Here's an article on Bill Gates' dad giving a lecture on the positives of the Estate Tax. As some of you know, I have studied tax and tax policy in great detail. Personally, I think the Estate TAx is the FAIREST tax of them all. If it were up to me, I would do away with virtually every other type of tax and place a 80% ESTATE tax (or whatever it took) on everyone. I often have friends who try to debate me on this. I ask them - how would you like to pay NO TAXES your whole life and then just pay it all when you die. You won't be paying it. It will be your kids. And, they (your kids) would have already reeped the benefits of your not paying taxes for all those years. BTW, contrary to popular thinking (and what MANY would have you believe), VERY, VERY, VERY few people are ever in an Estate Tax position. A couple has to be worth more than $2 million (and RAISING EVERY YEAR). to be subject to the Estate Tax. And, there are so many loopholes and exemptions that very few people ever qualify. So, don't buy all Steve Forbes' lies - he's just looking out for himself. Here's the article -- Estate tax just needs some fixes, Gates says Bill Gates Sr. crusading in favor of estate tax Tuesday December 09, 2003 By Mary Judice Personal finance writer Bill Gates Sr. believes the estate tax is a good way for Americans to repay society for the wealth they have reaped. He believes the growth in personal wealth in the past two decades has been extraordinary and that many thousands who have become multimillionaires could and should pay taxes when they die. Not only does the estate tax, often called the death tax, prevent the buildup of wealth in the hands of a few, but estate planning, which is done in part to minimize the estate tax, encourages charitable giving, Gates said. Gates, who is in New Orleans as part of a public relations campaign for the estate tax, takes an opposite stand from many business people. Small-business owners in particular complain that many heirs are forced to sell the business or the farm their family built up in order to pay the estate taxes. But Gates said the tax should be overhauled, not killed. He is a spokesman for some wealthy Americans who have signed a petition opposing the permanent repeal of the estate tax, an issue Congress has been debating for a couple of years. Gates is co-chairman of the Bill and Melinda Gates Foundation in Seattle, one of the world's largest charitable foundations. He is the father of Microsoft Chairman Bill Gates and champion of Responsible Wealth's "Call to Preserve the Estate Tax." He and Chuck Collins, co-authors of "Wealth and Our Commonwealth," will speak on the estate tax at Tulane University today at 6 p.m. at the Freeman Auditorium in the Woldenberg Art Center at 1229 Broadway. The free event is sponsored by the Tulane Environmental Law Clinic and Responsible Wealth, a project of Boston's nonprofit United for a Fair Economy. President Bush campaigned in favor of repealing the estate tax, and in 2001 Congress passed legislation liberalizing the amount that can be exempt from the tax and phasing out the tax for a short while. Currently an individual can pass to heirs $1 million that is exempt from estate tax, rising to $1.5 million next year. By 2009, $3.5 million will be exempt, and the tax rate above that threshold will have dropped from 55 percent to 45 percent. In 2010 the tax goes away entirely for one year, after which is resurrected, and the exempt amount reverts to $1 million. Gates said those "who have had the good luck to be born in this country," where wealth can be accumulated and education is open to most people, should pay for what they have received. The estate tax affects only a few of the very wealthy. In 2000 about 2 percent of estates paid death taxes when the exemption was only $675,000. Gates said that if the exemption is capped at $3.5 million for an individual and $7 million for a couple, only 0.4 percent of estates would be affected. He agrees that this is a fair amount to go untaxed because a family's basic holdings in appreciated real estate, retirement accounts, cars and savings can easily add up. "What we're talking about is the recovery of the benefits of unearned riches of a bunch of heirs," he said. Gates' movement to preserve the death tax is opposed not only by many small-business owners but by those who think their personal wealth has been taxed as it was accumulated and should not be taxed a second time when it is passed on. However, Gates said much of what is included in estates has not previously been taxed. The estate tax also prompts many to make charitable donations because it reduces the amount of money subject to tax. Gates said a study from the Brookings Institution has estimated the repeal of the estate tax could result in the loss of $400 million a year in charitable giving because people will not automatically give to charity if there are no incentives. Taxpayers often bunch up their charitable donations in order to be able to get a tax break from itemizing their deductions. Family business owners are among the staunchest advocates of repealing the estate tax. The National Federation of Independent Business, or NFIB, says about 5,600 family businesses were sold or discontinued for estate tax reasons in the 1990s. NFIB lobbyist Dena Battle said the tax is leveled on the assets as well as the cash. Businesses that are scraping by have to pay the tax as well as those that are successful, she said. Though the Internal Revenue Service allows the tax to be paid over 14 years, this extension comes at a cost because interest must be paid, she said. And if a business is sold or fails, the estate tax is still owed. "We think the tax should come due at the time the business is sold," she said. "It is a fair way to pay the tax once you sell off a business and a gain is achieved." Though not giving statistical evidence, Gates downplayed the effect the estate tax has on family-owned businesses. He said businesses that have had a chance to plan should be able to deal with the cash needed for estate taxes. And he favors liberalizing the time frame for paying the tax, which would help businesses that are hit with a death before their plans can be established. He conceded that countless dollars are spent in financial planning and writing wills and other legal documents because of the uncertainties surrounding the future of the estate tax. "There is a general recognition we can't leave this absurdity in place," he said. . . . . . . . Mary Judice can be reached at [email protected] or (504) 826-3496.
IMHO, the estate tax should be raised, but not repealed. Yes, to a certain extent, society helped most millionaires earn their fortunes. But it is wrong to expect families to sacrifice the family business Grandaddy worked so hard to build up so that he could pass it on to his children to the IRS after he dies. Let's have a graduated estate tax. All estates valued at $2 million or less pay nothing. $2-5M estates pay an estate tax of 5%. $5-10M estates pay 15%. Estates valued at higher than $10M pay 25%. There we go. I think that's fair. Only the super-rich estates have to pay a massive chunk of money, and the $2 million exemption ought to be enough to protect most family farms and businesses and allow them to be handed down.
I agree with yall. I will say, the proponents of the estate tax might do better with say, an individual farmer, versus the Gates' or the Forbes'. Bud, a point of clarification. Right now, those in the <750K exemption (or whatever it is) thresshold get both the exemption AND a stepped-up basis to the value at time of death. In the repeal proposals, is that stepped up basis also eliminated? If so, par usual, moderate estates get a massive tax increase Now I don't agree with your 80% idea - obviously, people would just spend through their estates as best they can - there is some value to some financial stability passing down generation to generation - passing down the right to sit on your ass and boss people around on "Civic boards and committees" I could do without - but stability is a good thing.
If they ever decide to put a confiscatory 80% or so on estates the superrich will just have their lawyers and accountants work out a way to provide an orderly transfer of wealth to their heirs before while they are still alive while still giving them control of the assets and capitol while they are still living. That is already being done to some extent through trusts and foundations and family shared corporate holdings but if if an estate tax that high ever passed there would be some incredible creativity in working around the law. Why is Bill Gates, Sr lobbying for this? Dosen't he want to provide for poor Bill Jr. after he's gone?
He wants to make sure Bill Jr to provide for the grandkids - don't want them to starve. I agree with jetstorm in spirit - I'd tax estates at ordinary rates and put around a 5 Mill exemption in.
Jetstorm, $2 million sounds like a lot to most of us but a farm or a business can easily be worth that amount or more but still only produce a moderate income. A farmer with $2 million worth of land might find himself in debt more years than not due to the weather or crop price fluctations or whatever but he goes on year after year hoping the good years make up for the bad. Two businesses each valued at $2 million can produce great variance between the actual profits of each depending upon a lot of variables. For example a grocery store or a hardware store will have a low profit margin for each item sold and will have a lot of fixed costs for employees, maintenence, insurance, ect. On the other hand an internet business that sells informational products has no inventory to buy and no warehousing costs for the inventory. The internet business has either no employees or only a few and only spends a few thousand a year for webhosting, web design and programming. The cash flow of the internet business and the grocery store might be the same but the profit margin of the internet business is much higher. Those two examples are the extreme tp illustrate the differences but there are all kinds of different business worth $2 million with vastly variable profit margins.
The problem is cash - you have a big tax bill, but don't have the cash - only option is to liquidate the business. Those are the exceptions and surely the great minds can figure out a way to deal with them fairly. For 95%, it would shield Vanessa's inheritance of stocks and bonds so she can spend her life coupon clipping, while joe schmuck works in a coal mine paying his 25%. A lot of the best new economy businesses are low-fixed cost, low overhead (something the internet brings) - Amazon, eg
I agree that the estate tax is a lot more fair than income or payroll taxes. I knew a Republican professor who said it was the best form of income tax because there are three ways to get money--work, invest, or inherit--and we shouldn't be taxing the first two. Best of all would be a sales tax that exempted food, clothing, and medicine--that would tax voluntary consumption.
After watching Paris Hilton lately I may be more in favor of keeping some form of an estate tax, but it has to somehow be based more on liquid dollars than just net worth. I also think the floor should be raised. You also should not have to hire a tax attorney to figure out the best deal for your family and business.
One of the problems with carving "exceptions" (e.g. liquid v. cash, family farm v. stock) is that it just makes it easier to get around it. Imagine you're worth $50 mil and are getting ready to die. What do you do? Well, how 'bout buy a "family farm" for $50 mil. so that you don't have to pay taxes? A lot of this "crying" is B.S. Let's be honest, if you own a business and it's worth that much, you can find ANY bank to loan you enough for the taxes so that you can keep the business and pay the taxes over time (to the extent the fed. government doesn't already allow you to pay over time). Most of the times that a "family" sell the "family business" comes from family fighting. Two of the more notable examples are the Culverhouse Tampa Bay Bucs and the Jack Kent Cooke Washington Redskins. The "family" couldn't agree on who should run the teams, so a sale had to be arranged. Of course, both of these "families" blamed the Estate Tax for the sale.
