same amount of tax income without causing the same controversy.

I guess this may be a cultural thing. Your societies might be more mobile in general, better accustomed to the concept of just throwing the property your parents (and probably you) lived in for decades, just to pay a tax bill.

Not really. People in the UK often use the same specious arguments against inheritance tax that you do.

[frunk]

Not but you could structure tax policy in a way that people do not face the decision of having to sell a property with great sentimental value, just to meet tax obligations.

You are talking about a situation where the family can't get a loan for 37.5K.  In that situation I think it is better for them to sell the property and use the money to better their lives than to cling to their sentimentality even if there was no tax.  Take lots of pictures and mementos and let go.

[Valmy]

My main concern with punitive (like 60%+) inheritance tax is that it seems like it would fall super hard on a very specific part of the population. Small business owners and people who own realestate in cities. It would pretty much destroy them, while the wealthy could easily bear it and/or plan around it. But I guess that is what all those tax exemptions are for.