Death and (estate) taxes

Ol' John D: Plenty left for the kids

There's an interesting story in the NY Times about a Texas billionaire whose entire estate will be passed along tax-free, thanks to a rather silly act of Congress. It's obviously a bit of a scandal that a guy worth $9 billion will pay no estate tax at all, but the really interesting tidbit was deep in the story:

The United States enacted an estate tax in 1916, and when John D. Rockefeller, America’s first billionaire, died in 1937, his estate paid 70 percent. Since then, the rates have fluctuated, but this is the first time the tax has been repealed altogether.

John D. Rockefeller's estate was taxed at 70 percent.

Of course, since the guy died with a couple of billion to his name, his kids had to make do with a paltry few hundred million -- and oh, how it crimped their lifestyles. I grew up about five miles from the Rockefeller estate in Pocantico Hills, New York, and I can tell you: The family owned 7,000 acres of pristine, beautiful land only 30 miles north of New York City. Chauffers drove the brothers, Nelson and David, to their offices every day. Security guards armed with salt guns patrolled the property to keep kids like me out. Nelson managed to get elected governor of New York and became vice-president of the United States (before dying of a heart attack while having sex with his secretary). David was the chairman of Chase Manhattan Bank. The brothers donated an original Chagall window to their tiny church in the nearby town, and bought their wives brand new Rolls Royces every year.

Their kids have managed to survive on the tiny remants of that fortune, too. And their kids' kids.

The point is, the 70 percent estate tax didn't wipe out John D. Rockefeller's wealth or harm his family's future. There was plenty left. That's the thing to remember when we talk about taxing the rich: They always wind up with plenty left.


So lets tax just the Rockefellers more? or do you have a list?

You need to define rich, there are so few families with the wealth of the Rockefellers. It is not them that people worry about. It is the families where they have accumulated a little wealth for their children that are worried about death taxes.

Take Bruce Brugmann, he has built an ok business, owns a little property, won a nice law lawsuit. But when he dies, your position is tax the fuck out of his family. After all they are parasites on society keeping their inherited money, for which they did little to earn, that money should be distributed to "poor" people.

Posted by Chris Pratt on Jun. 10, 2010 @ 12:43 pm

The vast majority of US estates are not taxed; you have to leave more than $3.5 million. I think there ought to be some exemptions for small businesses that continue to operate, and I'd happily make it more progressive -- that is, tax the $5 million estate at a much lower rate than the $50 million estate.

Posted by tim on Jun. 10, 2010 @ 1:47 pm

There is absolutely nothing wrong with an estate tax and today's is much lower than it was when originally enacted - and we have much greater concentrations of wealth as a result. Vast concentrations of wealth amongst a tiny percentage of the citizenry is neither healthy for our democracy nor wise for economy.

Posted by Lucretia Snapples on Jun. 10, 2010 @ 4:27 pm

The heirs of the Texas billionaire will not get away from paying taxes, and saying that they will is patently ignorant reporting. They will have to pay capital gains taxes on every investment Mr. Duncan had, instead of the step-up basis had there been an estate tax in place (i.e., stock inherited would have a cost basis at the time of death). Now if Mr. Duncan, let's say, had passed along a stock bought in 1960 for $1, and it appreciated to $1,000,000 today, the inheritor would have to pay capital gains on $999,999. And this will have to be calculated for every single investment, and property. It's not that anyone should feel sorry for the heirs, but saying they're getting out of paying any taxes is pure left-wing hogwash.

Posted by Zed on Jun. 10, 2010 @ 4:53 pm

Inheritance tax is paid by relatively few families, partly because of the high exemption and partly because it is easy to avoid with careful tax planning.

So if Tim argues for IHT it is not because it will make a significant difference to the Federal tax take. He knows that it won't.

It is because Tim just doesn't like successful people and wants to punish them. Notice the tone of the article. Tim doesn't talk about what to use the money from but only on how lovely it is to confiscate the wealth of others.

Class envy is alive and well, apparently.

Posted by Tom Foolery on Jun. 11, 2010 @ 3:50 am

The rich make their money off the backs of others. There is no reason not to have a hefty estate tax. The loopholes need to be closed as well. Then we need to slash the military budget.

Posted by Harry on Jun. 11, 2010 @ 7:50 am

Much of the Rockefeller fortune was already distributed to trusts, and so avoided the 70% marginal rate. That's the reason the heirs did so well, they were the beneficiaries of property they did not own for tax purposes. Same is true of the Kennedy fortune.

Posted by Estate planner on Jun. 11, 2010 @ 6:53 am

Theodore Roosevelt first proposed an inheritance tax to ensure that the United States did not repeat the excesses of the Gilded Age, when wealth was concentrated into the hands of a few families.

Roosevelt was right, and we are facing the same problems again today, when around 80% of the nation's assets area concentrated in the hands of 1% of the population...

...a band of TrustFundBabies (some of the hipster Trustafarians), clueless people, but rich and full of flighty influence (Bushes, Kennedys, etc).

Posted by Barton on Jun. 11, 2010 @ 7:58 am

Smart people die with no money. They give it to their families, friends, charities, whatever while they're alive. Then there's always the Leona Helmsley way of leaving everything to the dog.

Posted by Guest on Jun. 13, 2010 @ 12:59 pm

If Congress doesn't do anything for 2011, estate taxes will return with a vengence and everyone with over a $1 Million estate will be taxes up to 55%. While $1 Million sounds like a lot to really isn't!! If you worked all your life saving money, paying off house, and, heaven forbid, owing a little land (think of the farmers), won't take long for estate taxes to effect A LOT more Americans! I know that many will be forced to sell what their parents have worked for all their lives in order to pay estate taxes! The money was taxed when it was earned....why would anyone in the US want their Citizens to have to pay double taxation!! It is absured!!

Posted by Guest on Jun. 14, 2010 @ 7:41 am

First of all, the tax is only applied to amounts in excess of a certain base figure and does not apply to any amount left to a spouse. In 2005 that base amount was $1,500,000; from 2006 to 2008, it was $2,000,000; and in 2009, it was $3,500,000. Then the amounts over those base figures were taxed at somewhere (it varied slightly from year to year) around 45%. Even if someone dying in 2009 had, say, an estate of $4,000,000, the kids would still have gotten $3,325,000 as their inheritance. Not too shabby. As for farms and other small businesses, there were special provisions in place that reduced any taxes that were applied amounts above the base if the heirs committed to keeping them going for ten years.

So, stop with the whining about how hard-working people who have only $1 million wouldn't be able to leave just a little bit to their kids. In the future, there are several ways that the estate tax can be handled so that people with estates that would have at one point been considered large but are now relatively modest (for example, there's a big difference between the value of $1,000,000 in 1960 and 2010) aren't hurt by the tax. One is by the level that is set for the base amount below which there is no tax (perhaps once a suitable leve is set, it could be indexed for inflation). Another is to make the tax above the base level progressive.

Second, no, the heirs of the Texas billionaire are not subject to any capital gains tax (at least, not at the Federal level--don't know what Texas state taxes do). All the unrealized capital gains, including appreciation of real estate, art works, jewelry, etc., now pass totally untaxed to the heirs. They're going to get it ALL.

Thus, one reason to maintain an estate tax is to make sure that such gains are appropriately taxed. Another is to prevent the accumlation of vast wealth into fewer and fewer hands. If you don't think that wealth tends to build, try playing a game of Monopoly sometime. Without an estate tax, more and more of the tax burden falls on the middle class, while the TRULY rich laugh all the way to the bank, knowing that they have managed to completely fool so many people with their scare ads.

Posted by AnnaMae on Jun. 14, 2010 @ 10:57 am

Un, AnnaMae, talk about ill informed, you have it exactly wrong, with the repeal of the estate tax comes the repeal of the automatic step-up in basis. The step-up rule was made just so that both estate tax and capital gains tax would not have to be paid on top of each other. If there's one thing I can't stand it's a moron confident enough in their supposedly superior knowledge that they title their post "ill informed people". Next time, get your facts straight pror to posting.

Posted by DarrenTLB on Jun. 29, 2010 @ 6:30 pm

About an estate tax is that it prevents vast fortunes from being transferred down through the generations, encourages everyone (even the children of the rich) to actually get a job and work and discourages the creation of oligarchies. Bill Gates has famously said that he doesn't plan to leave a huge fortune to his kids; he wants them to earn their own way in the world. Of course, in the end, he'll leave them plenty, and none of Gates kids will actually ever have to work, and neither will their kids or their kids. But is that such a good thing for society?

Posted by tim on Jun. 14, 2010 @ 5:11 pm

What is your point? The Rockefeller estate pays 70% Death tax on money that was already taxed?

Disgusting. Someone who works their whole life and pays their fair share of taxes then upon their death ponies up another Billion +?! I thought we worked for the betterment of our own families and not for the crooked politicians in Washington who can't control themselves from spending our money unwisely.

If you are successful enough to leave a fortune it should no way go to the government. Set up trusts to bequeath your money to people and organizations where you want it to go.

I would love to see the writer of this article leave his complete fortune to the government and pay higher taxes along the way. Why bother leaving anything to your loved ones? The federal government knows just what to do with your fortune (insert sarcasm here)

Posted by Guest on Jun. 17, 2010 @ 2:36 pm