This is one of the problems with running a daily newspaper in the Internet age. The Las Vegas paper — which hit the driveways this morning — has a story about what is expected to be in the Republican tax reform bill, but an hour or so later the actual tax bill has been released.
The New York Times is reporting that the much debated and maligned dropping of the income tax deduction for state and local income and sales taxes is still in the bill.
The state and local tax (SALT) deductions are patently unfair to states with lower tax rates.
Using 2010 statistical data from the IRS, you find Californians who filed for state and local income tax deductions claimed deductions of $10,700 per return. Nevadans who filed for the state and local sales tax deduction claimed only $1,430 per return.
Calculated on a per capita basis, Californians claimed $2,116 in federal income tax deductions, while Nevadans claimed only $166 per person for sales tax deductions.
The tax deduction for property taxes remains but is capped at $10,000. The bill also maintains mortgage interest deductions for existing mortgages, but caps the deduction for newly purchased homes to $500,000.
The bill also establishes three tax brackets — 12, 25 and 35 percent. “Single filers making up to $24,000 will pay no income tax; up to $90,000 will be in the 12 percent bracket, up to $260,000 in the 25 percent bracket and up to $1 million in the 35 percent bracket. Those making above $1 million will be in the 39.6 percent bracket, which is currently the top rate for millionaires,” the Times says.
The standard deduction for the 70 percent of Americans who do not itemize would increase from $6,350 for individuals to $12,000 and from $12,700 to $22,000 for married couples.
There will be no changes to 401(K) plan tax exemptions after all.
It also doubles the exemption for the estate tax and repeals it after six years.
Bloomberg is also reporting that the bill ends the $7,500 credit for purchasers of electric vehicles made by companies such as Tesla Motors, which got more than $1 billion in tax breaks from Nevada to build a battery plant in Sparks.
Now the fight begins. Nevada Democrats have largely opposed the tax reforms that would benefit most Nevada taxpayers and stimulate the economy.
The greatest problem with eliminating the estate tax is that it’s an income tax dodge for heirs. As the proud recipient of the government’s largess, I paid no taxes on my parents’ capital gains and neither did they. Voila! While humbler folk had to pay taxes to Uncle Sam for their hard work, my parents and I paid no tax at all for lounging around watching their investments grow.
As I understand it, richer people can watch their assets grow for several generations with the capital gains wiped out upon the death of each generation. No tax is paid even if the assets are sold upon the death of the individual passing them on. http://www.alllaw.com/articles/nolo/wills-trusts/capital-gains-tax-inherited-assets.html
Luckily for rich folk, the average slob (including me) doesn’t understand tax law very well and so, has no idea of the ridiculous advantages given to the wealthy. Thanks for supporting all of this class favoritism. I’ve made a lot of money because of it.
The stupidity of the three tax brackets should be obvious to a child. While someone earning $90,000 is taxed at 12% (wow, only 12% for a single person making 90 grand. What a bargain!), but the tax rate more than doubles for an income of $90,001. Talk about a chain saw instead of a scalpel…
You weren’t rich, Rincon. Neither was your parents estate.
Same as me and my brother. Mom’s estate wasn’t rich either. But it did leave us with a substantial boost for our own futures.
A “rich” estate is one over 5 million 4 hundred 90 thousand dollars
Everyone else is just average.
Stop complaining about being middle class.
You missed it, Steve. Eliminating the estate tax insures that no taxes are paid on long term capital gains passed on; not by the parents and not by the children. TAX FREE INCOME for those who have enough money that they can continually reinvest their capital gains, while the guy working his tail off to provide for his family gets no such benefit. The rich indeed get richer, while those who work pay the bills for the rest of us.
Since the average family makes a little over $50,000 per year, someone with $5 million could spend the entire average income every year for 100 years without working at all, even if the 5 mil earned no income at all, so calling everything under $5,490,000 average is a bit strange.
Wrong, on gains REALIZED (when an asset is sold at a gain, this gain is taxed. This is the only way to reinvest any capital gains. You have to sell the asset before you can reinvest it.) Taxes are always due on gains. Conversely, if an is asset sold at a loss it is deductible.
The cost basis on inherited assets is what is not taxable.
IF an asset is never sold from one generation to the next then it never gets taxed.
This very rarely happens.
But, this is the current estate tax law, everything below that threshold is average.
Maybe, some day, we will realize that if you want to avoid “special interests” and insure fairness, we should go to a flat tax solution (no deductions) or a Value Added Tax system that taxes transactions, not income. As for estate taxes, the income that provided the value of what the estate consists of was undoubtedly incrementally taxed over the years. One wonders how much of the impetus for “estate” taxation is motivated by envy and a desire to confiscate accumulated wealth.
The stuff people say.
“With Thomas Jefferson taking the lead in the Virginia legislature in 1777, every Revolutionary state government abolished the laws of primogeniture and entail that had served to perpetuate the concentration of inherited property. Jefferson cited Adam Smith, the hero of free market capitalists everywhere, as the source of his conviction that (as Smith wrote, and Jefferson closely echoed in his own words), “A power to dispose of estates for ever is manifestly absurd. The earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity. Such extension of property is quite unnatural.” Smith said: “There is no point more difficult to account for than the right we conceive men to have to dispose of their goods after death.”
“The conservative position here is not only immoral. It’s un-American, and explicitly so. Our Founding Fathers, as a group, loved inheritance taxes. Loved them. And it stands to reason—they were founding a nation that would throw off the old weights and chains of Europe. Those weight and chains very much included laws of primogeniture and inheritance that resulted in all those layabout royals and their massive estates. America, they vowed, would not be like that. Social position would be earned, not inherited.
And so no less a figure than TJ himself led the fight in the Virginia legislature in 1777 to abolish primogeniture laws. Jefferson even went so far as to wonder whether all rights of inheritance should be abolished and most property basically reshuffled every 50 years. We didn’t do that of course, but every revolutionary state government followed Virginia’s lead.”
Steve” Reread my article. The cost basis changes at death such that no income tax is ever paid on the previous gains. A bald and massive loophole confusing enough that even when some people are informed, about it, they fail to assimilate it.
Bill’s acting as if the estate tax actually costs anyone any sizeable amount of money. It doesn’t. The rich have seen to that.
“The cost basis changes at death such that no income tax is ever paid on the previous gains”
Which is exactly what I said. It almost never happens because people sell off portions of the assets.
We are talking about a one percent of the one percent here. The argument for keeping the estate tax is based on theory. The revenue potential is really tiny in comparison to what happens in real life.
“Which is exactly what I said. It almost never happens because people sell off portions of the assets.”
You think people who own stocks and collectables routinely sell off all of their assets before they die? The only reason to do so is if they run out of money. If not, they try NOT to sell so that their heirs don’t get soaked. My mother didn’t, my brother’s mother in law didn’t and my wife’s godfather’s mother didn’t. All middle class.
“We are talking about a one percent of the one percent here”
If it indeed is a rule for the benefit of the 1% of the 1% as you say, why should we tolerate a special rule just so the absurdly rich can escape taxes? It should be easy to shut this loophole, but the Conservatives won’t have it, proving that Conservatives are far more concerned about preserving our aristocracy than about being fair to the common man.
As with income tax, the estate tax should be for almost everyone at a reasonable rate, but should be payable over 10-20 years.
You take the last word.
“You think people who own stocks and collectables routinely sell off all of their assets before they die?”
No, they do much like I do. Sell, diversify and take profits to generate retirement income.
Apparently, you think people NEVER SPEND ANY MONEY!
“If it indeed is a rule for the benefit of the 1% of the 1% as you say”
As is said, the potential revenues from this group are so small as to be more costly to obtain than they would be worth. Trying to tax this source only ads lots of useless and expensive paperwork to the mix.
As for taxing estate money, this is double taxing money already taxed. Taxing gains on inherited money is ok because those gains are are created by the selling of assets at a gain and either spending the profits or investing in new securities. Either way, those gains were realized by the beneficiary and not made by the deceased.
As I recall my question, it was: ‘One wonders how much of the impetus for “estate” taxation is motivated by envy and a desire to confiscate accumulated wealth?”, Your response would indicate that the at least in your case, that might be your motivation.
On another note Primogeniture is the law or custom that provides that inheritances go to the first born or his offspring and began as a means of insuring real property remained intact instead of being parceled out to heirs or sold for division purposes. Given an age when land was the indicia of wealth it is understandable even though not fair or equitable.
As for a “stepped up basis” in property, one usually finds that in relation to stocks and bonds. What it means simply is that the asset in the hands of the heir may be valued as of the time of death instead of what it cost the owner to acquire it.
And finally, if I have misquoted or misinterpreted any of the rules or regulations regarding inheritance or taxation, please forgive me for I must rely on my CPA and tax lawyer to try and interpret and make sense of the thousands of pages of arbitrary and arcane rules,regulations and laws that are the hallmark of our tax system.
I have to agree on the thousands of pages of regulations. What I cannot understand is why you feel that it’s equitable that a couple of middle class parents trying to pay for a home, school debt and raising children should be taxed at the going rate, but that when a billionaire makes money on his stocks and passes that money to his heirs, that money should not be taxed. So yes, if the serfs envied their king and if slaves envied their master, then envy may be the motivator here. The degree and nature are different, but in both cases, the man with the gold makes the rules to his advantage and then accuses those who cry foul of envy.