Blow Up the Tax Code and Start Over

[JSArbitrage]

It would be much appreciated, if a fellow board member would provide a link to a website explaining the US estate tax on the rim. It's important for non US residents board members understanding of what's going on in this topic.

 

Thank you in advance.

 

Basically, the US has a tax on the inheritance of large sums.  If you are rich, the US will not simply allow you to give your wealth to you heirs when you die without paying a tax.  Some of the reasons are philosophical (preventing the accumulation of dynastic wealth - aka the Thomas Jefferson argument) and some are practical (dead rich people have no need for money anymore.)  Some people disagree with this tax also on philosophical grounds (general aversion to taxes that specifically target the wealthy) and some are practical (heirs might have to sell family businesses, real estate, etc. to create the liquidity required for the estate the pay the tax.)  The tax only effects the marginal value of the estate above $5.5M dollars but the tax rate is quite high at around 55%.  So it doesn't effect 99.9% of Americans but it can have a large effect on those estates that are asset-heavy and cash-poor like a family farm or a valuable piece of real estate.

 

TL;DR - The US taxes dead rich people.  Some people like that.  Some people don't like that.  Either way, if you are affected by it, you are probably doing pretty well so it's only a debate rich people and people who like to debate policy generally give a crap about.

[mrholty]

It would be much appreciated, if a fellow board member would provide a link to a website explaining the US estate tax on the rim. It's important for non US residents board members understanding of what's going on in this topic.

 

Thank you in advance.

 

Here is a consise summary from Wikipedia.com

https://en.wikipedia.org/wiki/Estate_tax_in_the_United_States

 

As you can see even the summary is long and tedious.  Basically a TL;DR is when someone dies their heirs will get their goods free and clear without having to pay an inheritance tax if the value is less than $5.3M. 

 

I don't have a comment about the amount and what that limit should be.  My thought has been about corporations.  I've watched too many small family businesses get crushed as they have to sell out to pay the tax man for the family business but yet corporations can exist infinitium.  Add in the fact that citizens united gives a corporation the same rights as a person and maybe then we should state that all corporations have only an 80 year charter similar to a human life.  At the end of 80 years the business and all its patents, processes, etc are sold to the highest bidder and the proceeds are distributed to debt and ultimately shareholders.  Rather elegant I say. 

[tombgrt]

It's actually 40 richest families in the world (and a loose definition of family), but not a big deal. It should be no shock that a few individuals control large sums of wealth. This has generally persisted throughout history. I also don't think it should be a shock that wealth rarely lasts. Families die out or gain so many branches that wealth is spread thin (as Eric points out).

 

One of the first hits on google:

http://www.theguardian.com/society/2015/jan/31/inheritance-britain-wealthy-study-surnames-social-mobility

 

After examining the records of 18,869 people, and dividing them into three categories, the rich, the prosperous and the poor, Clark and Cummins agree. They suggest that the passing on of wealth is far more persistent over the generations than previously acknowledged, noting that there is a “significant correlation between the wealth of families five generations apart”. Put simply, the descendants of the wealthy of 1858 are still much wealthier than the average person in 2012.

 

The economists calculate that this “elasticity” of intergenerational wealth is a remarkably stable 0.75. A zero rating would indicate that no wealth at all was transferred down the generations, while a figure of 1 would suggest the “perfect transmission” of wealth between parents and their children.

 

Or doesn't that count as lasting? Imo it does... Social mobility is still nowhere.

 

So nope, plenty of people do inherit their wealth. I'm not pro a heavier inheritance tax (Eric made a good point with the problem of wealthy and f*cked up kids) but pro a yearly wealth tax above a certain threshold (of many hundreds of millions or even billions). Make it 12-month LIBOR rate with a maximum, idk... Decent wealth management can keep up with this and you can view it as an annuity to society. That way when the rich get richer, they are at least paying more YoY as well... It's a better investment for society to let those people keep compounding their wealth and letting them give a certain percentage/year than trying to tax them big just once (which fails anyway).

 

Here is the major logical flaws in that article that mentioned wealth 5 generations apart.

 

1st generation: 

it is wealthy and has 5 children

 

2nd generation:

Out of those 5 children 4 are wiped out

1 of them is wealthy and has 2 children

 

3rd generation:

1 child loses 1/2 of his fortune (enough to remain in the upper middle class) and the other is wiped out.  The one in the upper-middle-class has 4 children

 

4th generation:

1 of those children marries the daughter of a successful businessman and they have 3 children

 

5th generation:

the children benefit from their mother who inherits the business from her father.

 

It can now be concluded that the family wealth has survived 5 generations?

 

There is a lot that goes on.

 

A family over 5 generations has a lot of branches.

 

If JUST ONE of those branches is very wealthy after five generations, it is concluded that there is no social mobility???

 

 

 

Law of large numbers doesn't require of them that they look at each descendant anyway right? On average it works out and they can show correlation. They can just look at one random descendant per starting point (the rich 19th century family) and look at the average results between those two data points.

 

Just an aside because I really doubt they would analyse it like you said. If they did it is obviously worthless and those guys should look for another job. But this is sadly often the way they try to sell people false stories.

 

 

Let's suppose you start with a very poor family in the first generation.

 

With each passing generation, the number of branches of the family explodes.

 

The further along we go down the generations, the more likely it will become that you will find a wealthy family.

 

By the 5th generation or the 10th generation or the 15th... etc... etc... , it becomes ever more likely that there will be a rich family.

 

So is that rich family a result of what happened in the first generation?

 

And of course if you start with an educated poor family in the first generation, I would bet that you would need to wait fewer generations before finding a wealthy family.

 

All that study did is look at wealthy family today and ask if that particular branch was wealthy five generations ago. It did not say that every branch remained wealthy over the generations, or even that an above-average number of branches remained wealthy.

 

It would be easier if we actually saw the research of course... I don't see how they could prove correlation without including "anti-evidence" as well as it brings out above-average results elsewhere.

 

 

But you are obviously right that there is strong correlation between education and wealth. This could show that the "inherited" wealth is mainly there because of learned values, attitudes, social structures, etc and not so much because of the pure monetary inheritance. This is something that analysis won't show and it is possibly way too complex to really find out. Intelligence in itself is hereditary so you have both nurture and nature that come into play. That doesn't mean strong wealth transfer can't be sizeable regardless of these facts that make it more likely. I honestly don't know how much each factor contributes and I doubt anyone does.

 

It could very well be that over time "pure" wealth transfer has little to do with it and that it's all about inherited intelligence and passed on values and attitudes. In a way, it's harder to debate transferring more from the intelligent and hard working class to say the stupid and lazy people (to put it bluntly) because "having earned it by personal traits" comes into play. You could of course argue that those personal traits are also not really earned but given in a way but at some point I guess you have to start being pragmatic. Anyway, I just now figured out you basically said somewhat the same (but better) in your first reaction to me so yeah... thumbs up!  ;D

 

It's getting late here so apologies for the random odd words and sentences...

[CC]

It would be much appreciated, if a fellow board member would provide a link to a website explaining the US estate tax on the rim. It's important for non US residents board members understanding of what's going on in this topic.

 

Thank you in advance.

 

Here is a consise summary from Wikipedia.com

https://en.wikipedia.org/wiki/Estate_tax_in_the_United_States

 

As you can see even the summary is long and tedious.  Basically a TL;DR is when someone dies their heirs will get their goods free and clear without having to pay an inheritance tax if the value is less than $5.3M. 

 

 

It seems the tax applies to everyone who owns U.S. stocks, even if held in an account outside the U.S.

 

http://www.taxtips.ca/personaltax/usestatetax.htm

 

"The deceased is subject to U.S. estate taxation on the fair market value of their U.S. assets at the time of death, including:

....

stock of corporations organized in or under U.S. law, no matter where the stock certificates are physically located, even if they are registered in the name of a nominee (in street name)"

 

[Guest Schwab711]

It's actually 40 richest families in the world (and a loose definition of family), but not a big deal. It should be no shock that a few individuals control large sums of wealth. This has generally persisted throughout history. I also don't think it should be a shock that wealth rarely lasts. Families die out or gain so many branches that wealth is spread thin (as Eric points out).

 

One of the first hits on google:

http://www.theguardian.com/society/2015/jan/31/inheritance-britain-wealthy-study-surnames-social-mobility

 

After examining the records of 18,869 people, and dividing them into three categories, the rich, the prosperous and the poor, Clark and Cummins agree. They suggest that the passing on of wealth is far more persistent over the generations than previously acknowledged, noting that there is a “significant correlation between the wealth of families five generations apart”. Put simply, the descendants of the wealthy of 1858 are still much wealthier than the average person in 2012.

 

The economists calculate that this “elasticity” of intergenerational wealth is a remarkably stable 0.75. A zero rating would indicate that no wealth at all was transferred down the generations, while a figure of 1 would suggest the “perfect transmission” of wealth between parents and their children.

 

Or doesn't that count as lasting? Imo it does... Social mobility is still nowhere.

 

So nope, plenty of people do inherit their wealth. I'm not pro a heavier inheritance tax (Eric made a good point with the problem of wealthy and f*cked up kids) but pro a yearly wealth tax above a certain threshold (of many hundreds of millions or even billions). Make it 12-month LIBOR rate with a maximum, idk... Decent wealth management can keep up with this and you can view it as an annuity to society. That way when the rich get richer, they are at least paying more YoY as well... It's a better investment for society to let those people keep compounding their wealth and letting them give a certain percentage/year than trying to tax them big just once (which fails anyway).

 

This link was cited earlier in the thread and I was referencing it in my response. I don't think it proved anything and I maintain that it should not be surprising to see the majority of inherited wealth dissipate within several decades. There are exceptions. Wealth absolutely does improve the lives of your posterity (wasn't that the whole point all along!?). I just take issue with the rewriting of history. Many of those folks within that study (the rich in 1858) were likely praised for their success in life (in this one, extremely narrow, definition) and for improving the lives of those within their community or future generations within their family. Now we are trying to say that they caused harm to our society for doing these same things.

 

Further, the history of estate taxes (wiki) shows that estate taxes have often been 0% throughout our history. It is probably not reasonable to consider 1858 as a starting point  since the average 1G and 3G/4G inheritances were likely untaxed.

 

I think your conclusion of social mobility in the US is an incredibly extreme conclusion. Just because there exists a higher probability that future generations of wealthy folks are wealthy themselves doesn't mean it's an issue. Wasn't the whole idea of accumulating wealth (the American Dream) to make life better/easier for your posterity?! Now it is morally wrong to allow this?

 

Your idea of an annual "wealth tax" is exactly the type of thinking I was referencing in my comment about the "dislike of the wealthy" (I think this has to do with the regular measurement and reporting of some individual's wealth; it can be argued that many define success in life by your accumulated wealth or your income). Why is it wrong to be wealthy? Or, if not wrong, why do they deserve to be unproportionately taxed? I worry that even if it is done "because we need the money and they are most able to pay", it creates an extremely dangerous precedent! Why should the wealthy be taxed for simply having an arbitrary amount of wealth and what are you trying to accomplish? Are you intending to create specific incentives?

 

I think it's often overlooked but, we already have laws to prevent the manipulation of elections. If a wealthy individual or family actually commits this crime, then I will absolutely support punishment, but why are we rushing to judgement by assuming that they will (and thus, it becomes reasonable to strip the wealthy of their property)? The odds of every wealthy family/individual using their wealth to attempt to influence elections is slim-to-none. So what other reasons are there for the inheritance/estate taxes and for this proposed annual wealth tax? What makes it such a "good investment"?

 

I think widespread internet access will improve social mobility to a greater degree and more fairly than any potential tax ever could. Let's just let the societal improvements play out before we constantly tinker with knee-jerk reactions.

 

Finally, I REALLY dislike when "morals" are used for justification of government matters:

On the other hand, making a lot of money is not evil either if done in legal and moral way.

 

Whose morals??! How do we determine what these morals are? The constitution went well out of its way to avoid allowing public opinion to deprive individuals of their freedom unduly. Morals are the only thing from preventing this intention from coming to fruition. Was it moral to make LGBTQ relations a crime? Is it moral now to remove these penalties? Are we, as a society, really willing to lose the contributions of individuals just because they are immoral at times (assuming they don't harm anyone else)? Unless an action can be proven to directly or indirectly harm another individual or group then why should that action be illegal (other than morals)? Consider drug use, prostitution, or incest. None of these actions, by definition, harm anyone else, but they are illegal because they are "immoral". We already have laws that allow us to arrest drug users who commit a robbery or murder and forced incest or rape. Why should we punish individuals whose lifestyle differs from the norm before they harm anyone else!!! We have laws for robbery, rape, kidnapping, and murder. Let's wait for these "immoral" folks to actually commit these crimes instead of criminalizing their lifestyles in anticipation. Morals, no matter how obvious they seem, are extremely dangerous in my view.

[Jurgis]

I think widespread internet access will improve social mobility to a greater degree and more fairly than any potential tax ever could.

 

I think that widespread automation in near future will kill social mobility completely. You will either be smart and talented to learn and program things (before they start programming themselves) or not. And the nots will have no jobs and no money.

 

Let's hope that I am wrong. If I'm right - and there are quite a few things pointing in that direction - societies will have to deal with funding over 80% unemployed. Let's see what tax debates rage then. ;)

[Jurgis]

On the other hand, making a lot of money is not evil either if done in legal and moral way.

 

Whose morals??!

 

Mine of course. I reserve the right to call a person or a business evil if it goes against my morals.

 

I freely give you the same right too.

 

Edit: just to clarify: the fact that I believe person or business are evil, does not necessarily make it such for others. People may agree or disagree with moral judgements. Investment-wise, people may invest in things I consider evil and I may invest in things that others consider evil. Schwab711's reaction to my sentence was as if he thought I was proposing some kind of moral police. I did not. I just stated the fact that everyone is free to consider certain ways to make money evil even if they are legal.

 

Best.

[ScottHall]

This thread jumped the shark like six pages ago.

[Jurgis]

This thread jumped the shark like six pages ago.

 

More like nine. ;)

[rkbabang]

Whose morals??! How do we determine what these morals are?

 

Can we at least start with "theft is wrong"?  Probably not if we are discussing taxes.

 

[ERICOPOLY]

Tombrt,

Lottery winners or NFL players should have no trouble remaining wealthy unless it really is family culture/education/etc... that plays the strongest role.

[wachtwoord]

Whose morals??! How do we determine what these morals are?

 

Can we at least start with "theft is wrong"?  Probably not if we are discussing taxes.

 

Involuntary tax is wrong?

[Liberty]

Tombrt,

Lottery winners or NFL players should have no trouble remaining wealthy unless it really is family culture/education/etc... that plays the strongest role.

 

Or genetics. The Blank Slate by Steven Pinker makes a pretty convincing case from studies of identical twins that have been separated at birth (so raised in different environment) that genetic clones tend to turn out pretty similar.

 

Are people smart because they have a good family culture, or do they have a good family culture because they're smart? I know, whole other debate...

[rkbabang]

Whose morals??! How do we determine what these morals are?

 

Can we at least start with "theft is wrong"?  Probably not if we are discussing taxes.

 

Involuntary tax is wrong?

 

I've never in my life paid a tax voluntarily without the threat of violence hanging over my head.  You give to charity, they take taxes.

[wachtwoord]

Whose morals??! How do we determine what these morals are?

 

Can we at least start with "theft is wrong"?  Probably not if we are discussing taxes.

 

Involuntary tax is wrong?

 

I've never in my life paid a tax voluntarily without the threat of violence hanging over my head.  You give to charity, they take taxes.

 

Indeed. This shows the value of paying taxes is lower than the price and therefore that there shouldn't be any taxes. If people want to do something jointly they'll join up and collect funds voluntarily. In a 100 years states will be way way smaller (if they exist at all).

[rkbabang]

Whose morals??! How do we determine what these morals are?

 

Can we at least start with "theft is wrong"?  Probably not if we are discussing taxes.

 

Involuntary tax is wrong?

 

I've never in my life paid a tax voluntarily without the threat of violence hanging over my head.  You give to charity, they take taxes.

 

Indeed. This shows the value of paying taxes is lower than the price and therefore that there shouldn't be any taxes. If people want to do something jointly they'll join up and collect funds voluntarily. In a 100 years states will be way way smaller (if they exist at all).

 

Agreed.  Just look at WEB, he supports higher taxes on the rich. Yet does he donate his own money voluntarily to the US government above what the law demands or does he donate it to charity when he has the choice?  His actions, not his words, tells you which he thinks has more value.  The US treasury is the right place for other peoples money, just not his own.  I don't believe there is any law that says you can't donate money to the US government if you wish.

 

The entire conversation in this thread (with a few exceptions) can be summed up as: A group of people speculating on what they'd like to see done with resources other people have created after those resources have been taken from its creators by force.  It is always fun to speculate what you would do if you could rob a bunch of money from other people isn't it?

 

Yes I think in 200 years the state is going to have about as much power in society as religion does now.  And people will look back at the 20th century as we now look back on the middle ages.  The 21st century (really with the internet starting in the late 20th century) is the beginning of the new enlightenment.  Most people just don't realize it yet.

 

[Jurgis]

And now we have "taxes are theft" ultraliberals on the thread. I was wondering what was missing for the last 10 pages.  8)

[wachtwoord]

And now we have "taxes are theft" ultraliberals on the thread. I was wondering what was missing for the last 10 pages.  8)

 

Libertarians (or anarcho-capitalists to be precise).

[TwoCitiesCapital]

What else would you call forcing someone to pay you money with a gun to their head?

 

I mean, don't get me wrong. I don't believe we'll ever make it to a taxless state and I fully agree with, and support, progressive taxation if taxation is to exist, but having another name for an activity just because the government does it seems wrong. 

 

If you don't pay your taxes, you don't simply lose the benefits they buy. You're thrown in jail. The government is taking something that is yours and using coercive methods to achieve it - if anyone else did that it would be called theft, but because it's the government holding the gun it's something else?

[rkbabang]

And now we have "taxes are theft" ultraliberals on the thread. I was wondering what was missing for the last 10 pages.  8)

 

Libertarians (or anarcho-capitalists to be precise).

 

I usually refer to myself as a libertarian or anarcho-capitalist, but I don't object to being called a liberal.  Liberal, based on the latin "līber", basically means "free man". It is a perversion of language for the socialists to be using the term to describe themselves.

[wachtwoord]

And now we have "taxes are theft" ultraliberals on the thread. I was wondering what was missing for the last 10 pages.  8)

 

Libertarians (or anarcho-capitalists to be precise).

 

I usually refer to myself as a libertarian or anarcho-capitalist, but I don't object to being called a liberal.  Liberal, based on the latin "līber", basically means "free man". It is a perversion of language for the socialists to be using the term to describe themselves.

 

Nowadays liberal is (oddly) reserved for socialists. Other than that I fully agree with you.

[Jurgis]

What have the taxes ever done for us?

 

[rkbabang]

What have the taxes ever done for us?

 

 

Ah the roads. Yes, grade a strip of land, put down some gravel and a few layers of asphalt. How could such a feat ever be accomplished without violence?  My dad was a contractor, I grew up working for a paving crew in the summers as a teenager.  Most of the laborers were Portuguese immigrants like my dad, most couldn't read or write.  I can assure you it would be possible to pave a road without the backing of the United States Federal government violently robbing every productive person in the 3.8 million square mile area it claims sovereignty over.

 

Whatever good the government does doesn't matter to me in the least.  Suppose you were robbed one night at the ATM.  The masked man showed you a gun just to let you know that he had it, then told you to withdraw the maximum amount your bank would let you (say $500). He then took your money and ran.    Suppose you found out months later that he had a daughter dying of cancer and he used your money plus the money from hundreds of others he similarly robbed to fund his daughters treatment and this treatment saved her life.  You might feel good that an innocent girl will now live, but I maintain that her father is still a criminal and completely in the wrong for robbing you and threatening you with violence.  It doesn't matter how laudable your goals are (feeding the hungry, healthcare for the needy, building a road, saving a young girl's life) you need to find a way to achieve them without threatening to use violence against your fellow man.

 

[TwoCitiesCapital]

What else would you call forcing someone to pay you money with a gun to their head?

 

I mean, don't get me wrong. I don't believe we'll ever make it to a taxless state and I fully agree with, and support, progressive taxation if taxation is to exist, but having another name for an activity just because the government does it seems wrong. 

 

If you don't pay your taxes, you don't simply lose the benefits they buy. You're thrown in jail. The government is taking something that is yours and using coercive methods to achieve it - if anyone else did that it would be called theft, but because it's the government holding the gun it's something else?

 

I guess I should also clarify. Not all taxes are theft. Just the current form of income tax and how the U.S. gov't aims to collect. A VAT tax, as I supported earlier, would only tax those who purchase items. If you don't want to pay the tax, you don't get the item. Just like any other transaction. The whole transaction is voluntary and nobody goes to jail for deciding not to buy items (and thus avoid the tax) like you do now if you avoid your income taxes.

 

You can have a tax system that doesn't rely on organized theft, but as long as the government is taking something from you from a non-voluntary transaction that uses coercive forces and threats of violence, then I think it's pretty fair to call it theft.

[Jurgis]

We went through this before.

 

It is not theft: we live in (somewhat) democracy and we vote for taxes. (Actually, I am taxed without representation and I am still very happy with the tax system in US.). The fact that you are voting against does not make it a theft. Look up the definition of democracy.

 

I'd be very happy for you and other anarcho-whatevers to go and establish your utopia somewhere. If it was successful maybe others would follow.

 

Or start a party and try to persuade other people to vote against taxes. Good luck.

 

So far what I hear is just more of this: