[mikeyouse]

It’s called the stepped up basis and yes, only applies to your estate.

A married couple who bought a house in Palo Alto for $250k that’s now worth $5.25M and who bought $250k of Apple stock that’s now worth $20.25M would have a Federal tax bill of ~$5 million if they sold those assets and gave the cash to their kids. If however they were hit by a bus on the way to their accountants office, and the kids inherited the assets and sold them the next day, they would owe zero tax.

There’s a popular myth that estate taxes are a second tax on income but many assets for the very wealthy are never taxed..

[PaulDavisThe1st]

This is because for a long time, the USA does not tax assets other than real estate.

Our tax system is structured around the fundamental idea of taxation occuring on transactions, whether that's income in exchange for labor, income resulting from the sale on (non-real-property) assets etc.

I'm not sure if this is a good thing (it might be, it might not) but it's the way it is.

[bruce511]

The reverse approach has issues as well, primarily for assets that aren't easily divisible.

The obvious example is family farms, or indeed the family house. Capital taxing the asset on death means a (potentially large) tax bill happens in many cases this can't be paid without selling the asset.

If the sale was to another family looking for a farm, then that could be argued is neutral. But it won't be. It'll be sold to a mega-corp because they have more money to spend. So in a couple generations you kill off areas that are primarily small farms.

This doesn't just apply to property. The family silver collection, the family business, the list goes on.

Inheritance tax is tricky. Just passing money down entrenches an aristocratic class. Taxing it though destroys value in all kinds of areas.

[chgs]

> in many cases this can't be paid without selling the asset.

Ok. And?

Why should someone get $5m for doing bugger all. If they were paid $5m for cleaning a car they would lose a fortune in tax.

[bruce511]

They're not getting 5m, that's the point. They're inheriting an asset which may be valued at 5m. Like a farm, or a house, or a painting or whatever.

Forcing the sale of family property or assets does not serve any good in the long term.

[dataflow]

> Forcing the sale of family property or assets does not serve any good in the long term.

How is carrying the cost basis forward without stepping it up "forcing a sale"?

[saltcured]

It is under a system where ownership transfers are treated as taxable events. The recipient needs to pay the taxes, but cannot afford to without liquidating the inherited asset.

I think you just need to propose a set of related rules changes. Replace the inheritance basis step-up with a similarly scoped rule that says this inheritance does not count as a taxable ownership transfer, so taxes are not due at that point.

You may also need new rules for estimating the basis when records are lost across multiple inheritance events?

The current system is a bit like a tax foregiveness jubilee, but dribbled out to individual families rather than synchronized across the whole economy. It resets things so that regular people can function in this system, without requiring all the family accounting and records keeping of some aristocratic dynasty.

[mikeyouse]

Forcing people to "Sell the family Farm" has been used by estate-tax detractors for so long that there are multiple special programs in place to ensure it never happens (interest-free loans, etc). Given that the current limits are over $13M per person or $26M/couple where zero tax is owed, I don't think this "woe is us" routine resonates any more.

[bruce511]

That's exactly my point. The current system is working. We explicitly don't want to go to the place where inheritance forces a sale.

[rijoja]

idk, maybe because their parents liked them? Do you really want to incentivize against people working hard to make sure their offspring, has a good life? Also a family-home might have sentimental value, and this really doesn't only apply to rich people, quite the contrary actually.

[carlosjobim]

> Do you really want to incentivize against people working hard...

You mean by taxing labour and taxing commerce?

Sorry for the snark, but come on...

The Roman empire was built on never taxing labour, because that was seen as an atrocity (never mind the slavery). Instead they taxed luxury goods and debased their currency. The United States was built on never taxing labour, because that was seen as an atrocity (never mind the slavery). Instead they taxed importations and debased their currency.

Since all land was created by God and everything else was created by people's labour, the really unjust thing is to tax labour instead of taxing land. But "territory" is an instinct so deeply ingrained that it's probably been with us for millions of years. However, which other mammals allow members of the same species living on their territory which are not family? As in renting.

[rijoja]

> You mean by taxing labour and taxing commerce?

> Sorry for the snark, but come on...

> The Roman empire was built on never taxing labour, because that was seen as an atrocity (never mind the slavery). Instead they taxed luxury goods and debased their currency. The United States was built on never taxing labour, because that was seen as an atrocity (never mind the slavery). Instead they taxed importations and debased their currency.

Interesting, even though I don't see if you are for or against taxing labour, commerce or inheritance.

Inheritance tax is a way for the establishment to take land from small landowners. The state isn't a good counterbalance to "greedy" corporations, the state is there to support big business.

> It'll be sold to a mega-corp because they have more money to spend. So in a couple generations you kill off areas that are primarily small farms.

Please see Bruce511's comment above, he explains it better than me.

The thing is that with an inheritance tax, you make it impossible for someone to live with little or no money, and caring for their off-spring, by giving them a place to stay.

> Since all land was created by God...

Aha, but in the commandments it says that you shouldn't steal, so having property doesn't seem to be forbidden?

> But "territory" is an instinct so deeply ingrained that it's probably been with us for millions of years

So, is caring for your off-spring, kindness and brotherhood. What is your point?

[chgs]

My employer likes me and gives me $100k and I have to pay tax.

[Panzer04]

It's mostly practical, I think. Not all assets can be valued, or are liquid. Once a transaction occurs though you have both a price to tax on and the money to pay the tax.

[mikeyouse]

It’s awfully convenient that this ambiguity in asset prices leads to a massive an unprecedented tax break to the richest people in the country — many of whom are literal experts in valuation.

[mixmastamyk]

^^^ This is the real loophole, the rest is a distraction.