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I think there is an elaborate system of trusts in place to avoid the estate tax as it currently stands, although I don't really how the assets are allocated among those trusts. It doesn't affect my life in anyway, and considering my dad's family lives to an average of over 90, it won't for a very long time.
Scott: I got the information from The Millionaire Next Door, but my copy is at home.
quote:I contend that a similar number, or perhaps slightly more, could be employed by building quality affordable housing for low income families for the same amount of wealth.
Then you would be wrong. Sorry, but this is one area that I do know something about (the construction thing, not the death tax issue.)
The types of skills and abilities necessary to build high-end housing are not the same as what you need to slap up a Habitat for Humanity home. Expensive homes cost money not just because they're bigger in square footage than moderate housing, but because they use different materials and require a different level of craftsperson to build them.
Most moderate homes don't need the services of a skilled finish carpenter. In your moderate home the framer or general contractor can hang your doors and put on window trim.
But in a high end home, the finish carpentry requires a lot of skill and years of experience to do. I'm talking about the skills to create and install custom moldings, and build an arching staircase, etc.
The construction industry is much more specialized than you might think. When a general contractor signs on to build a $5 million dollar home, he doesn't call Roto Rooter to install the plumbing. He calls someone who does high end plumbing, someone who can read architect blueprints, draw schematics, plan the drainage system, etc. A seven bathroom home, multi story home has much more complicated plumbing than a 3 bedroom, 2 bath ranch. Not every plumber can handle the challenges of that high end home. Plus, that home is going to take a lot longer to finish. Many plumbing companies take jobs where they can go in, slap in the pipe, install off-the-shelf contractor grade fixtures and then collect their paycheck and move on to the next house. We could spend months sometimes on a single home - where each fixture was unique, with its own installation challenges.
Sure that $5 million could be spent building a bunch of low income housing. But it wouldn't employ the same people by any means. And if we stopped building high end housing and started only building low income and moderate housing, many, many companies would go out of business. The companies that specialze in making custom millworks would be gone. Custom cabinetry would disappear, because in low income housing you just order stock cabinets. The craftsperon, the artisan, that spent years honing his craft so he can create the most beautiful custom fireplace mantles - what's he going to do for income?
He can't compete with the manufacturers that produce assembly-line fireplace mantles. He exists only because people are willing to pay thousands of dollars for him to custom design and craft a unique piece for their high end home.
We're already losing the artisan in our society. Cookie cutter subdivsions, where all the homes are built on one of three choices of floorplans are the norm. I think it's very, very sad. The high end home market keeps the few true craftspeople going. I think it would be a shame to lose that.
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FIJC, if the private owner dies, I would say the property is actually in an undetermined state. At a base level, proving ownership requires constant positive action. I don't think private ownership is the default state of nature, at any rate.
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Belle: so you'd be for leaving people with tons of assets, but taxing and then demolishing the homes they would have inherited so they're forced to build more ?
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Belle, I don't think you've proven that building lots of little is less economically advantageous, at a macro level, just that it won't benefit every type of person.
I can understand the aesthetics, but from an economic standpoint, is employing 1 artisan tradesman for a year more valuable than employing 12 "roto-rooters" for a month? I don't think anyone here really knows that answer.
quote:TRY? I beg your pardon-- I'm not trying, I'm actually telling rich people to give money to the poor.
This was tongue-in-cheek, but I believe that the rich have every bit as much right determining how you spend your money as you do to in determining how they spend their money.
quote:"FIJC, if the private owner dies, I would say the property is actually in an undetermined state. At a base level, proving ownership requires constant positive action. I don't think private ownership is the default state of nature, at any rate."
Except that wills are written before death occurs.
Posts: 57 | Registered: Aug 2003
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Well...I wouldn't go that far. I do believe that there is no way to earn money entirely alone - it takes stability, infrastructure, sound banks, and an assurance that you will not be ripped off by your broker, working airlines,.
It takes an army, the SEC, the FCC, FAA, a police force, departments of transportation, and a working government to create an environment where money-making is possible. Since those who make money are helped by those things that everyone pays for, there is a little bit of an obligation to return some of the benefits of everyone else's investment.
However, there a hundred taxes already in place that take care of that.
Posts: 26077 | Registered: Mar 2000
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That doesn't change that dispensation occurs after death. Its what separates an estate from a gift.
The government (necessarily) determines the rules for how assets are divided up in the case of death without a will, too, of course, is that somehow contravening the wishes of the dead person if they might have wanted it differently? If so, do you propose to divine those wishes?
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quote:Belle: so you'd be for leaving people with tons of assets, but taxing and then demolishing the homes they would have inherited so they're forced to build more
I know you're joking, but no I don't want the homes demolished. A well designed home built with the use of skilled craftspeople is a work of art. Whenever our business finished one, Wes would always ask the owners for permission to bring me by so I could tour it. I loved it - I loved seeing the work of true craftsmen.
Sure, there were many times that I shook my head when he told me how much a bathtub formed from Italian marble cost. He installed one that cost $20,000 one time. For a bathtub. Yes, I thought that was excessive, but I didn't begrudge the homeowner the right to put in his home what he wanted. And, that $20,000 got spread out to the American importer and fixture company, and all the way back to the Italian worker whose job it is to mine marble. The money to install that $20,000 tub came to us, and was distributed to our employees (and a big chunk of it to the government in income and self-employment tax.)
High end homes have to be maintained, and by their very nature keep craftsmen in business. You can't replace the custom fireplace mantle in your high end hom by going to Home Depot.
Plus, when homes are passed down to the next generation, they often are remodeled, which is another source of income for these specialty companies.
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Given the estate tax has one of the absolute best ratios of government income to economic detriment (that is, highest government income for the lowest economic detriment), I see no reason to substitute a less efficient tax to obtain the money.
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Yep, and I favor a pretty much absolute exemption for one and possibly two homes, Belle. The value of the second might be taxed given sufficient liquid assets, but absent those would still be protected.
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Heh, there will always be an IRS. They administer the estate tax, after all. Plus, the estate tax should take in less than it currently does (and is being moved nicely towards that). It will never substitute completely for other taxes.
However, I don't have a problem with entertaining major revisions or other, complete substitutions for the current income tax. Quite the contrary.
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Estate Tax -- should be in place to prevent a "landed aristocracy" from arising in this country. The rich get richer....but it shouldn't occur intergenerationally. It will keep the kids motivated and keep power from amassing too much in the top 2%....oh wait, it already is amassed in the top 2%....And guess what, only 2% of families actually get hit by the estate tax every year...sure there are the occassional sob stories of family farms and small businesses...but most of those "examples" are carefully chosen under strict scrutiny by politicians...they do not represent the majority of those affected.
The tax code will never be abolished -- it is the preferred method of subsidation in the US...we are so full of it we can't stand to call something a subsidy or welfare...we'd rather call it a tax credit...pathetic...
quote:Belle, I don't think you've proven that building lots of little is less economically advantageous, at a macro level, just that it won't benefit every type of person.
But Scott's contention was that those same people would be employed - which I know from personal experience is not true.
It takes a lot less people to build moderate housing. If every rich person quit buying high end homes and everybody lived in the same kind of cookie-cutter house, then many people would lose their jobs and it's not a matter of them just turning around and working for the companies building the cookie cutter homes. There wouldn't be jobs for them in building those homes - and if we built all houses the same we would increase efficiency by making only certain stock items, which we could mass produce. That would mean more automation, less people actually building and creating things.
Everything would be easier to install, and because all the houses are similar there's no learning curve - no one has to study blueprints for hours, so we can build houses much faster. Which means we get more done and make more profit with fewer employees.
It would be a net loss of jobs and income for a lot of people, and I don't think that would have a positive impact on society.
Posts: 14428 | Registered: Aug 2001
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quote:Estate Tax -- should be in place to prevent a "landed aristocracy" from arising in this country.
The estate tax is not necessary to do this. The landed aristocrasy stayed landed because assets were entailed to the estate and the title. It takes serious effort to keep a family wealthy for more than two-three generations. There is definitely no effort expended in that direction, so the dynasties do not stay intact.
A hundred years, the richest people in America were the Rockefellers and Carnegies. Today, it's Gates and Buffet. There is a natural turnover.
Posts: 26077 | Registered: Mar 2000
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Also, you're creating a situation which doesn't and won't exist with the estate tax.
With the estate tax, people get to keep (at least one) big home in the family. Additional assets will be taxed, which in many cases are likely tied up in complex financial instruments that circulate little money in the "lower" economy, and those assets will be expended by the government on things such as low income housing.
Not to mention that in economics taking anything to an extreme results in a ridiculous situation (for instance, what if we built all giant houses!). There's some number (possibly more than one) in the middle where an efficient balance is reached, and its nigh impossible to tell how close we are to such a balance. Predicting economic doom and gloom based on an extreme is a meaningless argument.
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With proper estate planning and asset protection, the effects of the Estate Tax can be entirely avoided in most cases, and drastically decreased in all others.
In some ways, the Estate Tax is like the lottery: a tax on stupid people (or, rather, people who have not taken the time and thought to plan ahead).
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Echo fugu, FIJC, but what is a will, except ink on tree, without some entity that all sides (or at least, most sides) agree will enforce and protect the terms of the will?
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Has anybody here ever inherited a significant amount of money? If so, what did you do with it?
My parents inherited about $80,000 dollars from an uncle who died. A lot less than some of the amounts we're talking about, but it was a lot to them.
They used the money to invest in a home, buy new cars, and put some away for retirement. The money didn't sit in their mattress, it got put back into circulation and benefitted society - they provided income to homebuilders and a real estate agent, they provided money to car salesmen and the people who work on assembly lines in Detroit, and by putting money into investments, they impacted still more businesses that employ people.
It's not as if money that is inherited will only ever benefit that one person. That person is going to use that money to buy things and invest and put more money into society. They might even make considerable charitable donations with it. So, to me the question is would it be better for the child who inherits Daddy's millions to spend it and impact the economy, or for the government to take it all away and then spend it where they want to.
Being fiscally conservative, I favor putting the money into the economy.
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I know someone who inherited $450,000 when her father died, and she spent every last cent of it within ten months. Bought a house with cash at the beginning, and towards the end, financed it to the hilt to have the cash to spend on more stuff.
There's no earthly way dynasties stay dynasties without considerable effort expended in that direction. I'm pretty sure the estate tax was in force for her father as well, because I can't imagine that if he had done any planning at all, he would have left her the money out right.
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I'd just like to point out that under the Estate Tax, as it now stands, neither Belle's parents, nor kat's friend, would have been taxed for those amounts.
Posts: 1357 | Registered: Mar 2002
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Actually, many of the very wealthy still have lineage with those old-timey folks. Even if many have fallen, might that be due to the beneficial effects of the estate tax? They spent a lot of money on philanthropy, such that what they passed on was much lower than it could have been, and that the descendents squandered what they got (which may still be substantial)?
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Uh, it's not like taxation doesn't benefit society. The government takes that money and puts it into social welfare programs, reconstruction projects and those wars you Republicans love so much. Posts: 4753 | Registered: May 2002
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"Being fiscally conservative, I favor putting the money into the economy."
Dollar for dollar, giving money to the rich is a far poorer way to put money into the economy than giving money to the poor.
Posts: 37449 | Registered: May 1999
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I own a wealth management company. My clients are people that are subject to the estate tax and Kat is exactly right about the system of trusts that she mentioned. There are very complex ways of getting around the estate tax in many cases. That is the thing that bothers me most, as is the case with the federal income tax system, huge amounts of resources are waisted on tax avoidance.
Posts: 127 | Registered: Feb 2005
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Ah, but holden, that money used for tax avoidance goes to tax preparers, lawyers, and others! I would say it isn't much different than spending it on anything else.
Looking at it this way, they might avoid paying the tax (which the government would use to pay other people) but they'll still be forced to put some of that money back into the economy.
quote:but holden, that money used for tax avoidance goes to tax preparers, lawyers, and others! I would say it isn't much different than spending it on anything else.
Strongly disagree Bok. Tax avoidance is a very inefficient use of assets. If there were no estate tax, or at least no loop holes to the estate tax, those resources could be used for other more productive purposes. Trust me, while I make money helping people avoid estate taxes, I would much rather devote that time and effort to making their portfolios more efficient.
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quote: to me the question is would it be better for the child who inherits Daddy's millions to spend it and impact the economy, or for the government to take it all away and then spend it where they want to.
The answer all depends on who you trust more.
Posts: 14554 | Registered: Dec 1999
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1. Do you adjust that for location? 2 million in NYC is not the same as 2 million in Dallas.
2. What do you think the effect on entrepenuership would be if, once that number has been reached, everything else is taken away?
Posts: 26077 | Registered: Mar 2000
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I see Scott. So my friend whose father owns a family farm worth more than 5 million dollars should sell the farm?
Does it matter that he can barely afford to pay his property taxes, because income from farming has fallen off? If you saw his lifestyle, you'd assume he lived just at or above the poverty line. And he does. His actual income each year barely does keep him above the poverty line.
But his land is worth a lot, so according to you he should sell it and donate it to someone else.
Posts: 14428 | Registered: Aug 2001
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Okay, I admit I just made up a number that sounded like a pretty outrageous amount of personal wealth to me.
Kat and Belle have wisely pointed out good problems with my hypotheses.
Kat:
1) Adjust for regional differences.
2) I don't know. What would the effect be if all entrepeneurs set off wanting to support a product they believed in rather than to make money?
Belle:
Good point. Mmmm. . . could we call in personal assets, meaning any asset not used for business purposes? So, farm land, business offices, work computers, tractors, etc. would not be counted, but residences would.
Posts: 14554 | Registered: Dec 1999
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Then everyone would be musicians, artists, and/or philosophers. Do you think the majority of people run businesses because they think it is fun?
My uncle would be a musician - he plays the French Horn, trumpet, and piana, and sings in MoTab.
I don't know what my dad would do, although he could probably do anything. However, as much as he doesn't mind the business, he wouldn't do it out of ideaology. He does it because he has six kids and needs to.
It would definitely be the state's and their employees' loss if they shut it down. Shut down small businesses on a mass scale, and you've got Irami's future.
quote:Do you think the majority of people run businesses because they think it is fun?
Actually, yes. My dad runs a small business, and he enjoys the product he sells (um. . . bull semen ) and because he works for himself.
If you don't enjoy it, don't do it. That's why I'm in the technology field instead of being a lawyer, or English teacher. And it's why I plan on becoming a writer.
quote:Shut down small businesses on a mass scale, and you've Irami's future.
Who's talking about shutting down small businesses? What have I said that makes you believe that I support this?
Posts: 14554 | Registered: Dec 1999
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They personally own the assets of the business, and your cut off is 2 million. They'd have to sell the business to liquidate the assets enough to give it to the government.
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Sorry, but this is one area that I do know something about (the construction thing, not the death tax issue.)![[Wink]](wink.gif)
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) and because he works for himself.
