From: stever@crosstalk.tv.tek.com (Steven E. Rice  P.E.)
Newsgroups: alt.politics.clinton,alt.politics.democrats.d,alt.politics.elections,ba.politics,co.politics,ne.politics,nj.politics,or.politics,ny.politics,talk.politics.misc
Subject: Re: Inheritance taxes
Summary: The middle class winds up paying, as always!
Date: 13 Nov 92 18:51:29 GMT
Organization: Tektronix TV Products

In article <1992Nov6.012419.13792@tvnews.tv.tek.com>, I wrote:

>> Politicians champion inheritance taxes as a way to sock it to the rich.
>> In reality, it is the not-so-rich -- the middle class -- which pays the
>> bulk of estate and inheritance taxes.  (The United States has estate
>> taxes, which tax the estate of the deceased.  The United States does not
>> have inheritance taxes, which tax the heirs, instead.)

Andrew J. Lazarus (lazarus@ocf.berkeley.edu) didn't like that at all!  In
article <1dvbqnINN10a@agate.berkeley.edu>, he wrote:

> What definition are you using? The US Estate Tax does not kick in until
> AT LEAST $600K. With any type of decent estate planning this threshold
> can be raised significantly. Are millionaires middle class to you?

It is very easy for an ordinary citizen's estate to be over $600,000.
All it takes is a house, some life insurance, and some investments made
with retirement in mind.

You should be familiar with sky-high real estate prices there in the Bay
Area.  We bought our first house in the Portland (Oregon) area in 1975
for $28,500.  It had 3 bedrooms and was on a normal-sized (7,000 sq. ft.)
lot.  That Christmas, we visited in-laws in El Cerrito who own a modest
2-bedroom house with a handkerchief-sized yard.  While talking about
houses, my in-laws mentioned that their house was valued at $53,000!

House prices have more than doubled in our area since 1975, and probably
have tripled in the Bay Area (maybe more!).  So their tiny house would
become at least $150,000 in their estate.  In other parts of California,
3-bedroom houses have sold in the neighborhood of $300,000.  Thus, an
ordinary house (not a castle!) can use up a significant portion of the
estate tax exemption.

Life insurance also helps boost the value of an estate.  Myths to the
contrary, if you own insurance on your life, the benefits are taxed
as part of your estate.  Sure, you can set up an Irrevocable Life
Insurance Trust (ILIT) and avoid taxes, but do you know who does
that?  The rich!!  They are the ones who have accountants, tax advisors,
and lawyers on the string to exploit all these helpful dodges.  Five of
every six American adults don't even have wills -- how many do you
think have ILITs??

Finally, if you are going to retire, you need cash to pay the bills.
If you are married and had a good income, Social Security will pay
$1,500 a month or so, but that's unlikely to be enough.  If you earned
$40,000 per year the last few years you worked, financial planners will
tell you that you should have at least 70% of that amount ($28,000 per
year) to maintain your standard of living.  It you would like to travel,
you'll need more than that.

(Your pension, you say?  What pension?  If you built your own carpet
cleaning business, or were an independent contractor, or worked in an
unstable business where you were laid off and had to find a new job
every few years, you don't have a pension!)

To earn $28,000 - (12 * $1,500) = $10,000 per year, you will need
investments on the order of $350,000 to $500,000.  That sounds large,
but the historic value of money is in the range of 2% to 3%.  If you
are getting 10% interest, what you may not notice is that inflation
is running along at 5% or so, eating up the value of your principal.
So, if you want to keep eating, you'll have to leave some of the
interest in the account to add to the principal.  Over time, you
can only tap off 2% to 3% of the interest earned for living
expenses.

Would you like to be able to go into a nursing home without
impoverishing your husband or wife if you get Alzheimer's disease
or have a stroke?  You'll need an extra $20,000 to $25,000 a
year.  Better start early investing in growth stocks and such,
because you're going to need an extra $750,000 to $1 million 
invested to generate enough cash to pay the bills.  (Of course,
you can always ignore your responsibilities.  Then, after your
spouse is left destitute, the taxpayers will pick up the bill
for your nursing home care!  We'll also be stuck providing food
stamps and health care for your spouse.)

In addition to a house, life insurance, and investments, many people
have other assets.  If you own a fairly new car, it adds $5,000 to
$30,000 or more to your estate.  Do you own a recreational vehicle
(*lots* of older folks do!)?  If so, that will add $50,000 or more
to your estate.  Do you have a collection of glassware your mother
willed to you?  That adds to the value of your estate.  Did you
buy a new couch recently?  That adds to the value of your estate.

It's *easy* for someone whose salary never broke $50,000 to have an
estate of a million or more, even though they couldn't lay their
hands on a third of that amount while they are alive.  It will be
even easier in the future, since the $600,000 exemption is (as far
as I know) not indexed for inflation.  With inflation running at
just 3% a year, the cost of living will double in less than 25
years -- effectively, the $600,000 exemption will have become
a $300,000 exemption.  And do you really believe that inflation
will stay that low???

Again, let me point out the difference between ordinary people and
the rich.  Ordinary people own things.  Whey they die, Uncle Sam
and the states step in and grab what they want (the governmental
equivalent of stealing an accident victim's wallet).  But the
rich don't bother owning things.  They know that what really counts
is *control*.  They use undying entities (like tax-exempt
foundations) to hold ownership of vast wealth.  All the rich
retain is *control* of the wealth, through foundation directorships
and such.  And *control* isn't taxed.

When Nelson Rockefeller died, his estate was originally said to be
worth about $700,000.  This was so ludicrous that it was a joke all
over America.  So the accountants got busy and "found" some
additional assets that he "owned."  This charade boosted the value
of his estate all the way up to about $2.5 million, and taxes were
duly paid.  But Nelson Rockefeller *controlled* assets worth billions
during his life!  Since he didn't own them, he wasn't taxed on them.

Isn't it nice that our tax laws make life so comforatable for the
rich?  Oh, and by the way: you and I -- working people -- pay the
taxes for those who are rich enough that they don't have to own
things to control them.

> PS Inheritance taxes go back to at least feudal times--in fact, the
> right to inherit was not automatic.

It depends on what you use as your model.  The Old Testament record
details very explicit laws of inheritance among the twelve tribes
of Israel, which date to at least 1200 B.C.  In Israel, the right
to inherit was automatic.  In fact, women were allowed to inherit
under some circumstances (otherwise unknown at that time).

					Steve Rice

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* Every knee shall bow, and every tongue confess that Jesus Christ is Lord! *
stever@tv.tv.Tek.com                                   [phone (503) 627-1320]
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