Reply to What really needs to be fixed in the tax code?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Eliminate ALL deductions and exemptions.  Institute a flat % tax.[/quote]

Flat tax should have the first 25k or whatever exempted to allow the working poor to have a chance.

Flat tax would need to cover all current taxes: estate, dividends, etc.[/quote]

I ask about estate tax, because some people think estates shouldn’t have a tax. (Yes usually the ultra rich ha ha.) But it may be a matter of principal, the idea that the money has already been taxed. (Unless it is from a foreign relative!)

I don’t want to get this sidetracked, but what do we all think?[/quote]

The Republican plan now eliminates the estate tax but keeps the stepped-up basis, meaning most wealth was never taxed and never will be.

Most large wealth is from capital gains from stock, not from income that is taxed. Capital gains are taxed only when sold. You pay tax on the difference between the price you paid and the price you sell it at.

Bill Gates, for example, has very little taxes as his wealth is from the appreciation of Microsoft stock from a basis of essentially $0 to tens of billions today. He's now worth $90 billion. He has only ever paid income tax on relatively modest dividends and salary. If he sold it all today, he'd owe 15% of $90B, or $13.5B in taxes. But it he died today and left it to his children who sold it the next day, they'd owe $0 in taxes because their basis is the value as of the date of death of the person who left it to them. So now, not only was the $90B in gains never taxed to Gates, it will never be taxable to his children.

In essence, there is no "double taxation" with an estate tax for most large estates. Actors and athletes get their huge fortunes through taxable wages, but most uber-rich got it through stock gains that were never taxed and under the GOP plan never will be.

The only sensible thing to do if eliminating the estate tax is to eliminate the stepped-up basis on death so that if Gates children sell the stock after his death, they pay the same tax on the same $90B gain as he would if he'd sold it while alive. But the record-keeping on this would be very hard--for most assets, it's easier to establish FMV as of the date of death rather than what a now-dead person paid for it eons ago.[/quote]

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