British Tories Propose Cutting Taxes.

[Big Orange]

Daily Telegraph

Tory plans to cut inheritance tax send the wrong message

The inheritance tax cut gives Brown a lifeline to cling to – so at some point the Conservatives should drop it or delay it, argues Neil O’Brien.

Neil O’Brien
Published: 6:22PM BST 18 Jun 2009

Britain has a kamikaze government. The Treasury admits it will borrow £715 billion over the next five years. It admits the national debt will have trebled compared to 2006, to £1.5 trillion. But it doesn't admit hiding more huge debts "off balance sheet" - like a dodgy City trader. The unfunded liability for future public sector pensions is £1.1 trillion and rising. The cost of the bank bail-out will be about £200 billion. All told, Britain is in hock to the tune of just under £3 trillion pounds, or £50,000 per person. In effect, the Government has taken out a second mortgage on the nation.

Yet even as he plunges Britain into a nosedive, our pilot is trying to reassure us over the intercom. Gordon Brown has created a tangled spiderweb of lies to hide what's going on. He blames the recession. He claims he is "investing" in the future. He pretends he will not cut departmental spending after the election. All three of these claims are false - but by bludgeoning repetition, not least at Prime Minister's Questions, Mr Brown hopes to persuade the public that Labour is the party of investment, and the Tories the party of cuts.

In desperation, he points to the Tories' planned inheritance tax cut - a wildly successful proposal of George Osborne's that is credited with averting an election in the heady days of the Brown Bounce - and argues that the Conservatives are planning to cut spending just because they want to give their "toff" pals a break. Previous smears and attacks on toffs have not well worked for the Prime Minister, and already lost him one by-election.

This new dividing line is unlikely to work any better, not least because the inheritance tax promise is to be funded by a tax on non-doms.

But even though Brown's claim is a lie, and is unlikely to convince voters, the Conservatives should drop it. Dropping such a high profile policy would have shock value. It would send the vital message that the country is going bust. That would allow the Conservatives more room to level with the public about the truly horrific situation they will inherit.

The lesson from other countries that have dug themselves out of debt - most notably Canada, which now has the lowest debt burden in the G8 - is that you have to be totally consistent. All departments must be asked to find savings, and you have to be seen to sacrifice some of your own pet ideas.

If this sounds alarmist, consider the scope of the debt catastrophe. We now spend more on interest payments than our Armed Forces, and are teetering on the edge of a humiliating downgrade in our credit rating. And as Gordon Brown splurges now, we pay later: the 7 per cent cut in all departments due after the next election, about which the Prime Minister appears to be in complete denial, means losing 30,891 teachers, 10,500 police officers, 22,400 university places and 7,000 soldiers.

Investment spending - roads, hospital machinery etc - will be cut by 50 per cent. The title of the budget: “building Britain’s future”, rings pretty hollow.

Labour is refusing to face up to the scale of the problem it is busy creating. The Tories, therefore, need to take a long, hard look at their plans: some, such as extra spending on education for deprived kids, or the "right to move" for council house tenants, can be kept, because they are funded out of savings elsewhere. But they should sacrifice something to convince the voters just how bad things are.

Dropping the inheritance tax cut will earn the Tories the right to tell the public the terrible truth about the debt disaster.

Neil O'Brien is director of the think tank Policy Exchange

Hey, hey, cutting taxes worked like a charm in America, right? Oh, wait.

Screw these guys, I'm voting Lib Dem.

[Singer]

Maybe I'm dense, but what is the logic behind cutting an inheritance tax? How is it suppose to help the economy? Or are they going for the whole "death tax" angle?

[Straha]

Maybe I'm dense, but what is the logic behind cutting an inheritance tax? How is it suppose to help the economy? Or are they going for the whole "death tax" angle?

If you earned that money, and it was taxed already, why should it be taxed again when you're giving it to your kids?

Orange, the reason why the tax cuts didn't work in America is because Bush cut taxes but didn't cut spending. The conservatives have made it clear that they plan to cut both, which is good. Further, Britain is on the verge of having its debt downgraded, which essentially means bankruptcy. Britain has to cut spending across the board if it wants to survive. Here's to hoping it comes out okay.

[Singer]

If you earned that money, and it was taxed already, why should it be taxed again when you're giving it to your kids?

I would think because now the kids are "earning" the money. It's effectively increasing their income for that particular year. Sure, it was taxed as income for the parent already, but now it's income for the kids; it's not the parent's income any more.

[Master of Ossus]

I would think because now the kids are "earning" the money. It's effectively increasing their income for that particular year. Sure, it was taxed as income for the parent already, but now it's income for the kids; it's not the parent's income any more.

But having such a tax punishes people for earning more than they spend, which seems unreasonable for a society that should be trying to encourage people to save. It's effectively yet another way of punishing savings and encouraging consumption.

[Lord of the Abyss]

I would think because now the kids are "earning" the money. It's effectively increasing their income for that particular year. Sure, it was taxed as income for the parent already, but now it's income for the kids; it's not the parent's income any more.

But having such a tax punishes people for earning more than they spend, which seems unreasonable for a society that should be trying to encourage people to save. It's effectively yet another way of punishing savings and encouraging consumption.

No, it's a means of keeping more and more of the nation's wealth from ending up in the hands of the wealthy and staying there. It's a means of getting that wealth back into circulation.

[Singer]

But having such a tax punishes people for earning more than they spend, which seems unreasonable for a society that should be trying to encourage people to save. It's effectively yet another way of punishing savings and encouraging consumption.

Assuming there's a progressive income tax with appropriate tax brackets, I don't really see how this would affect the average citizen (i.e. society).

[bobalot]

I would think because now the kids are "earning" the money. It's effectively increasing their income for that particular year. Sure, it was taxed as income for the parent already, but now it's income for the kids; it's not the parent's income any more.

But having such a tax punishes people for earning more than they spend, which seems unreasonable for a society that should be trying to encourage people to save. It's effectively yet another way of punishing savings and encouraging consumption.

The person who has earned the money is dead. So it's hardly punishing them at all. Without an inheritance tax, their kids gain a crap load of money for doing nothing and wealth gets concentrated in society.

The last thing we need is more deadbeats living off their inheritance and contributing nothing to society.

[The Duchess of Zeon]

What's being ignored in this thread is that that's just a position article encouraging the Tories to drop the proposal to reduce the Inheiritance tax, which they've had as a party plank for years. It is by no remote means being touted as a solution for the current problems.

[Darth Tanner]

As I understand it the Tories have not committed themselves to removing the income tax at all, let alone doing it before the budget crisis is resolved. They’d have to be pretty fucking stupid to actually cut three or four billion from their income at a time like this. (Isn’t that right VAT cut Gordon)

Assuming there's a progressive income tax with appropriate tax brackets

How so? Savings and the death tax are taxed regardless of any tax levied on them while they were income. Technically you could be paying a 90% income tax with maximum income tax and death tax added together.

Also the government got rid of the lowest band then, increasing tax for the poor and then followed it up with a new higher tax rate for the rich.

I don't really see how this would affect the average citizen

Last estimate I saw from the BBC was that it affects 4% of estates. However due to house prices soaring that is increasing more or less steadily.

But having such a tax punishes people for earning more than they spend

Especially considering the growth of means testing within public services. Having savings in your old age is a major mistake as it will mean you have to pay for a lot of your own treatment and care. Spend every penny you earn and the state will pick up the bill. At least until the state hits bankruptcy which should be fairly shortly at this rate.

The conservatives have made it clear that they plan to cut both

No they haven’t, they have gone to incredible lengths to not admit that they are going to have to cut services to avoid alienating the millions of voters who are completely dependent on handouts to exist and either are too stupid or too willingly ignorant of the fact that the country can’t afford all these programs.

No, it's a means of keeping more and more of the nation's wealth from ending up in the hands of the wealthy and staying there.

What’s the difference between the two? To fund their social programs the government takes the money from those who save. People who spend every penny and look to the state for handouts are much better off under the current system. Especially in old age when medical bills and full time care is required. What’s the point in saving?

Screw these guys, I'm voting Lib Dem.

Good idea, the Libs seem to be the only party even aware of where reality is located. From their performance in the Euro elections however voting for them could mean Labour scrape in. Although that might just be because of their unpopular pro-EU stance which might not correlate into poor performance at a general election where Europe isn’t even an issue.

[Stuart Mackey]

I would think because now the kids are "earning" the money. It's effectively increasing their income for that particular year. Sure, it was taxed as income for the parent already, but now it's income for the kids; it's not the parent's income any more.

But having such a tax punishes people for earning more than they spend, which seems unreasonable for a society that should be trying to encourage people to save. It's effectively yet another way of punishing savings and encouraging consumption.

No, it's a means of keeping more and more of the nation's wealth from ending up in the hands of the wealthy and staying there.

As well as preventing the poor from paying their mortgages or giving them something to retire on.

It's a means of getting that wealth back into circulation.

By having the government piss it away in the latest hairbrained bit of pork?

[Singer]

How so? Savings and the death tax are taxed regardless of any tax levied on them while they were income. Technically you could be paying a 90% income tax with maximum income tax and death tax added together.

I know. I was referring to the "such a tax" Master of Ossus was talking about, which was inheritance counting as income for the kid and just being taxed under the income tax rather than a separate inheritance tax.

All the same: assuming there's a progressive inheritance tax with appropriate tax brackets, I still don't see how this would much affect the average citizen. A progressive tax would "punish" the average citizen much less than it would a rich citizen, perhaps even providing a certain amount that could be counted as tax free.

I'm really getting off topic though, because all of this has nothing to do with reality. The only reason I even brought it up was because Straha was talking about inheritance not being taxed at all.

Last estimate I saw from the BBC was that it affects 4% of estates. However due to house prices soaring that is increasing more or less steadily.

What percentage of the 4% originate from the wealthy?

[Darth Tanner]

What percentage of the 4% originate from the wealthy?

Well by definition the 4% would have to be entirely from the wealthy to be over the £320,000 or so limit from which you pay inheritance tax. Of course this assumes that you count owning a home as capital, if your forced into selling the house to pay the tax bill on it you then have to move to a new house anyway.

assuming there's a progressive inheritance tax with appropriate tax brackets

There isn't. Once you go over the initial boundary of not paying any at all its all at 40%.

[Master of Ossus]

No, it's a means of keeping more and more of the nation's wealth from ending up in the hands of the wealthy and staying there. It's a means of getting that wealth back into circulation.

If it works anything like the American system then it fails utterly at this. It encourages very wealthy people to put their money into long-term trust structures which retard the ability of their heirs to actually do anything with the money (including invest it). Meanwhile, it punishes people in the next bracket down heavily, requiring them to invest their money in education and other inter-generational, non-monetary forms of inheritance that accomplish the same goal far less effectively. Moreover, it discourages people who are wealthy from continuing to work and saving money, since a major goal of many people in that group is to put away enough money to leave to their children. Finally, it doesn't accomplish what you're arguing it does: there are still wealthy people who maintain high standards of living across many generations, with obvious examples including the DuPonts, but generates negligible amounts of money for the state, overall.

The person who has earned the money is dead. So it's hardly punishing them at all.

Except that, in virtually all cases, the person who's dying wanted to do something else with their money that they earned. If you don't think that it punishes people to take money away from them when they die, why don't you tell people that they can't write wills or otherwise make plans for their inheritance? The Soviets even tried this for a VERY short amount of time before they realized how awful such a plan was for society.

Without an inheritance tax, their kids gain a crap load of money for doing nothing and wealth gets concentrated in society.

With the inheritance tax, the kids get virtually the same amount of money for doing nothing (except that they get it in a form that is incredibly stupid) and the wealthy continue to bother to work in the hopes that their kids will receive their money.

The last thing we need is more deadbeats living off their inheritance and contributing nothing to society.

No, the last thing we need is to tell wealthy people to stop working so they contribute nothing to society because of arbitrary, capricious, and frankly vindictive taxes that keep people from doing what they want to do with money that they earn.

[bobalot]

The person who has earned the money is dead. So it's hardly punishing them at all.

Except that, in virtually all cases, the person who's dying wanted to do something else with their money that they earned. If you don't think that it punishes people to take money away from them when they die, why don't you tell people that they can't write wills or otherwise make plans for their inheritance? The Soviets even tried this for a VERY short amount of time before they realized how awful such a plan was for society.

Ah, the indirect comparison of the concept of Estate tax to communism. I'm glad this conversation hasn't degenerated into hyperbole.

why don't you tell people that they can't write wills or otherwise make plans for their inheritance?

What the fuck does this have to do with anything? We don't tell people how to write their wills or divide up their assets, no-one has suggested that in this thread. Gigantic Red Herring. (Nice touch, linking in communism, BTW). Taxing something and telling people what to do with their assets is different. Unless you are arguing that taxes in impinges unfairly on someone's ability to manage their assets, you would have to be arguing against taxation in every form to be coherent.

When a persons inheritance gets transferred to their kids, it is treated as "unearned" income and is taxed as such. It's not a difficult concept to understand. It doesn't punish the person, because the person is already dead when the inheritance tax is levied. The person(s) who gets taxed are the beneficiaries, who haven't earned anything.

No, the last thing we need is to tell wealthy people to stop working so they contribute nothing to society because of arbitrary, capricious, and frankly vindictive taxes that keep people from doing what they want to do with money that they earn.

What are you talking about? Do you have any evidence to back up anything that you said?

"arbitrary, capricious, and frankly vindictive".

It is hardly arbitrary. There is a very obvious underlying logic. It is the taxation of unearned income. It is hardly "capricious" or "vindictive" either, as it doesn't punish any living person for anything.

How exactly does a inheritance tax stop people from working? Please enlighten us. A peer reviewed study would be great.

BTW. You make it sound like the taxation of the majority of ones inheritance. It isn't. I doubt the highest bracket in the world would go past 40%. I doubt it goes higher than 15-20% in the states. The beneficiaries still get the vast amount of their inheritance for do doing jack shit.

[Crossroads Inc.]

Can someone answer me this?

Taxes = the only real source of income for a government. If spending is cut, reducing costs, why would also also want to cut your source of Income?

[Straha]

Can someone answer me this?

Taxes = the only real source of income for a government. If spending is cut, reducing costs, why would also also want to cut your source of Income?

The point of government is to provide services to the people. If the government cuts services and has money left over, the logic goes, it should give the money back to the people. Or not take it in the first place. Hence it cuts taxes.

Taxing something and telling people what to do with their assets is different. Unless you are arguing that taxes in impinges unfairly on someone's ability to manage their assets, you would have to be arguing against taxation in every form to be coherent.['/quote]

Actually, it does. Suppose I have a house worth 400,000 pounds and want to leave it to my kids. If my kids are poor, I can't. Even if that's the only thing I'm giving away, the state still gets ~40,000 pounds (I'm doing this off the top of my head, I think the lower limit for estates is just under 300,000 pounds.) With a mean income in the U.K. of ~23,000 pounds annually, that means that things like houses, apartments and other high value items cannot be inherited except by the rich.

As for the argument (trotted out sometimes) that the children can sell off the house, pocket the money and are still better off: 1. This still means that the direct wishes of the parents are being left at the wayside, in effect punishing them. 2. The government is taking more of the estate away by forcing the children to pay further costs (such as an agent to arrange the sale of the house.)

So, in short, it means that if parents want to leave something to their kids and not force them to incur additional expenses they have to leave their kids only cash or liquid items (like stocks), otherwise the parents (or the inheritors, if you want to look at it differently) are actively punished.

[bobalot]

Actually, it does. Suppose I have a house worth 400,000 pounds and want to leave it to my kids. If my kids are poor, I can't. Even if that's the only thing I'm giving away, the state still gets ~40,000 pounds (I'm doing this off the top of my head, I think the lower limit for estates is just under 300,000 pounds.) With a mean income in the U.K. of ~23,000 pounds annually, that means that things like houses, apartments and other high value items cannot be inherited except by the rich.

In the UK, its 40% of any amount over 312K. The average house price in England in 224k (source), it means that the vast majority of the people in England can inherit their homes from their parents without cost. The average house price in London is 348k (Source,and BTW is inflated and will be going down). The inheritance tax a person would have to pay is a whopping 4.13% (14.4K) for a asset worth 348K while doing absolutely nothing to earn it.

Only a small fraction would ever pay a estate tax over 10%. Most would pay none or little at all for a gaining an asset worth quite a lot. This is not considering the deductions on inheritance tax you can get.

...houses, apartments and other high value items cannot be inherited except by the rich....

What's that I smell? I think it's the smell of bullshit.

As for the argument (trotted out sometimes) that the children can sell off the house, pocket the money and are still better off: 1. This still means that the direct wishes of the parents are being left at the wayside, in effect punishing them.

Ah, we have gone from calling it (or at least implying) direct punishment to punishing them "in effect". I would like to go through life without paying any tax at all and doing what I want with the cash I earn. It doesn't happen though, I get taxed. Against my direct fucking wishes. Am I being punished "in effect"? You have to argue that all taxation in every form is punishment "in effect" for your argument to be consistent, which changes the whole nature of this debate altogether.

2. The government is taking more of the estate away by forcing the children to pay further costs (such as an agent to arrange the sale of the house.)

I have already proven the vast majority of people will inherit without paying anything. The costs of getting a 348k asset (London average) is 14.4k, a remarkable return on investment for not actually doing anything to earn that investment. I would love to get a home for less than 10% of the actual cost.

]So, in short, it means that if parents want to leave something to their kids and not force them to incur additional expenses they have to leave their kids only cash or liquid items (like stocks), otherwise the parents (or the inheritors, if you want to look at it differently) are actively punished.

Bullshit. All that is occurs is taxation of income/assets that is unearned. Changing the way you manage your assets because of taxation occurs with nearly every other form of taxation. Your argument can be used in some way against every other fucking tax out there.

[Straha]

In the UK, its 40% of any amount over 312K.

Actually it's 325k now. Source. I was operating off the top of my head before.

The average house price in England in 224k (source), it means that the vast majority of the people in England can inherit their homes from their parents without cost. The average house price in London is 348k (Source,and BTW is inflated and will be going down). The inheritance tax a person would have to pay is a whopping 4.13% (14.4K) for a asset worth 348K while doing absolutely nothing to earn it.

Their parents (note: I know it could be people besides the parents who earned it, I'm using parents here as a catch-all because there's nothing better) earned it. Their parents earned the money, paid for the house, and own it. They want to do with it what they damn well please. The inheritance tax says that, for an average house in London, that they don't have that right unless their kids pay almost half of what the average person makes in a year!

What's that I smell? I think it's the smell of bullshit.

Welcome to SD.Net, if you're going to attack a statement back it up. By your own admission someone inheriting an average house in London from their parents has to pay 8K pounds (fixed it to account for the current tax bracket) on the house alone, to say nothing of any other items left behind (cars, money, stocks, etc.). That's ~20% of the average yearly earnings for a British Tax-payer and more than the average Brit has in disposable cash. That means, for all intents and purposes, the average Londoner cannot afford to inherit a average house from their parents. You have a problem with that logic, prove it otherwise.

Ah, we have gone from calling it (or at least implying) direct punishment to punishing them "in effect". I would like to go through life without paying any tax at all and doing what I want with the cash I earn. It doesn't happen though, I get taxed. Against my direct fucking wishes. Am I being punished "in effect"? You have to argue that all taxation in every form is punishment "in effect" for your argument to be consistent, which changes the whole nature of this debate altogether.

No it doesn't. The argument is simple: In the case of the Inheritance tax goods which have already been taxed once (when they were earned) are being taxed a second time (when they are being given to children or other inheritors), and that second tax is unfair because the goods have already been taxed normally. Further, the tax is a punishment on the person leaving the estate and the inheritors because it prevents the dying parties from executing their will according to their wishes, and forces inheritors to pay out extra money (on money or goods which have already been taxed) because they inherited this money.

I have already proven the vast majority of people will inherit without paying anything. The costs of getting a 348k asset (London average) is 14.4k, a remarkable return on investment for not actually doing anything to earn that investment. I would love to get a home for less than 10% of the actual cost.

A. The house isn't being received at 10% of the cost. The house has already been paid for by the parents in question. If we assume the house hasn't gone up or down in value it means the total amount paid for the house is 110% of the cost and more if it's inherited repeatedly.

B. You haven't proven jackshit. You've proven that the average British house, outside of London, would not incur the inheritance tax. This means the average house in London does fill up that quota and automatically incurs taxation, effecting a wide range of the population. You've not addressed the average size of an estate in the UK. Find me those figures, and prove it doesn't effect a wide range of people in the U.K. and you may have the beginnings of an argument (considering that over 10% of the UK lives in London, I think that's a dent in it already. )

Further, if you want to argue this tax is fair, answer me this: Why can spouses inherit items tax-free but children can't? If a husband or a wife can inherit a valuable estate that the other earned, why can't their children do that same from their parents?

Bullshit. All that is occurs is taxation of income/assets that is unearned. Changing the way you manage your assets because of taxation occurs with nearly every other form of taxation. Your argument can be used in some way against every other fucking tax out there.

You bleeping moron. THE ASSETS ARE EARNED. THAT'S HOW THE PARENT GOT THEM! If the parents want their children to inherit what they own without having to go through retarded legal hoops or extra hassle it forces them to divest of equity and invest mainly in liquid assets. This means that, for instance, someone who inherits a house and has to sell it to cover estate tax is being punished doubly:

First, for inheriting the property and having to pay extra tax on it.
Second, for inheriting a non-liquid asset and having to arrange its sale through third party agents while cover their cost.

And that's just on houses or cars and their like, to say nothing of other things.

[bobalot]

Their parents earned the money, paid for the house, and own it. They want to do with it what they damn well please. The inheritance tax says that, for an average house in London, that they don't have that right unless their kids pay almost half of what the average person makes in a year!

I went to work, earned my money, I can do what I please...........except wait, I have to pay income tax, the Medicare levy, etc. This is no different. The beneficiary has every right to receive an asset worth shitloads, but they pay a tax but because they did nothing themselves to earn it (the idea behind the tax).

Welcome to SD.Net, if you're going to attack a statement back it up. By your own admission someone inheriting an average house in London from their parents has to pay 8K pounds (fixed it to account for the current tax bracket) on the house alone, to say nothing of any other items left behind (cars, money, stocks, etc.). That's ~20% of the average yearly earnings for a British Tax-payer and more than the average Brit has in disposable cash. That means, for all intents and purposes, the average Londoner cannot afford to inherit a average house from their parents. You have a problem with that logic, prove it otherwise.

Nice goal post shifting. Lets go through this with professor Bobalot.

You said.

...houses, apartments and other high value items cannot be inherited except by the rich....

Since the average price on a home in England is significantly less than the 325k bracket, the VAST majority of people will inherit without paying anything, which flatly contradicts what you posted. For fucks sake, I even posted your quote when I called bullshit. You chose to ignore this entirely and argue on another tangent. The average citizen in the UK will either pay a minuscule amount of inheritance tax or none at all. In fact 94% of all estates don't have the inheritance tax levied on them at all (Source).

I like the quip that I have back up my statements on SD.Net, Nice touch. I went to the trouble of digging up the figures and pointing out the vast majority of people in the country will not pay any form of inheritance tax in direct contradiction of your statement, and I'm the guy that needs to back up my statements.

The argument is simple: In the case of the Inheritance tax goods which have already been taxed once (when they were earned) are being taxed a second time (when they are being given to children or other inheritors), and that second tax is unfair because the goods have already been taxed normally. Further, the tax is a punishment on the person leaving the estate and the inheritors because it prevents the dying parties from executing their will according to their wishes, and forces inheritors to pay out extra money (on money or goods which have already been taxed) because they inherited this money.

The counter argument is equally as simple. The person receiving these assets or income did not themselves do anything to earn it, which is why it is taxed. I suppose it can be described as a form of gift tax. The secondary objective that several people noted in this thread, is to stop the concentration of wealth over generations.

that second tax is unfair because the goods have already been taxed normally.

Why? Many taxes are levied repeated times on many things all over the world. For example, Land taxes are levied annually on the same thing (not in the UK, I think the Lib-Dem's want to introduce it).

A. The house isn't being received at 10% of the cost. The house has already been paid for by the parents in question. If we assume the house hasn't gone up or down in value it means the total amount paid for the house is 110% of the cost and more if it's inherited repeatedly.

The tax is not on the house. It is on the "transaction", a person receives a shitload of money/assets which he/she has done nothing themselves to earn, which is why people brought in a inheritance tax to tax this unearned income.

B. You haven't proven jackshit. You've proven that the average British house, outside of London, would not incur the inheritance tax. This means the average house in London does fill up that quota and automatically incurs taxation, effecting a wide range of the population. You've not addressed the average size of an estate in the UK. Find me those figures, and prove it doesn't effect a wide range of people in the U.K. and you may have the beginnings of an argument (considering that over 10% of the UK lives in London, I think that's a dent in it already. )

I haven't proven jack shit? Really? Reread your own statement. You state yourself that only 10% of people live in London itself. Half the them will pay no or a tiny amount of inheritance tax. The rest of the country have homes that are worth significantly less than the bracket (Homes being important as it is almost always the biggest asset) and therefore the vast majority of whom will not pay any inheritance tax. I said the "Vast majority of people will not pay inheritance tax" and provided numbers. From these numbers it looks like 90%-95% of people will not pay any form of inheritance tax. The BBC article I linked before states 94%.

Seriously, let's go through this again.

Straha:
"houses, apartments and other high value items cannot be inherited except by the rich...."

Bobalot:
No, the vast majority will not pay any inheritance tax. {Provides numbers}

Straha: Oh yeah! 90-95% of people will pay no or minuscule amounts of inheritance tax if any of my statements are taken as true! You haven't proven shit! (Especially that most people don't pay inheritance tax!)

Further, if you want to argue this tax is fair, answer me this: Why can spouses inherit items tax-free but children can't? If a husband or a wife can inherit a valuable estate that the other earned, why can't their children do that same from their parents?

Other than the fact most family homes,cars,apartments, etc. are jointly purchased, it is because they are partners. It is assumed they worked* together to gain these assets, even if one was the home maker. Where as the kid, didn't do shit to earn these assets.

* In the vast majority of cases, which is why when gold diggers marry really old guys (quite often it seems almost senile), wait for them to die and getting shitloads results in many court battles by family members and controversy in the media.

You bleeping moron. THE ASSETS ARE EARNED. THAT'S HOW THE PARENT GOT THEM!

Did I ever say otherwise, you illiterate? I never said the parents did not earn these assets. I said the kids did not do anything to earn them, which is the the transaction when the assets are moved to the children's ownership is taxed.

First, for inheriting the property and having to pay extra tax on it.
Second, for inheriting a non-liquid asset and having to arrange its sale through third party agents while cover their cost.

I have already addressed the first point. It is the transaction that is taxed, as the asset transfer is treated as unearned income for the recipient.
As to your second point, you have to prove there are currently lots of inherited houses that have to be sold in order to cover the tax burden. I find this pretty hard to believe since, there is a system to pay inheritance tax by yearly instalments link

Here is an interesting bit from Revenues and Customs Service:

You should pay any Inheritance Tax due within six months of the date of the deceased’s death. However, in some cases, such as when the estate includes a house, you can pay in instalments over ten years.

Basically for illiquid items, you can take your time. Assets such as cash in banks, the tax is levied more or less straight away.

As for homes, if you intend to actually live in/keep the house, you can make yearly payments for 10 years. If you plan to sell it, you have to cough up 10% of the amount in the first 6 months and the rest later. But if you were planning on selling, this point is irrelevant to this discussion, because you would have had to deal with third party costs regardless of a tax.

So going back to your example of some guy getting an 8k bill for a house worth 345k. His actual payment is 800 Pounds for that year for an asset worth 345k.

Back to this painful quote of yours:

That means, for all intents and purposes, the average Londoner cannot afford to inherit a average house from their parents. You have a problem with that logic, prove it otherwise.

I noticed you narrowed it down to London, I guess the other 43 million people in your country aren't important or something. But I will take the average Londoner.

1. 90-95% of the people in the UK don't pay inheritance tax. 94% according to the BBC. To be conservative, I will assume that's about half of all Londoners instead of 90%. That's being fairly generous.
2. The average Londoner earns significantly more than the national average. Let's say 35k? It's probably more.
3. The average house (currently inflated) when sold without the usual inheritance tax minimisation schemes or deductions gives you a tax bill of about 8k.
4. You can pay it over 10 years, which is 800 per year. 0.8k/35k = 2.2%

90%+ people in the U.K don't pay inheritance tax. For those who do, if they own a currently overpriced London home the average Londoner will face a negligible tax burden. It will hardly force them to sell the house.

And that's just on houses or cars and their like, to say nothing of other things.

Other things rarely add up to much when compared to homes and cars. You haven't taken into account the various methods of minimising inheritance tax and the various deductions to the inheritance tax.

On a different tangent, the reason why the average home price in London is above the bracket is because of a gigantic housing bubble that is only really starting to deflate. If the threshold kept up with the real increases in home values, most people wouldn't be anywhere near the threshold. Then again, the housing bubble is bursting, and house prices have a long way to fall, so the situation will probably solve itself.

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BTW. "Bleeping"? Seriously, as if we don't know what you meant. Grow a pair and just say it.

[Master of Ossus]

Except that, in virtually all cases, the person who's dying wanted to do something else with their money that they earned. If you don't think that it punishes people to take money away from them when they die, why don't you tell people that they can't write wills or otherwise make plans for their inheritance? The Soviets even tried this for a VERY short amount of time before they realized how awful such a plan was for society.

Ah, the indirect comparison of the concept of Estate tax to communism. I'm glad this conversation hasn't degenerated into hyperbole.

Are you actually going to bother to answer the point? People don't like the estate tax because it does affect them. You claimed the opposite.

What the fuck does this have to do with anything? We don't tell people how to write their wills or divide up their assets, no-one has suggested that in this thread. Gigantic Red Herring. (Nice touch, linking in communism, BTW). Taxing something and telling people what to do with their assets is different. Unless you are arguing that taxes in impinges unfairly on someone's ability to manage their assets, you would have to be arguing against taxation in every form to be coherent.

Nonsense--taxation is precisely telling someone what to do with their assets. "You have assets--give some portion of them to the government where we get to decide what happens to them." Incidentally, for those too stupid to follow along, the point of the Soviet statement was that extremely high estate taxes have been tried, in the past, and they've failed miserably, in the past. Even by Soviet standards, very high estate taxes were a disaster and the Soviets gave up on them almost as soon as they instituted them.

Moreover, since you have the reading comprehension of Koko the Gorilla, the point of the wills statement is to refute your idiocy that an estate tax can't possibly punish someone since the person being taxed is dead. That's total bullshit--people who write wills write them for after they die. There is no reason to write a will if you don't care what happens to your assets when you die. But people do write wills. And if they care about what happens to their assets after they die, presumably they care about the size and quantity of assets they can dispose of by wills, trusts, and other estate planning tools.

When a persons inheritance gets transferred to their kids, it is treated as "unearned" income and is taxed as such. It's not a difficult concept to understand. It doesn't punish the person, because the person is already dead when the inheritance tax is levied. The person(s) who gets taxed are the beneficiaries, who haven't earned anything.

Continue pounding the table, ignore the rebuttal posted above, and claim victory.

Moreover, the inheritance is only "unearned" by the kids--it is earned income by the parents, and it's already been taxed as earned income at that stage.

Finally, I don't know what your big emphasis on "unearned" income is, but it doesn't strike me as being meaningful, at all. If I buy a life insurance policy and I die, the life insurance policy will not be taxed to my wife and kids, even though it's unearned income in precisely the same way (for them) as inheritance. I earned the income to buy the life insurance policy, and I have now died, and so my wife and kids get the benefits of the life insurance policy that I purchased. Similarly, I earned the income to put into some estate plan, and I have now died, and so my wife and kids get the benefits of the assets I have put into the estate plan--but not until we take care of Uncle Sam!

What are you talking about? Do you have any evidence to back up anything that you said?

1. People are motivated to work partly because they want to leave a better life for their kids.
2. High estate taxes remove this motivation--work as hard as you want, your kids don't get it.
3. Yes, there is empirical evidence to support this. Among other reasons, this is why the Soviets stopped their ban on inheritance.
4. Yes, Wills and Estates lawyers deal with this all the fucking time.

It is hardly arbitrary. There is a very obvious underlying logic. It is the taxation of unearned income. It is hardly "capricious" or "vindictive" either, as it doesn't punish any living person for anything.

1. But the living are affected, you fucking idiot. This is the whole point of the argument about wills.
2. It's totally arbitrary--not only are other forms of "unearned" income not taxed upon death, but there is an exemption for the first X dollars of assets, where X is some number that Congress has no idea what the fuck to do with.

How exactly does a inheritance tax stop people from working? Please enlighten us. A peer reviewed study would be great.

You honestly have no fucking clue, do you? The estate tax has been linked to the dissolution of businesses (particularly small family ones), cessation of income earning, and distortive transfer behavior like putting money into trusts where the next generation has difficulty effectively investing or spending it and creating a net loss for society. And let's not mention their effects on forcing people to move out of family homes, or to liquidate other treasured assets.

BTW. You make it sound like the taxation of the majority of ones inheritance. It isn't. I doubt the highest bracket in the world would go past 40%. I doubt it goes higher than 15-20% in the states. The beneficiaries still get the vast amount of their inheritance for do doing jack shit.

Are you honestly this stupid?

1. The estate tax is a federal tax--no state has been dumb enough to impose such a retarded scheme, largely because the estate tax is the least popular tax in the US, today--it's less popular than sales taxes.
2. Part of the Bush tax cuts included "slashing" the highest rate for the estate tax from 55% (graduated) down to 47%. So the beneficiaries do not "get the vast amount of their inheritance for doing jack shit" (at least for the sizeable estates you're obviously talking about), contrary to your bullshit speculation on a topic about which you obviously know nothing. Curiously, Congress' bill also set the rate at ZERO percent in 2010, but in 2011 it goes all the way back up to 55%.

Edit: This has a practical effect, too, if you'll put up with the anecdote. This nice widow lives down the street from me. I think she's about 60, and her husband died suddenly shortly after he retired. Her kids are both just out of graduate school (I think). If Warren Buffett dies of a heart attack on December 31, 2010, his heirs will inherit his entire fortune without any inheritance tax at all. But if she gets into a car accident on the way back from a New Year's Eve party, then her kids will pay inheritance taxes (essentially) on the retirement savings that she and her husband put up over their careers. The good news for her is: my discussion with bobs-for-points-a-lot has taught me that there's nothing arbitrary or capricious about estate taxes, and they serve a necessary and important public function.

[Darth Holbytlan]

If I buy a life insurance policy and I die, the life insurance policy will not be taxed to my wife and kids, even though it's unearned income in precisely the same way (for them) as inheritance.

You may want to look at your financial plans a little more closely, if you've acted on this notion. Insurance policy payouts are taxed just like any other part of the estate:

Gross Estate

Your gross estate includes the value of all property in which you had an interest at the time of death. Your gross estate also includes the following:

• Life insurance proceeds payable to your estate or, if you owned the policy, to your heirs;
• The value of certain annuities payable to your estate or your heirs; and
• The value of certain property you transferred within 3 years before your death.

Your wife won't get taxed on the payout, but then she won't get taxed for any of your estate. Your kids are another matter.

I don't know why you expect anyone to take your shit about taxes seriously when you don't bother to get your basic facts right. I was only mildly surprised when looking up the last time I corrected someone about the tax code and found that it was you again.

[Master of Ossus]

You may want to look at your financial plans a little more closely, if you've acted on this notion. Insurance policy payouts are taxed just like any other part of the estate:

Gross Estate

Your gross estate includes the value of all property in which you had an interest at the time of death. Your gross estate also includes the following:

• Life insurance proceeds payable to your estate or, if you owned the policy, to your heirs;
• The value of certain annuities payable to your estate or your heirs; and
• The value of certain property you transferred within 3 years before your death.

Your wife won't get taxed on the payout, but then she won't get taxed for any of your estate. Your kids are another matter.

I don't know why you expect anyone to take your shit about taxes seriously when you don't bother to get your basic facts right. I was only mildly surprised when looking up the last time I corrected someone about the tax code and found that it was you again.

That's only if I'm dumb enough to pay the proceeds to my estate. (BTW, if I pay the benefits of my own life insurance policy to my estate then I pay estate tax on those). The proceeds of a life insurance policy I buy, presumably, are going to the kids (or to my wife, and to my kids if my wife is dead, etc.).

The situation you're describing could commonly come up if A buys a life insurance in favor of B and then B dies. The life insurance benefits, then, pass through B's estate. That's clearly not the situation I was describing, since no one buys a life insurance policy to pay to themselves when they die (or, at least, that's not a common structure). You buy the policy and then give ownership to the beneficiary, hold it in an irrevocable trust, etc. etc. etc..

[Surlethe]

I'm not sure why an estate tax is such a big deal - it only affects 0.5% of estates as of 2006, even less now, and the effects of the high estate tax didn't seem to be so devastating when it topped out at a marginal rate of 77% on transfers over $50 million during World War II (that's about $410 million today, adjusted for inflation - GDP deflator numbers from FRED). In fact, it's reasonable to suppose that such a high tax rate helped decrease income inequality significantly between 1930 and 1950.

Anyway, I'm not seeing any econometric analysis suggesting that the deadweight loss of this tax to society is significant, much less outweighing the benefits provided by programs funded by the tax. Since such a small number of people are affected - in 2003, less than 3% - and since most of them pay so little - the lowest quintile paid a mere 1.6% effective rate, and the average paid an effective rate of just under 20% - I don't see why it's such a huge burden on society. (Numbers courtesy FactCheck.org).

By the way, MoO, the links you posted are rather disingenuous: Both assume without justification that the distortionary effect of the estate tax is the same as that of an income tax. In fact, portions of the CBO article actually suggest that people might not behave in so rational a manner as the analysis assumes, which means that any distortionary effect is almost certainly overstated (see p. 5, 15 on the pdf). And your'e wrong about states not taxing estates: see this pdf (bottom of p. 10) and this pdf (Indiana inheritance tax general instructios).

[Glocksman]

The Indiana form is interesting in that I had no idea we had a state inheritance tax.
Good thing that the exemption for children and grandchildren is $100,000, or I'd be in trouble.

Though I expect that as executor of my Mother's estate, my older sister (advised free of charge by a lawyer friend of my Mom) filed all of the necessary paperwork.

When Mom died in 2000, her only assets were her car, personal belongings, and $10k of basic life insurance through her job**.
The house was left to me and my two sisters by my Grandmother in a trust* back in 1976.

The terms specified that the trust was to be used for my mother's benefit until she died, and then the assets were to be divided equally between me and my two sisters.

After the mortgage note was paid, each of us wound up with $17k from the house sale.
Mom's insurance and personal property barely paid for her funeral and grave marker.


*If you ever find yourself dealing with an Indiana lawyer named Weyerbacher from southwestern Indiana, shoot the motherfucker and claim self defense.
The SOB looted the trust and almost lost us the house for nonpayment of taxes.
Only my granduncle Russ who was a classmate and buddy of a local judge managed to save the house for us before the Sheriff's sale.


**On the advice of her bankruptcy attorney, Mom canceled the additional $150k life insurance policy through her job that only cost $15/weekly.
At the time of her death in 2000, she was an RN making $26/hr plus good benefits.

Ironically enough, though I make much less an hour even today, in what some will undoubtedly decry as union extortion, my employer provided death benefit is one year's pay (currently about $26k), plus another one year's pay from my union itself and a $10k payout from my credit union.

I half jokingly tell my sisters to not spend it all in one place.