Estate tax & Trump

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LazyInvestor
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Estate tax & Trump

Post by LazyInvestor » Thu Jan 19, 2017 1:24 am

Does anyone know if there are any expected changes to the estate tax with Trump administration?
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Re: Estate tax & Trump

Post by rickb » Thu Jan 19, 2017 1:56 am

LazyInvestor wrote:Does anyone know if there are any expected changes to the estate tax with Trump administration?
Trump has said he wants to completely eliminate the estate tax. Of course, this affects only the upper 0.2% of households in the US and creates a relatively permanent plutocratic class so why not?
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Re: Estate tax & Trump

Post by mathjak107 » Thu Jan 19, 2017 3:48 am

it is really some of the the state estate taxes and inheritance taxes that can really be killer and at low levels .
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Re: Estate tax & Trump

Post by LazyInvestor » Thu Jan 19, 2017 3:57 am

I think those in 0.2% have all their money in trusts and similar legal entities so that none of their money is touched by estate tax. I think estate tax hits primarily those who barely made it and probably have not realized yet that they should use some means to protect their money, that is, probably upper middle class and small business owners.

So I think it'd be great if they eliminate it. Anyone knows how long it should take?
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Re: Estate tax & Trump

Post by mathjak107 » Thu Jan 19, 2017 6:12 am

the trusts really only get you 2x the limit. the very very wealthy above 10 million still need other ways .

for many of us the state estate taxes are the bitch .

we had to get two very expensive disclaimer trusts put in place a few years ago . while ny is going up to 5 millon over a series of years there is a tax cliff pitfall.

go over the current years amount by 10% and you don't just pay on the overage. you lose the entire exclusion and are taxed at dollar 1 .

as of last year we cleared the threshold but if assets grow we will need those trusts again . the nice thing is the trusts are transparent and do not exist unless a switch is thrown up to 9 months after the death of one of us.

if the switch is never thrown the trusts do not activate
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Re: Estate tax & Trump

Post by WiseOne » Thu Jan 19, 2017 8:06 am

Trump's self-interest is showing here just a bit. I'm not sure completely eliminating that estate tax is going to be palatable.

BUT, it would be great if Congress did something about the impact on small businesses. If you're a typical small business owner, the value of the business and/or business properties is what puts you over the top. You don't have that much cash lying around to pay the tax. Unless you plan carefully, the estate tax will wipe out your business, with implications for any employees that may be involved. Note this gives the large corporate chains a big advantage, since corporations don't "die". What would happen if they were subject to an estate-tax equivalent every time they changed owners??
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Re: Estate tax & Trump

Post by rickb » Thu Jan 19, 2017 6:40 pm

MangoMan wrote: The money has already been taxed. Why should the government tax it again when you die, just because you didn't spend it?
Actually, most of the money has NOT been taxed - consisting of unrealized capital gains. See http://americansfortaxfairness.org/tax- ... tance-tax/

The notion that estate tax affects small business owners and family farms is mostly BS as well, see http://www.taxpolicycenter.org/briefing ... estate-tax
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Re: Estate tax & Trump

Post by I Shrugged » Thu Jan 19, 2017 7:18 pm

Rick, the points at those links can be summed up as:

1. He/she has a lot of money,
2. Give it to me,
3. Or else.

All of the whys and wherefores are rationalizations for the above sentiments.

It always struck me as informative that even most ordinary people consider the estate tax to be distasteful, for lack of a better word. Even looking at someone like say Bill Gates, I don't find that most people think the rest of us are entitled to whatever percent of his wealth upon his and Melinda's death.

But as mentioned above, the super rich don't pay estate taxes anyway. They establish foundations, shelter the money there, and so provide jobs and wealth for their heirs. Hopefully they do some good, but that's always in the eye of the beholder. The estate tax has created an industry of planning, trusts, lawyers, trustees, accountants, insurance agents, all sorts of things that are economic friction.

IMO the estate tax is a political symbol more than anything. It will always exist because it serves the political interests of Democrats and the financial interests of the planning industry. It's a racket.

Trump starts every negotiation from an extreme position. Such as killing the estate tax.
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Re: Estate tax & Trump

Post by rickb » Thu Jan 19, 2017 10:32 pm

I Shrugged wrote: It always struck me as informative that even most ordinary people consider the estate tax to be distasteful, for lack of a better word. Even looking at someone like say Bill Gates, I don't find that most people think the rest of us are entitled to whatever percent of his wealth upon his and Melinda's death.
Actually, Gates is a great example. I don't know this for sure, but I'd be willing to bet that nearly all of his net worth consists of Microsoft stock on which he's never paid a nickel in taxes. Without the estate tax, what happens when he & Melinda die is this stock goes to his heirs who, for tax purposes, receive what's called a "stepped up" basis which is the value of the stock when he and she die, rather than whatever the original cost basis of the stock was. What this means is that roughly $80B comes into the hands of his heirs without ever being subject to any kind of tax whatsoever (not taxed twice, not even taxed once).

I find this distasteful.
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Re: Estate tax & Trump

Post by Pointedstick » Thu Jan 19, 2017 10:46 pm

rickb wrote:Actually, Gates is a great example. I don't know this for sure, but I'd be willing to bet that nearly all of his net worth consists of Microsoft stock on which he's never paid a nickel in taxes.
Is that true? Every time I've receive stock compensation I've had to pay taxes on the shares.

Also, isn't Gates' $80B currently eradicating disease in Africa? He's hardly the posterboy for useless fatcat plutocrats.
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Re: Estate tax & Trump

Post by rickb » Thu Jan 19, 2017 11:39 pm

Pointedstick wrote:
rickb wrote:Actually, Gates is a great example. I don't know this for sure, but I'd be willing to bet that nearly all of his net worth consists of Microsoft stock on which he's never paid a nickel in taxes.
Is that true? Every time I've receive stock compensation I've had to pay taxes on the shares.

Also, isn't Gates' $80B currently eradicating disease in Africa? He's hardly the posterboy for useless fatcat plutocrats.
I'm not saying Gates is not doing anything good with his money. That's a completely separate (and irrelevant) point.

Re taxes. As a founder of Microsoft he presumably had lots of shares as the original owner which I'm surmising is the bulk of his net worth. I suspect you're talking about options which he may or may not have also received. When you exercise options you're buying at the option strike price which becomes the basis price and when you sell (which may be the same time you exercise the option but doesn't have to be) you pay taxes on the difference between the option strike price and the sell price. If you exercise options and don't sell (ever), you effectively buy the stock at the option strike price and then your heirs get the stepped up basis price as of when you die. This completely avoids any capital gains tax on the options.

For Gates, I'd be willing bet that at least $50B of his net worth consists of capital gains in Microsoft stock that has never been taxed. I suspect the actual amount is closer to $80B.
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Re: Estate tax & Trump

Post by Pointedstick » Thu Jan 19, 2017 11:57 pm

But if you never sell, then what good is the wealth actually doing you? Is it really a national tragedy if rich people have untaxed profits on appreciated stocks that they haven't sold yet? The stepped-up cost basis is indeed a windfall for heirs, but again, with no sale, there hasn't actually been a taxable event. When his heirs sell, there will be a taxable event and presumably some taxes will come out of that.

This seems like sort of an odd, wonky thing to get worked up about. It's not like this tax raises a ton of money:

http://taxfoundation.org/blog/estate-ta ... al-revenue
Image

Seems like more of a symbolic issue (grrrrrr nasty rich people/reward the job creators) than one of any serious substance.

One wonders whether repealing it might actually improve things by destroying the parasitic estate tax evasion industry, channeling that talent into something socially production (okay, I'm dreaming here).
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Re: Estate tax & Trump

Post by Libertarian666 » Sat Jan 21, 2017 9:38 pm

The estate tax produces almost no revenue, but causes enormous amounts of legal expenses to those who are in its sights. As with income taxes, what it takes is small compared to what it destroys in the process.

I see no reason for its existence, any more than I do for any other tax.

And I say this as someone who is not going to be affected by it the way that it is today.
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Re: Estate tax & Trump

Post by mathjak107 » Sun Jan 22, 2017 2:23 am

the dead don't vote .
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Re: Estate tax & Trump

Post by I Shrugged » Sun Jan 22, 2017 11:20 am

Simonjester wrote:
mathjak107 wrote:the dead don't vote .
the dead don't always vote .. but when they do vote they vote democrat ..... ;)
^^^ that's a good one!

PS, you and I are in agreement.

The estate tax does not amount to much, but it is a political sales and recruitment point for each side. Symbolism. And it causes a lot of wasteful effort that could be applied more productively elsewhere. Effort in the political realm, and in the realm of estate planning.
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Re: Estate tax & Trump

Post by mathjak107 » Sat Feb 04, 2017 3:46 am

the biggest issue for many regular folks is not the federal estate taxes , it is state estate taxes which kick in far lower and harder in some states .
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Re: Estate tax & Trump

Post by WiseOne » Sat Feb 04, 2017 8:41 am

Great points about the inefficiency of a tax creating a whole industry that sucks up more money than the tax produces, but it's even more interesting than that. I haven't seen many efforts to quantify this, but it appears that state estate taxes may actually lose revenue by driving wealthy seniors out of the state. There are several states with estate taxes that are more onerous than the federal tax - NJ is among them, taxing estates at 16% of the amount over $675K, along with a 10% gift tax.
In the last decade, 2 million New Jersey residents moved to a different state, taking about $70 billion in adjusted gross income with them. Meanwhile, the people who moved into New Jersey brought in $52 billion. That’s a net loss of $18 billion in adjusted gross income, which has resulted in a loss of 75,000 jobs, $11.4 billion in economic output, $4.2 billion in labor income and $8.4 billion in household spending.
https://njbmagazine.com/trenton-talk/ec ... migration/

Of course, states with high estate taxes tend also to have high property, income, and sales taxes, so it's hard to separate out these effects. I do know, however, that New Jersey residents retiring to Florida is so common that it's a cliche, and it's not just for the weather.
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Re: Estate tax & Trump

Post by mathjak107 » Sat Feb 04, 2017 8:53 am

new jersey finally made changes this year . they had one of the lowest thresholds and started moving in january up to the federal level over the next few years like ny did .

we are at 4 million i think here in ny so far .
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Re: Estate tax & Trump

Post by thisisallen » Sat Feb 04, 2017 10:31 am

NJ raised the exemption from $675k to $2 mil this year and in 2018 it is eliminated altogether.
At the same time they raised the gasoline tax by like .23/gal.
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Re: Estate tax & Trump

Post by mathjak107 » Sat Feb 04, 2017 10:37 am

i hate even traveling to new jersey . our kids live there . the trip there and back is usually stressful and horrible . i always say no wonder they charge you to leave nj.

did new jersey keep the inheritance tax ? they had both an estate tax and an inheritance tax .
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Re: Estate tax & Trump

Post by Pointedstick » Sat Feb 04, 2017 10:47 am

thisisallen wrote:NJ raised the exemption from $675k to $2 mil this year and in 2018 it is eliminated altogether.
At the same time they raised the gasoline tax by like .23/gal.
That honestly makes sense to me. Stop taxing something desirable (accumulating wealth) and increase the tax on something bad (burning fossil fuels on dangerous roadways).
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Re: Estate tax & Trump

Post by Libertarian666 » Sat Feb 04, 2017 10:50 am

Pennsylvania also has a very low inheritance tax threshold, although I forget what it is exactly. Amounts over that threshold are taxed at 4.5% for direct descendants (and I believe other close family members_ and much higher levels for others.
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Re: Estate tax & Trump

Post by Libertarian666 » Sat Feb 04, 2017 10:51 am

Pointedstick wrote:
thisisallen wrote:NJ raised the exemption from $675k to $2 mil this year and in 2018 it is eliminated altogether.
At the same time they raised the gasoline tax by like .23/gal.
That honestly makes sense to me. Stop taxing something desirable (accumulating wealth) and increase the tax on something bad (burning fossil fuels on dangerous roadways).
You should know that it is never that simple. No one can know exactly what the unseen effects are, but they are usually of significant magnitude and generally not in line with the stated goal of a change in taxation.
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Re: Estate tax & Trump

Post by mathjak107 » Sat Feb 04, 2017 11:04 am

we just cleared new yorks tax cliffs . it took a few years and we needed to have disclaimer trusts in place
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Re: Estate tax & Trump

Post by Libertarian666 » Sat Feb 04, 2017 11:05 am

mathjak107 wrote:we just cleared new yorks tax cliffs . it took a few years and we needed to have disclaimer trusts in place
But you still live in NY? Why?
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