Worried about paying federal estate taxes? Don’t be

Writing for the Washington Post’s Wonkblog, and seizing the occasion of a House Ways and Means Committee vote to eliminate the federal estate tax, Matt O’Brien shines a momentary light on the estate tax, and comes up with some numbers that took me by surprise.

Nominally, the inheritance tax takes 40 percent of very large estates as they pass to the next generation. Republicans have long criticized this as case of “double taxation” because presumably the parents (or grandparents or whomever) paid income taxes on this money when they made it, so their grandkids shouldn’t have to pay again just because they inherited it.

The moral problem is a little hard for people without super-rich families to grasp fully. The heirs who inherit large estates aren’t exactly magnets for the sympathy of ordinary folks. And, of course, the heirs and heiresses aren’t being double-taxed, since they have never previously been taxed on these particular millions or billions. And the heirs are still making out reasonably well on their decision to be born into those particular families. But it’s the principle of the thing. The money itself has already been taxed.

Anyway, Wonkblogger O’Brien says that the share of the population that gets hit with this tax is 0.2 percent of households, or two out every thousand. It doesn’t kick in until after the children have received $10.86 million of tax-free inheritance.

Then the 40-percent bite is a fiction. Relying on research by the liberal Center on Budget and Policy Priorities, O’Brien writes that even after the tax-free $10 million has been passed on to the heirs, “creative accountants and big deductions can shield a lot of the rest from Uncle Sam.” After all the tax shelters have been exhausted, the unfortunate heirs, on average, pay 16.6 percent of the value of their inheritance.

In other times and places, House Republicans are obsessed with reducing the federal deficit and debt. But, CBPP concludes: “The House Ways and Means Committee proposal to repeal the estate tax would reduce revenue by more than $250 billion over the next decade. The proposal before the committee includes no provisions to offset this cost. The revenue loss thus would increase the deficit and add to the nation’s debt.”

Comments (24)

  1. Submitted by Dennis Tester on 04/03/2015 - 10:11 am.

    It *is* the principle of the thing

    When Joe Robbie died (owner of the Miami Dolphins), his family had to sell the franchise to pay $47 million in estate taxes. When Estee Lauder died, her family had to sell 11 million shares in the company to pay the $55 million to the government. So what you say?

    It *is* the principle of the thing. Taxing the minority is how governments operate. That’s why high taxes on cigarettes work because a small minority of the population smokes. That’s why “progressive” income taxes are accepted by the unprincipled and math-challenged citizenry even though they violate the 14th Amendment, because the minority ends up paying the most.

    People of principle should oppose these outrageous tax bills placed on the surviving families whether you can see yourself in that situation or not because that’s the principle of the thing. And all you without principle are free to disagree.

    • Submitted by Dennis Wagner on 04/03/2015 - 08:44 pm.

      I would love to have a $55M tax bill

      Because that means I’m probably worth a couple hundred to a a couple billion! Sorry I find it impossible to shed tears for folks worth $100’s of Millions to billions, you are suggesting that they have been short changed in their life time and we should all feel sorry for their terrible Millionaire/Billionaire never had to work a hard days labor in their life fate.

      So what principle are you speaking to?
      Principle of Fairness?
      Principle of logic?
      Principle of equity?
      Philosophical principles?
      The principle that some folks should be able to live of the sweat and blood of others for generations on to eternity? Thought that was why we threw off the yoke of England?

      OK lots of stuff fin the 14th anything specific?
      Perhaps Section 4:
      The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned

    • Submitted by Paul Brandon on 04/04/2015 - 09:50 am.

      Of course that happened a dozen years ago

      The estate tax laws have changed since then.
      Your citations tell only a (selective) part of the story.
      A quote from Forbes (a leftist publication?) includes yours, but is more complete.
      “In 2004, when cosmetic magnate Estee Lauder died, her family unloaded some 11 million shares in the company to pay a $55 million tax tab. (With an $8.5 billion market capitalization, Estee Lauder is doing just fine.)”
      http://www.forbes.com/2006/12/04/estate-tax-estee-lauder-irs-ent-law-cx_mf_1204estatetax.html

    • Submitted by Paul Brandon on 04/04/2015 - 09:54 am.

      And for more insight on Joe Robbie

      “Fumbling the Ball
      Joseph Robbie was a successful businessman, an attorney and an avid sports fan. He combined his good business sense and his love for sports in his ownership of the Miami Dolphins, one of the NFL’s most successful teams. But in March, 1994, Financial Planning magazine reported, “the year’s biggest loser in the National Football League is the Robbie family, the former owner of the Miami Dolphins.
      Torn apart by family rift, general mismanagement and estate taxes reportedly in excess of $45 million, the family was forced to sell the team, one of the most valuable franchises in professional sports, at a bargain-basement price.”

      Robbie’s estate was somewhat less than $100 million and almost 50% of it vanished in federal estate taxes. It compelled his family to sell the Dolphins at a fraction of its value. Strife and bitter resentments developed within the family because of the actions they had to take to pay the taxes. The real tragedy is that it all could have been avoided.

      “If that $45 million could have been paid with a life insurance check,” concluded Financial Planning, “it would have certainly changed the financial complexion of the family’s situation.”

      http://www.cpasitesolutions.com/content/articles/tale2families.htm

      Again, this was over 20 years ago.
      If two old cherrypicked cases are the best you can come up with ……

    • Submitted by Harris Goldstein on 04/04/2015 - 02:19 pm.

      Facts

      The Robbie’s were looking to sell the team regardless. Their intra-family dispute resulted in a higher than necessary tax bill. http://www.bloomberg.com/bw/stories/1991-10-27/the-dolphins-never-played-this-rough

      The Estee Lauder estate tax bill was 16% of the value of the estate.
      http://taxprof.typepad.com/taxprof_blog/2004/07/550_million_est.html

  2. Submitted by Paul Brandon on 04/03/2015 - 10:36 am.

    If an estate is large enough

    to be subject to an inheritance tax, it is large enough to require legal counsel to transfer the assets properly.
    The cost should be a small fraction of one percent of the value of the estate; hardly a big deal (and it’s taxable).

    • Submitted by Michael Hess on 04/05/2015 - 12:47 am.

      Facts don’t seem to line up

      if as commentators say this is a problem easily rectified by good estate planning, than why is there a projected cost to treasury of $250B? That means assuming the effective tax rate of 16% that some $1.5T dollars will be subjected to this estate tax and taxed. If it was truly something that could be estate planned around treasury should say “hey go ahead and remove it no one pays it anyway!” Since they are not saying that it likely isn’t as easy to avoid as suggested.

  3. Submitted by Connie Sullivan on 04/03/2015 - 11:27 am.

    Most very wealthy families don’t pay much in estate taxes, because they have planned how their estates will be passed on to heirs. The big noise raised by Republicans about estate taxes is not directed at the wealthy, who already know how to handle their money. It’s directed at those lower middle-class and lower class people who envy the wealthy and are made to dream the false dream that they will ever have an estate of any kind for their kids to inherit. The poor are thus persuaded to vote against their own interests, and for the interests of the extremely wealthy.

    There is no “American Dream” anymore. The middle class that was formed after WW II by strong unions and the consequent burgeoning consumer economy is being destroyed, in favor of those at the very top of the wealth scale who would have us believe that they’re taxed too much.

    Boo-hoo.

  4. Submitted by Ray Schoch on 04/03/2015 - 11:55 am.

    Thank you, Mr. Tester

    …for your generosity.

    By providing a cost-free defense of an American aristocracy, you’ve saved the country’s multi-millionaires from the burden of having to prove themselves superior to the rest of us on their own, though I’m pretty sure they could have afforded to pay someone to write a nice PR blurb to the same effect.

    In most cases, of course, those with estates large enough to qualify for the tax didn’t earn their money. Most inherited a fortune to begin with, and some, due to social position and connections – and occasionally to being in the right place at the right time (labeled by the more charitable as “good fortune”) – have significantly increased those inherited fortunes. They’re putting icing on the financial cake, as it were.

    Others actually HAVE “earned” fortunes big enough to merit the tax, but their fortunes are largely due to the efforts of others, since it’s not physically possible for a CEO to work hundreds of times harder OR “smarter” than the average employee in order to reap the rewards of a sizable golden parachute or stock option benefit. It is, sadly, one of the genuine and regularly-demonstrated downsides of capitalism as a wealth-creating philosophy and economy. The rewards are distributed very unevenly, and inequitably, and that inequity is exacerbated by the prejudices built into the society. The inequity is also reinforced by economic and social rules – written by previous generations of the wealthy – that benefit the well-to-do at the expense of the rest of society. “Them that has, gets. Them that don’t, don’t.”

    If you will, it’s the concept of the Puritan Elect writ large.

    In the meantime, the very fortunes that Mr. Tester is working hard to protect have largely been provided by the society, not the individual, since most individuals lack the time and muscle to build their own infrastructure, whether it be concrete and steel or electrons and airwaves. Those fortunes have been built on the backs of millions of others.

    Personally, I don’t mind if someone accumulates many millions of dollars due to hard work and good fortune, but as Andrew Carnegie made very plain a century ago, it’s not their money to keep. The society has granted them a kind of trusteeship over a portion of the society’s wealth, and it’s the job of those who’ve been on the receiving end to use their wealth for the benefit of the society while they’re alive, and to return the remainder to the society when they depart. Carnegie thought a tax burden of 50% was not at all out of line, and there are very few circumstances wherein Andrew Carnegie would qualify as “liberal.”

  5. Submitted by Jay Willemssen on 04/03/2015 - 12:10 pm.

    Taxes exist

    Get over it.

  6. Submitted by Ron Gotzman on 04/03/2015 - 12:25 pm.

    Mr. Black’s obsession…

    Mr. Black seems to be negatively obsessed when a tax cut is promoted because of the so called inevitable result of more debt and deficits.

    However – the same obsession toward debt is never displayed when the debt and deficits are increased by government spending and by growing government.

    • Submitted by Paul Brandon on 04/06/2015 - 09:06 am.

      Problem solved

      Maybe because government spending and hiring has decreased in the past few years, as has the public debt.
      There’s also the question of whose taxes are being cut.

      • Submitted by Ron Gotzman on 04/06/2015 - 10:48 am.

        fantasy land

        Have you seen the Dayton and Obama budgets?

        • Submitted by Jonathan Ecklund on 04/06/2015 - 01:19 pm.

          Fantasies

          Do you take issue with what Mr. Brandon said? Government spending and employment has been on the decline in the last several years. This is an incontrovertible fact.

          Fantasy land is the world in which that fact exists yet the meme of an ‘ever-expanding’ government maintains traction among a certain chunk of the population.

          In other absurdities, the single biggest expansion of the federal government authority and power in the last 50 years took place under George W. Bush.

  7. Submitted by Neal Rovick on 04/03/2015 - 12:51 pm.

    First, the battle was for “no taxation without representation”.

    Now, the battle is for “representation without taxation”.

  8. Submitted by Frank Phelan on 04/03/2015 - 06:20 pm.

    Ideological Supremecy

    The Death Tax (cue haunting organ music) is a case study in modern politics, and the means conservatives have out hustled liberals from one end of the court to the other.

    It starts with language. Control the language and you control the debate. “Death Tax”, is straight out of Frank Luntz play book. It’s just brilliant, “They even tax you after you die!”

    And while conservatives like to decry liberals as promoting envy of others wealth, er, hard earned gains, it is a direct appeal to envy that conservatives use to get the masses to oppose the Death Tax. Surveys have shown that lower income folks know that the tax doesn’t effect them now, they want to get rid of the death tax so that if they do become filthy rich, they won’t have to worry about it.

    In fact, the conservative triumph here is so fantastic, lower income people are MORE likely to oppose the Death Tax than those further up the economic ladder. All this at a time when economic mobility is at an all time low in this country.

    Even more, liberals have offered little in the way of defense of the Death Tax. Many Democratic politicians have voted to reduce it, in fact. And then after they get their fannies kicked in another mid-year election, they wonder why their base doesn’t turn out. Reduce the estate tax, the capital gains tax, income taxes on the wealthy, deregulate Wall Street, bail out big banks but let home owners get swamped, and give lip service to raising wages. Gosh, it’s so tough to figure that out.

  9. Submitted by Jon Kingstad on 04/04/2015 - 10:53 am.

    What moral problem?

    I confess I do have a hard time seeing a moral problem with taxing estates. Maybe because there is none. There is no moral problem with double taxation on the money. Most of the money each of us has is double taxed or more at some level. Federal, state and local taxes, sales taxes all tax the same money over and over again.

    I think we struggle with a “Scrooge McDuck syndrome” as far as wealth and for that matter money is concerned. We believe there are people as rich as Uncle Scrooge but don’t actually see them swimming like Uncle Scrooge swimming in their counting houses filled with bills and coins. That’s because wealth, theirs ours and the nations, are all imaginary. Money mostly “exists” today in cyberspace which makes it so hard to grasp and to fathom. When someone or their estate estate is “worth” ten billion dollars, it’s only because a computer somewhere says so and the government accepts that as a fact and makes it legal.

    I actually thought the estate tax -or “death tax” – had been repealed. I must have missed where it came back. It’s still too low. But it’s all imaginary except to those who have made it their god.

  10. Submitted by Karen Sandness on 04/06/2015 - 06:00 pm.

    “Double taxation” is nonsense

    It rests on the premise that no dollar can ever be taxed more than once in its lifetime.

    In fact, taxes are levied on entities (whether human or commercial), not on individual bits of money.

    Employer X pays Joe Blow a monthly salary, on which he pays income tax. Joe Blow buys things from businesses, and the businesses pay taxes on what they earn from their customers. They, in turn, pay their own employees, who also pay personal income taxes. If any of the business owners accumulate estates large enough to be taxed, their heirs, being *different people,* receive what is left over after estate tax is applied.

    I have trouble feeling sorry for any heirs who have to sell millions of dollars of assets to pay the estate tax. A large estate tax is a sign of a gigantic estate, and undoubtedly enough will be left over so that the heirs can live in idleness for the rest of their lives if they chose to do so.

    • Submitted by Pavel Yankovic on 04/06/2015 - 07:56 pm.

      “A large estate tax…..

      is a sign of a gigantic estate and undoubtedly enough will be left over so that the heirs can live in idleness for the rest of their lives if they choose to do so.” Or hide it in a trust in South Dakota and enter politics in Minnesota.

      • Submitted by Jonathan Ecklund on 04/07/2015 - 08:50 am.

        It’s the “if they choose to do so” point that is salient here. Mark Dayton, while being rich, chose to work in public service. His money was certainly a factor. as is his name, but welcome to modern American politics. At least what Mark Dayton chose to do with his money was to run honest campaigns, instead of funneling his wealth through shadowy channels in attempts to swing elections to further his personal monetary interest.

        • Submitted by Pavel Yankovic on 04/07/2015 - 10:06 am.

          However…..

          when a conservative does what Dayton did the democrats are all over him or her criticizing them for their wealth and accusing them of acquiring it at the expense of others. You know the routine.

          • Submitted by Jonathan Ecklund on 04/07/2015 - 11:13 am.

            This is not true. People were “all over Mitt Romney,” for instance, because he actually DID garner a large part of his wealth through corporate raiding- while claiming that he would run the country like a business; so his experience as a businessman, where he did recommend outsourcing and job-cutting while raking in huge management fees, was odious in relation to how he would govern. And Mitt Romney wanted to lower taxes on the wealthiest in this country. It’s the same with story with Mike McFadden (or Scott Honour, Steve Forbes, Herman Cain, . I would say that comparison isn’t even fair for the likes of Stuart Mills, who’s inheritance and name recognition was a substantial factor in his ability to gain enough visibility to run against Rick Nolan. While those circumstances are somewhat similar to Mark Dayton, Mills was claiming his business acumen at Mills Fleet-Farm is what allowed him to be so high-up in the company, not the fact that it was his family’s business. He claimed to be self-made (he wasn’t). Mark Dayton didn’t, and has never made such claims.

            Typically, wealthy conservatives who often do the same self-financing as wealthy dems claim their money is what gives them their authority on matters of policy and politics, and they typically are running with the intent to lower their own marginal tax-rate. Typically, the dems don’t. There are exceptions, always.

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