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Tuesday, June 27, 2006


Just a clarification on the estate/inheritance tax aspect of what I said above, as this is a radical change with dramatic tax implications:

I propose the complete elimination of the estate tax. Taking the accumulated wealth of a person when they die (particularly just from "rich folks") is inherently unfair.

However, that accumulated wealth is going to be disposed of somehow, as per the wishes of the deceased. And to the beneficiaries, their transfers are direct income, which should be subject to taxation. Not an "inheritance tax" per se, because as I said all forms of income should be lumped together for tax purposes. But it would count as "inheritance income", subject to the normal tax rates that would apply to the beneficiary.

This has a few implications:

Non-cash assets that are inherited would not be considered income at the time of inheritance, and would not be directly subject to taxation. However, when the actual financial gain is realized (when the asset is sold) the profit from the sale would be "capital gains income" (again, subject to normal tax rates like all other income).

The "basis" for the asset, however, would be zero -- cost of acquisition to the owner at that point was nothing, as it was an inheritance. In other words, the full sale price of the asset would be considered capital gains. This too is a radical change from current taxation, since assets transferred are considered to have a new basis to the receiver of market value at the time of the transfer (or, in the past, a "carryover basis" from the original purchase of the asset on the part of the deceased). The net effect is that inherited assets would be taxed at a higher value than currently. However, again the assets would not be taxed until actual financial gain is realized.

It would be possible in this way for family heirlooms to be passed down for generations without being taxed, likewise family business interests or family farms. But at the time the owner converts the asset to cash, they'd pay tax on the full value.

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