OK, I left out the best part

Just when you though it was safe to go...

[Ninth of an eight-part series. I know it is complicated but what part of tax law isn’t? The beginning is here]

Grave Robbing

To appreciate the utter horror of this subject, you might want to read about the difference between Stepped Basis and Carryover Basis at this link. Essentially, this is how the government makes sure that taxes are as certain as death by levying even more taxes on you after you are in the ground.

I am not making this up.

Remember your $100 that grew over 50 years to $7,452.70 because you did not sell it and pay capital gains taxes along the way? Remember that a significant portion of that $7,452.70 was inflation, which is not real earnings but is, itself, a tax. Part of your “gain” is just keeping up with the loss of purchase power from a government debasing the currency, printing up money to give to welfare recipients in return for votes. Under present law nearly all taxpayers “enjoy” a benefit from dying which is that capital gains taxes are forgiven at death. The heirs receive their inheritance at something called “basis” which is “stepped up” to market value at death. The heirs’ accrual of capital gain begins anew.

What could be better than parents leaving a legacy to their children? The essence of motherhood and apple pie, and your government is out to stop it.

This is NOT simple as you can learn at this link. Amending the tax law (which is presently being considered) to eliminate Stepped Up Basis in favor of Carryover Basis means the heirs inherit the $7,452.70 at a tax basis of $100, so capital gains tax is due on $7,352.70 when the heirs sell it. The capital gains tax rate is 30%; the top estate tax rate is 40%. I know, I know, one is deductible before calculating the other so it is not 30% + 40% = 70%. Still, together they are a HUGE portion of a taxable estate and constitute – yes, you guessed it – triple taxation of the same dollar.

Every day is Halloween for the Government.

Soak the Rich

I also know that Estate Tax is only due on large estates. The problem with that is twofold. One, the government is doing everything it can to keep people from becoming wealthy, so amassing a substantial estate gets harder and harder every day. Second, the amount of revenue generated from the Estate Tax is small when it only applies to a few large estates, so the inclination is to lower the exemption so the tax affects ever smaller estates to rope in people of more modest means.

You can only Eat the Rich so long as there are rich to eat.

The Bottom Line

Paraphrasing a Supreme Court Justice in a case 100 years ago, “The natural inclination of government is to expand until the last private property right is extinguished.” All politicians believe that property in private ownership is a Crime Against Humanity. They think all property belongs to the government. Government believes that property owners are just caretakers, holding property temporarily, waiting for it to be taxed or confiscated. Whatever it is you think you own, be prepared, the government is coming for it.

The reason societies collapse in an inflationary spiral is that producers stop producing. What remains is a substitution of the printing press for the productivity of citizens incentivized to deliver, leaving nothing of substance. Worthless paper dollars float around in ever-increasing amounts with nothing left to buy.

Half the country is afraid in ten days we are going to elect a fascist; the other half is afraid we are going to elect a socialist. One will destroy democracy, the other will destroy capitalism. We should all fear the election of either of them.

The reason we do not have a choice is that the economic consequences are the same regardless. All we are debating is the steepness of the decline.