I need to read more into that. If true, the cost basis should only be stepped up such that it accounts for the estate tax.
I'd prefer some simpler overall approach though. Removing step up in cost basis alone obviates the need for an estate tax, as eventually assets would be sold and tax revenue generated.
But important to do some research into how often inherited assets are kept permanently and gains never realized (thus tax never paid).
Just on gut instinct, I would guess most who inherit wealth eventually sell off any assets. I recall it tends to be that most accumulated wealth is lost by the third generation.
>When a person dies, their assets could be subject to estate taxes and inheritance taxes, depending on where they lived and how much they were worth. While the threat of estate taxes and inheritance taxes does exist, in reality, the vast majority of estates are too small to be charged a federal estate tax—which, as of 2021, applies only if the assets of the deceased person are worth $11.70 million or more
Actually most billionaires manage to reshuffle their assets to that their estate, such as it is, is under the limit by the time they die. The main people hit by it are those holding large amounts of valuable land, and there are very few of them.
Almost all mentions of the estate tax in this thread has been generic whining about the fact that there is an estate tax. For almost all US persons, there is no estate tax.
> Actually most billionaires manage to reshuffle their assets
I was talking to some people sufficiently wealthy that this is a concern, and their point is that the only reason some don't transfer their assets like this is fear of their own children. Unless you really are a farmer, or small business owner, the estate tax is completely optional if you trust your kids.
In 2019, there were only 2,570 estate taxes filed.
> Almost all mentions of the estate tax in this thread has been generic whining about the fact that there is an estate tax
There is also whining among people that they need to spend so much on accountants and lawyers to avoid what is essentially a completely bypassable tax.
So you can see how socially it is not a good use of our human capital to create this enormous tax avoidance industry, and how it would be much better to pass laws that didn't need to do things like value privately held businesses or artwork in order to determine your tax liability.
> I mean, c'mon, there's a gigantic tax avoidance industry just for regular income tax.
Because we have an extremely complex tax code.
But seriously, eliminate all corporate taxes and replace that with a 10% VAT.
Treat all income the same -- I don't care whether it's a long term capital gain, or a meteor filled with gold crashing into your yard, don't distinguish at all. Put it all into a single bucket, get one number, look that up in a progressive rate table. Pay a percentage. No deductions of any kind for anything. Not for mortgage, not for kids, not for school, not for charity, not for solar panels, etc. But only tax income, not assets.
The correct answer in my opinion has nothing to do with corporate taxation. The US government for some reason(s) (for another day) is almost completely unwilling to simply redistribute money to fund things it decides are worthy goals. Instead it creates tax credits and deductions that are supposed to do the same thing (at least for "the worthy").
We need to stop using tax code to implement policy. Taxes should be taxes, and if the government decides to pay people to encourage them to install solar PV/have children/buy new cars/invest in bitcoin/whatever, then the government should send them a check to do so.
So we're mostly in violent agreement, except that if corporations have any of the rights of people (and likewise, if people can somehow claim to be corporations), then I want them taxed just like people.
Yeah, I agree on the households. The point about corporate taxes is we have so many loopholes. Historically, nations adopted a VAT because it's great at squashing tax-avoidance, as it encourages snitching. Basically you report you paid someone X, and then they have to pay the VAT instead of you. So it's a very clean and elegant solution to dealing with the problem of corporate accounting and tax avoidance.
In terms of treating a corporation the same as a household -- so that it pays taxes on all revenue, the problem is the economic distortions. There are just some businesses - like grocery stores -- that have high turnover and low margins. Other businesses have low turnover and high margins. And the tax code should not really penalize one at the expense of another. E.g. groceries just don't last, they have to be sold quickly. Furniture lasts a while. The reality of that natural difference trumps any appeals to logical symmetry in treating corporations the same as households.
Except it's super easy to cheat on the left hand side, but hard to cheat on the right. VAT taxes get paid, payroll taxes get mostly paid, but corporate profit taxes - not so much.
Unfortunately most progressives don't understand this point and keep thinking that corporate profit taxes are good while VATs are bad, and they are kinda confused about payroll taxes.
Then you try to tell them what matters is tax incidence and their heads explode.
If you could remove estate tax and cover by removing step up in cost basis, is probably preferable (but contingent on assets eventually getting sold, requires some research)
The figure is $2,193,000 for Washington State. Considering that even starter houses are over a million bucks here, I bet that sweeps in quite a bit more than "nobody".
WA state has a population of about 8M. Its citizens decided in 1981 to switch from an inheritance tax to an estate tax.
This citizen-driven state law affects slightly more than 2% of the US population, in theory.
In fact, median household income for WA in 2019 was about $78k, median household net worth in 2019 was about $400k, and median family net worth in WA in 2021 was $865k.
So in reality, even within WA state, almost nobody is paying the state estate tax. Here's the Seattle Times from 2019 on the incongruities in state wealth distribution. But notice that even in their numbers, home owner median net worth is still only $900k, less than half the state's estate tax threshold.
It seems likely that this number has increased since 2006. But by how much?
The same report noted total estate tax revenue at $100M. Adjusting for inflation, and using the total revenue number from 2019 ($297M), it would seem that total revenue has just about doubled. If we make the egalitarian but hardly realistic assumption that the gain in total revenue number has been driven by an equally distributed gain in the value of estates, then it seems that a reasonable back of the envelope guestimate is that in 2019 or thereabouts, roughly 1% of annual deaths trigger estate tax liability.
[ EDIT: in addition, this page from the WA OFM seems to show that whatever the revenue from the state estate tax, it is so low that it doesn't even get it's own category in a chart of state revenue sources:
It's not nobody, but it's a hell of a lot closer to "almost nobody" than "this is a government policy that significant numbers of ordinary people have to worry about".
[EDIT: this page from the WA OFM suggests a possibly notable increase for 2019-2021 estate tax revenue, among other increasing sources of revenue. It's not clear that the increase changes the accuracy of my final paragraph (pre-edit)
I'd prefer some simpler overall approach though. Removing step up in cost basis alone obviates the need for an estate tax, as eventually assets would be sold and tax revenue generated.
But important to do some research into how often inherited assets are kept permanently and gains never realized (thus tax never paid).
Just on gut instinct, I would guess most who inherit wealth eventually sell off any assets. I recall it tends to be that most accumulated wealth is lost by the third generation.