US Tax reform - tax cuts for the rich. The middle class, not so much.

MaeZe

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There'll be a lot to say about this proposed tax reform in the next few weeks/months. I'm going to start by addressing the big lie about inheritance taxes.

Once again the Democrats are blowing an opportunity to frame the estate tax debate. The Republicans call it double taxation (supposedly income that has already been taxed) and the death tax, because painting it as evil sounds good.

In reality the vast majority of the time, inheritance, when one is rich, consists of a large proportion of untaxed capital gains. When the heirs sell those assets the basis for capital gains is zeroed out at the time the wealth is inherited. So were the assets to be cashed out before the rich person dies, there would almost certainly be a huge capital gain, and that would be subject to tax the way income is subject to tax (the rates differ).

But inherit those same assets and all that capital gain is simply passed on with a new valuation and any gain zeroed out. The deceased's capital gains taxes are cleared off the books.

Come on Democrats, let your legislators know you see through the ruse of the free pass on capital gains tax. One might think rich Democratic legislators are not interested in exposing the tax evasion for what it is, evasion of capital gains taxes. Maybe because they don't represent the 99% quite as enthusiastically as they pretend to.

The argument is that requiring a large tax on an inheritance forces heirs to have to sell things like the family home and family owned businesses. That is what the very generous exemption on the first six million (or what ever the current exemption is) is for. So that problem has been addressed. It it needs tweaking, fine, but don't pretend the money is being double taxed because none of those capital gains at the time of one's death have been taxed.


Action: spread the talking points.
 
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James D. Macdonald

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The next lie is that the money corporations save on taxes will be put into the workers' paychecks.

Nonsense.

The workers are already doing their jobs for whatever the corporations are paying -- why should they want to pay more for the same product?

The money will go into dividends for the stockholders and bonuses for upper management. The folks on the shop floor -- not so much.
 

MaeZe

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Steve Mnuchin is on Meet the Press giving his tax reform stump speech and Chuck Todd is doing exactly zero to counter the bullshit spewing from Mnuchin's mouth.

Mnuchin claimed the estate tax change is to protect small family farms. That has been discredited but Todd said nothing.

Donald Trump's Pants on Fire claim about the estate tax, small businesses and farms

By the way, I'm pretty sure nothing stops a family from making ownership of a farm or business in the family members' names with right of survivorship. Such joint ownership contract arrangements are not limited to surviving spouses.

When asked if the proposed plan was a tax cut for the wealthy, Mnuchin responded with the simplifying-the-tax-code dodge. Todd did nothing to redirect Mnuchin to the question being asked.


Action: spread the talking points.
 
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Gregg

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We don't yet know the details of the tax plan.
when the estate tax was eliminated for one year in 2010 the step-up cost basis provision was modified. Basically, after the first $1.3 million, the original cost of an asset was passed on to the heirs. Capital gains taxes would be due on the sale of the asset.
 

MaeZe

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We don't yet know the details of the tax plan.
when the estate tax was eliminated for one year in 2010 the step-up cost basis provision was modified. Basically, after the first $1.3 million, the original cost of an asset was passed on to the heirs. Capital gains taxes would be due on the sale of the asset.

Is the money received from the sale of inherited property taxable???
When you inherit property after the owner dies you automatically receive a "stepped-up basis." This means that the home's cost for tax purposes is not what the now-deceased prior owner paid for it. Instead, its basis is its fair market value at the date of the prior owner's death. This will usually be more than the prior owner's basis.

The bottom line is that if you inherit property and later sell it, you pay capital gains tax based only on the value of the property as of the date of death.
In other words a new basis begins when you inherit the property. Any capital gains that accrued by the deceased before death is wiped off the slate.
 
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Gregg

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Is the money received from the sale of inherited property taxable???In other words a new basis begins when you inherit the property. Any capital gains that accrued by the deceased before death is wiped off the slate.
Yes, that is the current law.
But when the tax was eliminated for one year in 2010 the step-up provision was changed - mostly eliminated. We don't know yet what will happen if the estate tax is repealed this year.
I expect there will be some compromises made regarding the estate tax and don't think it will be totally repealed. But it will be changed.
 

MaeZe

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Yes, that is the current law.
But when the tax was eliminated for one year in 2010 the step-up provision was changed - mostly eliminated. We don't know yet what will happen if the estate tax is repealed this year.
I expect there will be some compromises made regarding the estate tax and don't think it will be totally repealed. But it will be changed.
Your post is confusing.

The current law allows the capital gains tax loophole but seven years ago it was changed for one year???

A link would be nice so I can see what you are talking about.
 

MaeZe

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Ten Facts You Should Know About the Federal Estate Tax
Only the wealthiest estates pay the tax because it is levied only on the portion of an estate’s value that exceeds a specified exemption level — $5.49 million per person (effectively $10.98 million per married couple) in 2017. The estate tax thus limits, to a modest degree, the large tax breaks that extremely wealthy households get on their wealth as it grows, which can otherwise go untaxed.
In other words, were there no estate taxes the "large tax breaks that extremely wealthy households get on their wealth as it grows" would go untaxed.

Instead the first 5 or 10 million of said grown wealth (i.e. capital gain) goes untaxed.
Thus, the estate tax is best characterized as a tax on very large inheritances by a small group of wealthy heirs; repeal would amount to a massive windfall averaging more than $3 million apiece for the top 0.2 percent, and more than $20 million for the wealthiest estates. As New York University School of Law professor Lily L. Batchelder explains, “it would be more accurate to call wealth transfer taxes [such as the estate tax] ‘silver spoon’ taxes, not ‘death’ taxes as their opponents prefer.”[5]

Then there is this:
3. Large Loopholes Enable Many Estates to Avoid Taxes
Many wealthy estates employ teams of lawyers and accountants to develop and exploit loopholes in the estate tax that allow them to pass on large portions of their estates tax-free. These strategies don’t benefit the broader economy; they only allow the wealthiest estates to avoid taxes.

Graph: The Largest Estates Consist Mostly of “Unrealized” Capital Gains That Have Never Been Taxed

I look forward to your explanation, Gregg. I don't want to get this wrong if I'm going to spread the word. But it looks like you are indeed referring to something that applied in 2010 only.

Without grassroots pressure, the estate tax capital gains loophole will continue to be business as usual.
 
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Gregg

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Your post is confusing.

The current law allows the capital gains tax loophole but seven years ago it was changed for one year???

A link would be nice so I can see what you are talking about.
Current estate tax levies a tax of 40% on estates over about $5.6 million. Cost basis of assest is stepped up to date of death.
The Bush tax cuts of 2001 had a provision to phase out the estate tax. Over 10 years the tax was gradually reduced, then in 2010 it was eliminated. Due to (some would say crazy) Senate rules the tax cuts had a 10 year life - then everything reverted back to 2000 levels - unless new laws were passed. So the estate tax expired in 2010 and the repeal was not extended.
Confusing? yes - but blame Senate rules.
This might help - look at the chart:
http://www.npr.org/templates/story/story.php?storyId=129756032
 

MaeZe

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That article is seven years old. It's a debate over the Bush tax cuts. It's full of the same lies being told by the defenders of tax cuts for the rich claiming the estate tax is about double paying tax (false) and the tax hurts small family businesses and farms (false).

I'm not confused by the estate tax rules, nothing in your link addresses what you said:
when the estate tax was eliminated for one year in 2010 the step-up cost basis provision was modified. Basically, after the first $1.3 million, the original cost of an asset was passed on to the heirs. Capital gains taxes would be due on the sale of the asset.

But it's not relevant anyway because nothing in the 2010 law affects the current situation.
 

Gregg

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That article is seven years old. It's a debate over the Bush tax cuts. It's full of the same lies being told by the defenders of tax cuts for the rich claiming the estate tax is about double paying tax (false) and the tax hurts small family businesses and farms (false).

I'm not confused by the estate tax rules, nothing in your link addresses what you said:

But it's not relevant anyway because nothing in the 2010 law affects the current situation.
to simplify: when the estate tax was repealed (for 1year) the step-up rule was eliminated. Original cost basis passed on to heirs.
if the tax is repealed this year it is likely that a similar thing will happen so that heirs will be subject
to larger capital gains taxes than under current law. I doubt there will be a free pass on capital gains.
 

MaeZe

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to simplify: when the estate tax was repealed (for 1year) the step-up rule was eliminated. Original cost basis passed on to heirs.
if the tax is repealed this year it is likely that a similar thing will happen so that heirs will be subject
to larger capital gains taxes than under current law. I doubt there will be a free pass on capital gains.
Like I said in my PM reply, I'm not seeing how because the step-up rule was eliminated one time in a couple decades that it would be eliminated again.

Do you hear a single Republican defending the tax 'reform' by saying such an inheritance tax repeal would include the 2010 reform? No. You hear the lies: it's a double tax and it hurts family businesses and farms.

When asked about how this is not a tax cut for the rich, they dodge, talking about how complicated the tax code is. They're lying pricks.
 

Davy The First

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Cut taxes and no need to cuts 'entitlements' . Fab.

oh, no, wait a minute...

Wonder what's his motivation is hitting his own base? Wonder if he aint thinking of a second run after all...
Could it all just be stupidity?

"...the Trump administration is apparently already champing at the bit to slash other social services. Politico reports that the White House is “quietly preparing a sweeping executive order that would mandate a top-to-bottom review of the federal programs on which millions of poor Americans rely,” while “G.O.P. lawmakers are in the early stages of crafting legislation that could make it more difficult to qualify for those programs.” And the White House doesn’t seem concerned with the fact that its machinations will potentially hurt the very people who supported Trump’s bid for office.

As the budget Team Trump unveiled in May demonstrated, such cuts will “inevitably reach many of the lower-income and less-educated whites that have emerged as the cornerstone of the modern Republican coalition,” Ronald Brownstein noted in The Atlantic.

Already, federal health officials are reportedly “encouraging states to impose work requirements on able-bodied adults on Medicaid,” plus higher costs for enrollees and “strict disenrollment penalties for not following certain rules.” The Agriculture Department indicated last week that states will soon have greater control over the food-stamps program, which could lead to stricter work requirements or even drug testing for participants.

Meanwhile Department of Housing and Urban Development secretary Ben Carson has said H.U.D. will be “significantly involved” in the administration’s welfare reform; last May, Carson said that “poverty to a large extent is also a state of mind.”

https://www.vanityfair.com/news/2017/12/trump-is-preparing-to-royally-screw-trump-voters
 
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cbenoi1

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Could it all just be stupidity?
There was a panel of republican voters on CNN who were asked how the new tax system will enhance the economy. They mentioned the trickle-down effect ( link ). Give more money to the rich, they will invest in US companies, which in turn will create more jobs. Has that ever worked in the past? Under Reagan? Under Bush 41 and 43? When confronted with this question, there were a mix of blank stares and "in Trump we trust" answers.

So, stupidity or lack of education. More like a mix of both.

Ignorance is bliss.

-cb
 

Davy The First

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In fairness to Trump + co, the distraction from this stuff, the real nuts n bolts, is pretty effective.
 

TCnKC

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The GOP aren't where the 'stupidity' comes in. They know exactly what they are doing(lining their own pockets from donors and lobbyists.) No, the stupidity(or lack of education, tribalism etc) comes in with the voters. They put these people in office with the notion that these GOP care about their voters interests. The only interests that align with most of the current GOP(esp this current admin) are those who are bigots, racists(subconscious or otherwise) and truly want the country to go back to the 1940-60s era(if not farther.)
 

blacbird

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In reality the vast majority of the time, inheritance, when one is rich, consists of a large proportion of untaxed capital gains. When the heirs sell those assets the basis for capital gains is zeroed out at the time the wealth is inherited. So were the assets to be cashed out before the rich person dies, there would almost certainly be a huge capital gain, and that would be subject to tax the way income is subject to tax (the rates differ). .

You forgot to mention that the first $5.4M inherited by any individual is exempt from taxation. Which, of course, means that the inheritance tax changes really do only benefit the wealthiest Americans.

caw
 

blacbird

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The only interests that align with most of the current GOP(esp this current admin) are those who are bigots, racists(subconscious or otherwise) and truly want the country to go back to the 1940-60s era(if not farther.)

1920s would be more like it. I can recall when we had a frequent poster here who considered Calvin Coolidge to be a great President. That's the model the core GOP now wants.

caw
 

MaryMumsy

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You forgot to mention that the first $5.4M inherited by any individual is exempt from taxation. Which, of course, means that the inheritance tax changes really do only benefit the wealthiest Americans.

caw

Actually the $5.4M is the size of the total estate which is exempt. Who or how many receive an inheritance is not part of the equation. And any estate tax is paid before distributions are made to the heirs.

MM
 

Gregg

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But inherit those same assets and all that capital gain is simply passed on with a new valuation and any gain zeroed out. The deceased's capital gains taxes are cleared off the books.





Action: spread the talking points.
The estate tax currently is 40% on amounts above the exemption. And you want to add a capital gains tax on top of that?
We should see the final version of the tax bill later this week or early next. Until then all we can do is speculate.
 

cornflake

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I love that he had a toddler hissy and signed it today -- the GOP has to be piiiiisssed. He wasn't supposed to sign it until January, which would hold off the Medicare cuts until after the midterms, but the press actually noticed that, and so he had to 'prove' this was 'for Christmas,' and sign it today, screwing the GOP. Heh heh heh heh.
 

ElaineA

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It only screws over the GOP if people who are affected by, or care about, the Medicare cuts get out and vote. That *has* to be the focus of the next 11 months.