Election 16: Donald Trumps wins Presidency. God Help us all!

[Larry]

Now, I have seen an estate planner, for Mom and Dad.  (Would have done vastly more good if they had done it, when they were both competent.  But they didn't)  And he explained to me that yes, it's possible for estates to really get hammered on taxes, when Dad dies.  but it's cases where there are multiple taxes, hitting at once. 

 

I'm going to construct a fictional case, which I'm going to deliberately design to make this effect vary large. 

 

Dad has an estate which consists is $100M, all of it in stock.  Dad's been holding this stock for a long time.  He bought it for $10M.  So, over the years, he's accumulated $90M in "income" (on paper), which he hasn't paid any taxes on. 

 

In addition, a while back, Dad decided he wanted to get his hands on some of this $100M he had, on paper.  But he knew that, if he sold some of the stock, then he was gonna get hit with capital gains tax on 90% of whatever he took out.  And, the stock keeps going up, and he'd like for that money to keep accumulating.  So, Dad borrowed $10M, using the stock as collateral.  Dad gets $10M in tax-free income, and he's still got the stock, and it's value keeps going up. 

 

So, let's pretend that Dad's estate consists of: 

 

1)  $100M in stock.  Of which, 90% is capital gains which have not been taxed.

2)  $10M in debt.

3)  And nothing else.  No cash. 

4)  Total estate value (on paper) $90M. 

 

So, first thing that Dad's estate has to do, is to pay off that $10M debt.  They have to sell some stock, to do it. 

 

But, if they sell the stock, then the tax man steps forward, and says "You owe capital gains tax on 90% of that money".  So, if they sell $10M worth of stock, they have to pay (15% of 90% of $10M =) 1.35M in capital gains taxes. 

 

So, to pay off the $10M in debt, they have to sell $11.6M worth of stock, pay $1.6M in capital gains tax, and use the remaining $10M to pay off the debt. 

 

Now the estate consists of: 

 

1)  $88M in stock.  90% of which is capital gains which have never been taxed.

2)  And no debt. 

 

Now, the estate tax is 35% of $88M, or $31M. 

 

But, to pay that $31M, they have to sell more stock.  And when they sell the stock, the capital gains tax kicks in. 

 

Although there's a sliver of good news, too.  Every dollar of capital gains tax, makes the estate smaller, therefore slightly reducing the estate tax.)  Bu that makes the math more complicated than I want to mess with, right now, so I'm going to ignore it. 

 

So, what they have to do is,

 

1)  Sell $36M in stock.

2)  Pay $5M in capital gains taxes.

3)  Pay the remaining $31M for estate taxes. 

 

Junior actually inherits $52M worth of stock.  From a $90M estate. 

[s0crates]

Somehow I don't think these quibbles about millionaires would be all that persuasive to the vast majority of us worth less than 6 figures. I could handle only getting $50 million dollars I didn't earn.

But if inheritance tax won't work, then how do we get the wealthiest of the wealthy to pay their fair share?

I'm a big fan of the progressive tax we had when Ike was in office.

[tshile]

If inheritance tax won't work, then how do we get the wealthiest of the wealthy to pay their fair share?

I'm a big fan of the progressive tax we had when Ike was in office.

Somehow I don't think these quibbles about millionaires would be all that persuasive to the vast majority of us worth less than 6 figures.

 

Well, I think the problem is "fair share."

 

I have no problem with them paying their fair share, I just think we disagree on what fair share is....

 

I think "fair share" is everyone paying the same rate, regardless of income type (ie: capital gains vs labor), with no deductions (ie: flat tax with no deductions; but like Paul i think you set a floor ~50k),

 

I don't think inherited wealth under $X should be taxed, I'm flexible on what X is. Inherited wealth over X should be taxed at 50% unless it's given to some sort of charitable cause.

I don't know how you deal with assets (stocks, real estate), but I don't like the idea of saying "You inherited a far worth $20 M, therefore you owe us % of 20 M" because I think there are obvious problems with that mentality.

 

Also stop corporate welfare. That plays a lot into it.

 

I think that will probably stop the gap's rate of growth. To actually decrease the gap, i've become a fan of a onetime transfer/confiscation of wealth; simply because I don't see any other way.

[s0crates]

This thread needs more Bernie.

http://www.cnn.com/2015/06/19/opinions/sagrans-lenchner-warren-sanders/

Why Sanders is a good fit for Warren backers

Elizabeth Warren's rallying cry is simple: If we fight for our values, we will win. And the question she's asked supporters is this: Are you ready to fight?

It was that fearless, fighting spirit that inspired us to start Ready for Warren more than a year ago to draft Elizabeth Warren to run for president. We believe the movement to draft Warren fundamentally changed the terms of the 2016 debate, and these days, just about every Democrat running for president seems to sound a lot like Warren. Few people have ever played as large a role in a Democratic presidential primary without even entering the race.

But having demonstrated how much support Elizabeth Warren has, we've spent the past few weeks listening to our grassroots supporters and the progressive community about what they want to do next. And one thing we heard time and again is that they're ready to play a big role in 2016, fighting alongside Warren on issues like trade, student debt, and reining in Wall Street.

They are also ready to back "Warren Wing" candidates who embody Warren's fearless brand of progressive populism. And although it isn't just about the presidency, 56% of supporters have urged us to back Bernie Sanders as the candidate currently running for president who best embodies the values that Warren champions.

That's why on Friday, Ready for Warren is launching a new grassroots initiative called Ready to Fight -- and Ready to Fight is endorsing Bernie Sanders as its candidate for president.

Why?

. . .

http://www.rawstory.com/2015/06/bernie-mentum-huge-2016-crowds-stun-observers-and-even-sanders-himself/

Bernie-mentum: Huge 2016 crowds stun observers — and even Sanders himself

Bernie Sanders, the rumpled American rebel running for president, has been greeted by swelling numbers of supporters at campaign stops, a development which has stunned observers, especially Sanders himself.

The two-term Senator from rural Vermont hits the stump Saturday in swing-state Colorado, where more than 5,000 people — believed to be the largest campaign trail crowd for any candidate in 2015 — have registered to attend, aides said.

“I really was surprised. We’ve had very, very large and enthusiastic crowds,” Sanders told AFP in a brief interview as he emerged from the US Capitol between campaign trips.

“I think we’re touching a nerve.”

Sanders, an independent seeking the Democratic nomination, has called for a political revolution, warning of America’s creep towards oligarchy where candidates are “beholden to the billionaire class.”

. . .

http://thehill.com/homenews/campaign/245496-sanders-surge-is-becoming-a-bigger-problem-for-clinton

Sanders surge is becoming a bigger problem for Clinton

It may be time for Hillary Clinton to take the challenge from Sen. Bernie Sanders more seriously.

Sanders is surging in the race for the party’s presidential nomination.

The Vermont Independent has drawn huge crowds of supporters in Iowa and New Hampshire, and pulled within striking distance of Clinton in some Granite State polls.

“This is not a protest campaign,” Sanders declared at a breakfast with reporters in Washington last week. “This is a campaign to win.”

He’s also a powerful presence on social media, where supporters are eager to share news about his campaign.

While Clinton remains the runaway favorite, the strength of Sanders's challenge — particularly in the states hosting the first two nominating contests — is starting to get attention.

. . .

[tshile]

Larry and PeterMP,

You've cited people borrowing money, tax free, using a valuation of assets as collateral.

 

But those people have to pay that money back, plus interest.

 

And when they do that they're going to pay taxes on the money they use to pay back that loan.

 

The only way they get around that is if they actually lose value on the collateral, and write off the loss to cancel out the capital gains, correct? In which case, they have to come out of pocket with other money to pay off the loan; money that was itself taxed, was it not?

 

So they're not receiving tax free income so much as they're delaying the taxes they owe on the money, correct?

[twa]

Parasites

[Burgold]

 

So they're not receiving tax free income so much as they're delaying the taxes they owe on the money, correct?

Potentially perpetually if they keep offsetting the money into other loans. It's sneaky. A guy covering stock markets was telling me about it or something close to this. Trick is you have to have a lot of money to make it work.

[chipwhich]

Wow. You may be the person the GOP was looking for, back when the "tax man seizing the family farm" slogan was used, by the GOP, to try to justify eliminating the grossly unfair "death tax".

 

Regardless of my story, the Warren Buffet's, Bill Gates, estates wont be paying these taxes regardless of the cutoff.  The true one percent have teams of lawyers who protect their estates and have their estates do what they want to do with the money.

 

Even Predicto's aristocracy remark was ironic.  Again, the real money in this country know the loopholes and take advantage of them.  The tax man isn't stopping the aristocracy.

 

In yalls stock inheritance example, you conveniently assumed the value of the stock at transfer at it's optimal value for the inheritance tax argument.  You know your parent buys a share of Disney, then transfers it on death to the heir.  Well maybe that share of Disney was $100 when they purchased it and $95 dollars at inheritance.  But the tax man in your ideal scenario gets to tax the whole $95 while your parent if alive would have sold it at a loss.

 

As an example, Warren Buffet and Predicto himself could pay more taxes if they wanted to.  There is no law stating Warren Buffet has to itemize his deductions, he could chose the standard deduction and pay the maximum tax rate.  Predicto could have left money in his home equity and not cashed out and put it into educational 529 plans.  I mean Predicto doesn't need to pay for his kids schooling, they should be stuck paying like the rest of the kids taking school loans and allow Predicto to pay those school loan taxes.

 

Now no offense to Predicto, I get it and I do the same, but lets not pretend the estate tax is so black and white.  The real money always wins

[tshile]

Potentially perpetually if they keep offsetting the money into other loans. It's sneaky. A guy covering stock markets was telling me about it or something close to this. Trick is you have to have a lot of money to make it work.

 

Right.

 

So why is the right answer a sweeping tax on people based on a valuation of their assets when tansfered to family due to their death?

 

Why is the better answer not to tax people on capital they use as collateral at the value of the capital at the time they use it as collateral?

 

(edit: assuming said capital falls under the category of "untaxed", in regards to the context of this discussion)

[Larry]

In yalls stock inheritance example, you conveniently assumed the value of the stock at transfer at it's optimal value for the inheritance tax argument.  You know your parent buys a share of Disney, then transfers it on death to the heir.  Well maybe that share of Disney was $100 when they purchased it and $95 dollars at inheritance.  But the tax man in your ideal scenario gets to tax the whole $95 while your parent if alive would have sold it at a loss.

I intentionally picked an example in which the asset gets taxed twice, because that was the point I was trying to illustrate.

(And, after I typed it, it occurred to me that a much better example would be a traditional IRA. In that example, instead of any money coming out of the asset being taxed at (15% of 90% of it's value), it gets taxed at (35% of 100% of it's value).  But I was away from the 'net, and didn't have the ability to change it to a better example.) 

 

Yes, you're right.  When Junior inherits $X of an asset, the inheritance tax taxes it on $X value. 

 

Guess what?  He's inheriting $X, it gets taxed as $X.  (How grossly unfair.) 

 

----------

 

As to the rest of your post, I have to hand it to you.  Here I thought that the "criminals ignore gun laws, therefore we should get rid of gun laws" brand of "logic" was only used in arguments about gun laws.  I don't think I've ever seen anybody attempt to use the argument that "we must repeal this law, because some people break it" argument used anywhere else, before. 

Right.

 

So why is the right answer a sweeping tax on people based on a valuation of their assets when tansfered to family due to their death?

Um, the estate tax is not, and never has been, "an answer" to people borrowing money to generate tax-free income.

 

It's a completely different matter. 

 

The inheritance tax is simply another income tax.  A tax on people receiving income.  (Yes, it's different in some ways.  It's paid by the person "giving" the income, not the person receiving it.  And it's based on the total amount "given", not on the amount of each recipient's income.) 

[Larry]

But it's not 20 M income.

Uh, yes, it absolutely is.

A person received something that is worth $20M.  It wasn't his, before, and now it is. 

Now, you want to claim that "I don't think it's really worth $20M, I think it's really only worth $19?"

I'm well aware that different people may assign different valuations to the same asset. But you're not arguing that it's unfair to charge somebody $7M tax on a $20M income, you're arguing about whether it's a $20M income or a $19M income.

Justified by what? The presumption of valuation and because "they can afford it"?

How about "justified because that's the tax on the $20M you just received"?

[tshile]

Um, the estate tax is not, and never has been, "an answer" to people borrowing money to generate tax-free income.

It's a completely different matter.

Then why is it brought up when discussing estate tax?

Why does your explanation about why the estate tax is right/fair/appropriate include a scenario where people borrow money against inherited stock that hasn't been taxed and uses that as tax free income?

 

I agree that it shouldn't be, which is why my first response to it was something like: that sounds like a banking problem to me, not a tax (estate tax) problem.

 

Uh, yes, it absolutely is.

 

So if I inherit a "$20 M asset" and a 40% estate tax is paid. That's $8M. If I actually sell that asset for $10$ in 5 years, do I get $4M back in overpayment on taxes?

 

Because at that point i didn't really get $20M in income. I got $10 M in income, and whatever 'value' is derived from owning that asset over time (eg: say it's a $20M house, then the value derived would be the privilege of living in/using/owning that house during that time; whatever that means)

 

Yet, according to you, it's not only fair but completely appropriate that I pay $8 for inheriting it. Why? Because the value was deemed at $20 M when I inherited it? The fact that I only actually realized $10 M in actual cash, plus the derived 'value' mentioned earlier, but paid $8 M for the 'privilege' of doing so, is irrelevant to you?

 

So you've taken a 20 M asset passed down, pulled $8 M out for taxes, and I eventually only actually got $10 M, so my net/net is $2 M + whatever that derived value is?

 

That seems appropriate?

 

And it's appropriate because you're concerned that the dead person's children are going to be advantaged compared to others because of this? That's a reasonable fear because of the long-term fear?

[chipwhich]

Guess what?  He's inheriting $X, it gets taxed as $X.  (How grossly unfair.) 

 

Because you and Predicto cherry pick simple examples which makes it seem so black and white.  When you inherit estates, from real money families, you inherit businesses, real estate, etc.  Valuation of these items can potentially burden the family's by forcing them to sell the farm, lose the business, etc.  It's easy to say my mom had $100, I got $100, I owe 35% of that.  It's harder to say mom owns a 100 acre farm with 40 heads of cattle, 30 chicken, some horses, and barns and farm equipment.

 

It's not hard for Warren Buffet though, while he talks a good game, he has the best legal team and accounting team in the world.  He always wins.  Then plays the woe is my secretary game.

[Larry]

Yep. Y'all are right.

Stock is not worth the fair market determined, openly published, price at which thousands of people are openly, publicly, buying and selling it, that day.

It's really worth whatever price it's worth, on some hypothetical future date of my choosing.

And it is unfair to discuss how much tax there should be, on the income of a farm that's worth X$, without declaring the mathematical formula which is used to determine the value of a particular chicken.  Because Warren Buffet has a lot of money. 

 

Then why is it brought up when discussing estate tax?

Why does your explanation about why the estate tax is right/fair/appropriate include a scenario where people borrow money against inherited stock that hasn't been taxed and uses that as tax free income?

Because I was intentionally attempting to create an imaginary scenario in which an estate gets hit for lots of taxes. and one of the cases where that happens is when the estate has debt that it can't pay, unless it sells assets, which trigger taxes. 

 

I could have called it "medical expenses", but then we get into the fact that medical expenses are deductible, and the math gets more complicated. 

[chipwhich]

Yep. Y'all are right.

Stock is not worth the fair market determined, openly published, price at which thousands of people are openly, publicly, buying and selling it, that day.

 

Nobody made that argument.

 

 

And it is unfair to discuss how much tax there should be, on the income of a farm that's worth X$, without declaring the mathematical formula which is used to determine the value of a particular chicken.  Because Warren Buffet has a lot of money.

 

And nobody made that argument.

 

The point of the farm is the inheritor won't have the cash to pay for the farm, so they will have to sell it.  Warren Buffet wouldn't have that problem because his team of lawyers and accountants know all the loopholes so that problem wont arise.

 

Being intentionally obtuse?

[tshile]

Stock is not worth the fair market determined, openly published, price at which thousands of people are openly, publicly, buying and selling it, that day.

It's really worth whatever price it's worth, on some hypothetical future date of my choosing.

 

I don't know a single person that engages in stock trading that actually treats the value of a stock they haven't sold as some sort of income/wealth they actually have, that isn't a complete idiot.

 

In fact, that kind of thinking is what lead to people borrowing money against their house to go on vacations, which exacerbated the financial collapse we're coming out of. It's proven to be a fundamentally flawed away of assessing someone's 'worth', and attaching taxes based on it is no more fundamentally sound than the aforementioned borrowing.

 

And the only way you guys have come even remotely close to justifying looking at it that way, is by pointing out that people are using that value to borrow money to use in place of a traditional income, and as such they receive that money tax free.

 

Which I pointed out, three times now, seems like a banking regulation issue not a taxing issue. I even proposed a solution that takes care of this problem you seem so concerned about, that doesn't have the negative drawbacks.

 

To which you replied - they are unrelated...

 

So pardon me, but in addition to you giving up and (ironically) making a strawman out of our arguments (where is larry to call out larry! ) your argument just doesn't make sense.

 

In fact the only way I can logically justify what you've been saying is to assign another motive to your reasoning... one I know you wont like or admit to. So I don't know where to go from here. Sorry.

[Larry]

Nobody made that argument.

Uh, yes, someone absolutely did.

 

So if I inherit a "$20 M asset" and a 40% estate tax is paid. That's $8M. If I actually sell that asset for $10$ in 5 years, do I get $4M back in overpayment on taxes?

 

Because at that point i didn't really get $20M in income. I got $10 M in income, and whatever 'value' is derived from owning that asset over time (eg: say it's a $20M house, then the value derived would be the privilege of living in/using/owning that house during that time; whatever that means)

 

(And just doubled down on it, in the post following yours.) 

 

----------

 

And nobody made that argument.

And yes, you absolutely did.

 

 

It's easy to say my mom had $100, I got $100, I owe 35% of that.  It's harder to say mom owns a 100 acre farm with 40 heads of cattle, 30 chicken, some horses, and barns and farm equipment.

 

It's not hard for Warren Buffet though, while he talks a good game, he has the best legal team and accounting team in the world.  He always wins.  Then plays the woe is my secretary game.

[chipwhich]

Deleted.  Not worth my time.

 

 

[Larry]

I don't know a single person that engages in stock trading that actually treats the value of a stock they haven't sold as some sort of income/wealth they actually have, that isn't a complete idiot.

Right now, I own 214 shares of Disney. The market value of that stock, as of close, yesterday, was $112.62. Therefore, the market value of my holdings right now, is $24,100.68 (According to ETrade, just now.)

If I give you that stock, right now, how much income have you received?

[tshile]

Uh, yes, someone absolutely did.

 

 

(And just doubled down on it, in the post following yours.)

No?

I'm not saying it's not worth that value.

I'm saying in that state it's not "income" to you that should be taxed. Because a stocks value is a speculative value, and it's not actually income to you until you sell it.

This is pretty basic stuff here Larry. Why are you doing this?

 

----------

 

And yes, you absolutely did.

 

No, He did not say it was "unfair to discuss"

 

Which is what you said.

 

Right now, I own 214 shares of Disney. The market value of that stock, as of close, yesterday, was $112.62. Therefore, the market value of my holdings right now, is $24,100.68 (According to ETrade, just now.)

If I give you that stock, right now, how much income have you received?

In stock form? Nothing.

What's it worth when I sell it? That's how much income I received.

[Larry]

Then please explain the difference between your assertion, and my statement of your assertion: 
 

Stock is not worth the fair market determined, openly published, price at which thousands of people are openly, publicly, buying and selling it, that day.

It's really worth whatever price it's worth, on some hypothetical future date of my choosing.

I'll also ask some similar questions:

If I chose to pay my employees in stock, then is that also worth absolutely nothing, and it's only worth something if/when they sell it?

How about any other asset? Same rule? The only income which is subject to taxes, is cash?

[PeterMP]

Larry and PeterMP,

You've cited people borrowing money, tax free, using a valuation of assets as collateral.

 

But those people have to pay that money back, plus interest.

 

And when they do that they're going to pay taxes on the money they use to pay back that loan.

 

The only way they get around that is if they actually lose value on the collateral, and write off the loss to cancel out the capital gains, correct? In which case, they have to come out of pocket with other money to pay off the loan; money that was itself taxed, was it not?

 

So they're not receiving tax free income so much as they're delaying the taxes they owe on the money, correct?

 

Yes, but I can put it off until other (labor) income falls and I go into a lower tax bracket.

 

I've got a job that pays me $5 million a year.  I want to run for President and that's going to cost me tens of millions of dollars.  I can liquidate assets and pay the higher rate based on my salary for that year (currently you'd pay 20% because your in the highest income bracket on the capital gains).

 

Or I can take out a huge line of credit based on the assets, quit my job, run for President using the line of credit, and then the next year when my labor income is 0 (because I quit my job), and I can sell some of my assets.

 

This is common for people to do until they are retired.  I have a lot of wealth in assets.  I have a good paying job, but I want to live beyond the means of my job salary.  I take out a loan based on my assets.  Once I quit my job, my income has gone way down, and I can start to sell my assets and pay off the loans.

 

For the real wealthy it is about managing your income on a yearly basis in order to minimize your tax bill.

 

The key thing is to keep the long term capital gains taxed at the lower 15% and not 20% (those are the numbers currently).

[PeterMP]

Though I have to admit, I recognize the long term effects that has and how it's like feudal Europe. I think there may be a better way to avoid that?

 

I largely agree with you.  I went to a local college, worked all through college.  I used to work 70+ hours a week during the summer.

 

I've got no student loans.

 

My wife and I bought a house at the top of the housing market.  One reason for the housing bubble was cheap credit.  My wife and figured out the MAX we wanted to pay based on our incomes.  We went to the bank to get pre-approved for loan for the MAX we wanted.  The bank offered to approve us for 1/3 higher than what we wanted.

 

We said no and bought a house in the range we figured we could afford.

 

Today I know people that are living in nicer houses than us that are foreclosed and they haven't made a payment in over year, but there are enough empty homes in the area that the banks don't kick them out.  They are getting years of leaving in nice homes for free simply because they were irresponsible.

 

Life isn't fair.  I don't know what else to tell you.

 

But I don't see a better way.  Do you?

 

When you take into account the inefficiencies of other forms of taxes (as I explained) and the problems with class stratification due to leaving large sums of money intergenerationally, a strong estate/inheritance tax makes sense to me.

 

If you know of another way, I'll listen.

[chipwhich]

Life isn't fair.

 

Nonsense.  Live large.

[Burgold]

 

My wife and I bought a house at the top of the housing market.  One reason for the housing bubble was cheap credit.  My wife and figured out the MAX we wanted to pay based on our incomes.  We went to the bank to get pre-approved for loan for the MAX we wanted.  The bank offered to approve us for 1/3 higher than what we wanted.

 

We said no and bought a house in the range we figured we could afford.

One of the most important things is to figure out your needs versus your wants. If you can do that you have a chance to live a good life. I agree life isn't fair. It's often difficult, but along the way there are opportunities to do amazing things (like attend your son's first peewee baseball game or hold a piece of Mars in your hand.)

 

We're all blessed even during the cursed days.