The bubble finally deflating. not bursting.............

[Harry Lime]

I'm just curious, but would the estate tax that they have in the states (mentioned above to not take effect at amounts under 5.5M) have any effect on anyone currently arguing in this forum? If they set a Canadian estate tax at a 10M exemption, would anyone here care on a practical level?

I kind of get, scanning the later part of this thread, that this is a philosophical question being argued and anyone benefiting from the 'estate tax is bad' side don't actually have a horse in this race anyway.

Is anyone here arguing against their own self interest on the basis of taking some economics classes at university?

[Kjesse]

I'm not sure why someone would need a horse in the race to make the argument. Its about the reach of government and the ownership of private property. That should matter to everyone, rich or poor.

[Harry Lime]

Because this argument has a strong personal effect on everyone living in this country. The side that argues against an estate tax is essentially arguing on behalf of a small percentage of the population.

I'm just wondering if some very intelligent and influential people on this forum are taking a position that is self damaging because of a certain political bent, or because they enjoy the argument itself.

I don't see this as being about the reach of government, or ownership of property at all. Is there a number that would make both sides happy, as opposed to a black and white argument? How about a 20M exemption? That should be enough of a leg up for any child of the privileged few.

And they would still get a large portion of the taxed amount as well.

Is this an all or nothing argument? I kind of feel that the cross section of CP users can solve this issue in one day where it would take years or decades for our elected officials.

[Harry Lime]

Once you take all of the bells and whistles off of it, isn't it a question of money, period?

Is 25M plus 70 percent enough for a kid to live off of? For the 0.1 percent of the population that would effect?

What's the right number? Because I would tend to think that zero is the wrong number, unless we want a dystopian future because the movies tend to be cool.

[Harry Lime]

I get the argument that you guys are making. I really do. But like many decisions circling economics, they are based on the ideal and not the reality.

You will never make enough money to this to effect you, under the current system.
Your kids will never make enough money for this to effect them.
Ever.

Why not fight for yourselves?

[V]

Because the dream is still alive and maybe one day I'll be worth 30m. Fingers crossed!!

[Enoch Root]

Originally Posted by Harry Lime

Because this argument has a strong personal effect on everyone living in this country. The side that argues against an estate tax is essentially arguing on behalf of a small percentage of the population.

I'm just wondering if some very intelligent and influential people on this forum are taking a position that is self damaging because of a certain political bent, or because they enjoy the argument itself.

I don't see this as being about the reach of government, or ownership of property at all. Is there a number that would make both sides happy, as opposed to a black and white argument? How about a 20M exemption? That should be enough of a leg up for any child of the privileged few.

And they would still get a large portion of the taxed amount as well.

Is this an all or nothing argument? I kind of feel that the cross section of CP users can solve this issue in one day where it would take years or decades for our elected officials.

You are working from the assumption that an estate tax is good, and thus are concluding - from that view - that anyone arguing against it is arguing against their own best interests.

I think that is a very incorrect premise and assumption on your part.

And to answer your other question, as someone who does estate planning for very high net worth individuals, I have a lot more personal experience and knowledge of the issues than simply an academic debate.

It isn't an argument just for a small portion of the population, it is a question about maximizing utility.

And with respect to drawing a line somewhere, where do you draw it? What is the number that says 'you have more than enough, so we are going to double tax you'? (hint: the personal answer to that, for almost everyone, is anything more than I have).

And two things happen when you set a level like that (say, taxing anything over $10M or whatever). First, it then becomes very easy for the government of the day to lower the number (and it is politically impossible to raise the number). And second, inflation reduces that number annually.

The moment you start, you are heading down a slippery slope. So yeah, it kind of is an absolute question. Because an estate tax doesn't really punish the ultra-wealthy, it punishes the successful middle class, because they are less able to plan (and also because slapping an additional tax on $5 or $10M significantly changes that family's wealth, but someone with 9 or 10 digits probably has it all sheltered anyway.

[Enoch Root]

Originally Posted by Harry Lime

I get the argument that you guys are making. I really do. But like many decisions circling economics, they are based on the ideal and not the reality.

You will never make enough money to this to effect you, under the current system.
Your kids will never make enough money for this to effect them.
Ever.

Why not fight for yourselves?

You are making an incorrect assumption here.

Also, we are entering an era where people are going to start to live considerably longer. And the idea of retirement will change from not working to not having to work, but still working to remain active.

And that will mean that much greater numbers of people are going to be accumulating more than $5M (often much more).

This is not an academic debate vs we should look out for ourselves. This is a real issue with real consequences for the economy, and how people save for themselves and their families.

[jayswin]

Originally Posted by Enoch Root

You are making an incorrect assumption here.

Also, we are entering an era where people are going to start to live considerably longer. And the idea of retirement will change from not working to not having to work, but still working to remain active.

I would argue the opposite. What we'll actually see is not the majority of people working to remain active but the majority of people having to work because they haven't properly prepared for retirement at any age, let alone 25-40 years of being a "senior".

[Enoch Root]

Originally Posted by jayswin

I would argue the opposite. What we'll actually see is not the majority of people working to remain active but the majority of people having to work because they haven't properly prepared for retirement at any age, let alone 25-40 years of being a "senior".

It's not an opposite. We'll see both. And I didn't argue the majority, I argued a significantly growing number. (which is indisputable)

[Locke]

Originally Posted by Enoch Root

You are making an incorrect assumption here.

Also, we are entering an era where people are going to start to live considerably longer. And the idea of retirement will change from not working to not having to work, but still working to remain active.

And that will mean that much greater numbers of people are going to be accumulating more than $5M (often much more).

This is not an academic debate vs we should look out for ourselves. This is a real issue with real consequences for the economy, and how people save for themselves and their families.

Yeah, I'd be interested in hearing your perspective on this because in my experience people are getting to 'retirement age' and then start collecting their CPP and OAS and realize:

"Oh what? I cant retire on this."

Because they may not own their own homes outright or they dont have their own RRSPs or various other retirement savings methods.

And at the same time, part of what sparked the Estate Tax debate is the fact that CPP and OAS are not magic, they are pension funds and the current generation drawing from those funds are drawing significantly more than they contributed, this is what makes most modern pension funds a Ponzi scheme, they constantly have to find new suckers to contribute to pay the old suckers who are collecting.

How about turning the discussion on its head somewhat and coming back at the original point?

How would you feel about, instead of an Estate Tax, a requirement for full financial holdings disclosure and anyone who has a net worth at retirement (65) in excess of $1M becomes ineligible for CPP and OAS regardless of their lifetime contributions?

It would help alleviate strain on the pension fund and yet doesnt adversely effect those who need it.

[Enoch Root]

Originally Posted by jayswin

I would argue the opposite. What we'll actually see is not the majority of people working to remain active but the majority of people having to work because they haven't properly prepared for retirement at any age, let alone 25-40 years of being a "senior".

Also, the way to improve this situation isn't to double tax savings (and thus disincentivise people from saving), it is to encourage savings.

The TFSA was a step in the right direction - encouraging more savings.

Some countries (such as Australia) mandate that people must save X percent of their income. This is a good idea that Canada should adopt. Disincentivising is the absolute wrong thing to do.

[Enoch Root]

Originally Posted by Locke

Yeah, I'd be interested in hearing your perspective on this because in my experience people are getting to 'retirement age' and then start collecting their CPP and OAS and realize:

"Oh what? I cant retire on this."

Because they may not own their own homes outright or they dont have their own RRSPs or various other retirement savings methods.

And at the same time, part of what sparked the Estate Tax debate is the fact that CPP and OAS are not magic, they are pension funds and the current generation drawing from those funds are drawing significantly more than they contributed, this is what makes most modern pension funds a Ponzi scheme, they constantly have to find new suckers to contribute to pay the old suckers who are collecting.

How about turning the discussion on its head somewhat and coming back at the original point?

How would you feel about, instead of an Estate Tax, a requirement for full financial holdings disclosure and anyone who has a net worth at retirement (65) in excess of $1M becomes ineligible for CPP and OAS regardless of their lifetime contributions?

It would help alleviate strain on the pension fund and yet doesnt adversely effect those who need it.

That is an interesting one. Personally, I don't have a problem with having people not qualify if they exceed some limits. The question again, is what should the limit be? I don't think you can base it on net assets - a million is not much for a couple facing 40 years of retirement for example.

I think you would have to base it on income - if your income is greater than X, then you wouldn't qualify for OAS and CPP (that year, making it an annual test).

To me, this is a better route to go, because, instead of taxing savings (estate tax), it reduces pressure on the social safety net.

Also, what if someone's savings disappeared? If you based it on assets, and turn them off, they might be screwed at some point.

But if you base it on income, if they lose their savings, then their income would drop and they would requalify.

[Locke]

Originally Posted by Enoch Root

That is an interesting one. Personally, I don't have a problem with having people not qualify if they exceed some limits. The question again, is what should the limit be? I don't think you can base it on net assets - a million is not much for a couple facing 40 years of retirement for example.

I think you would have to base it on income - if your income is greater than X, then you wouldn't qualify for OAS and CPP (that year, making it an annual test).

To me, this is a better route to go, because, instead of taxing savings (estate tax), it reduces pressure on the social safety net.

Also, what if someone's savings disappeared? If you based it on assets, and turn they off, they might be screwed at some point.

But if you base it on income, if they lose their savings, then their income would drop and they would requalify.

Thats the interesting thing, OAS has that test in the form of a Clawback, but the problem is that people can choose to pull CPP and OAS first and then determine how much to take out of their own savings. So they maximize the Government benefits first and then determine how much they've got to kick in out of their own money to make ends meet.

That does not solve the problem.

My sort of off-the-cuff proposal was to try and reverse the order.

At the end of the day though, all of these thoughts and ideas end in the same way. We are effectively conspiring to create different classes of citizens whereas an Estate Tax would just set limits and restrictions.

[Enoch Root]

Originally Posted by Locke

Thats the interesting thing, OAS has that test in the form of a Clawback, but the problem is that people can choose to pull CPP and OAS first and then determine how much to take out of their own savings. So they maximize the Government benefits first and then determine how much they've got to kick in out of their own money to make ends meet.

That does not solve the problem.

My sort of off-the-cuff proposal was to try and reverse the order.

At the end of the day though, all of these thoughts and ideas end in the same way. We are effectively conspiring to create different classes of citizens whereas an Estate Tax would just set limits and restrictions.

No we're not, they exist already.

Most social programs work on a declining qualification basis as income rises. There is no reason why that isn't possible for CPP as well.

It helps alleviate the problem you are concerned about (CPP is underfunded and increasingly unsupportable), whereas re-taxing savings simply punishes those that saved, as opposed to addressing the actual problems of the system.

When not enough people are saving (or can't afford to save), you don't solve the problem by punishing the savers - you try to create more savers and more savings to alleviate the problem. Again, making savings mandatory, like Australia does, is a step in the right direction. Punishing the savers is not.

[jammies]

Originally Posted by Enoch Root

What is the number that says 'you have more than enough, so we are going to double tax you'?

I'm not really sure one way or the other on whether estate taxes are a good idea, but this argument is specious. You're dead, you're not getting double-taxed, your heirs are affected by the tax, not "you". Your estate is also not "you", forestalling that argument as well. "You" have ceased to exist.

Of course, it sounds better if you can yelp about getting double-taxed, but what's really happening is a financial transaction moving wealth from one entity to one or more others. Like selling goods, or paying employees, or getting paid, or the numerous other financial transactions the gov't takes a cut on. Arguments on the basis of whether it's economically advantageous or not are valid, arguments based on a false appeal to emotion are worthless.

[Enoch Root]

Originally Posted by jammies

I'm not really sure one way or the other on whether estate taxes are a good idea, but this argument is specious. You're dead, you're not getting double-taxed, your heirs are affected by the tax, not "you". Your estate is also not "you", forestalling that argument as well. "You" have ceased to exist.

Of course, it sounds better if you can yelp about getting double-taxed, but what's really happening is a financial transaction moving wealth from one entity to one or more others. Like selling goods, or paying employees, or getting paid, or the numerous other financial transactions the gov't takes a cut on. Arguments on the basis of whether it's economically advantageous or not are valid, arguments based on a false appeal to emotion are worthless.

The trasference from one entity to another is already being taxed (excluding the spousal rollover, which only delays the process).

That is why it is called double taxation. The deceased's estate is taxed on a deemed disposition. Taxing the estate again, because 'taxes' is no different than taxing savings at any other time. It is a random tax grab.

Your complaint of my post is mere semantics - I could have taken the time to write 'estate' instead of 'you' on several occasions, but it changes nothing.

[opendoor]

It's worth noting the differences in how capital gains are applied at death in the US compared to Canada. In Canada, when a person dies any capital gains they've earned are payable on their final tax return. So if they bought stock for $10K and it was worth $100K when they die their estate is liable for the $90K capital gain. In the US though, when a person dies most assets have their cost basis "stepped up" to the fair market value at the time of their death. The result is that little or no capital gains are owed by the estate or the heirs (unless they hold onto it and realize their own gains).

And that holds true for a lot of jurisdictions around the world. Places that don't have inheritance or estate taxes tend to tax gains at the time of death, whereas places that do have inheritance taxes either don't tax capital gains at death or inherited property is exempted from capital gains tax.

[Enoch Root]

As opendoor illustrates, suggesting that estates should be taxed simply shows a lack of understanding that they already are - in the sense that 'death' is taxed.

[afc wimbledon]

In the UK estate tax is seen as the only tax that applies solely to the poor, well that and lottery tickets, it's a nice idea in theory but in practise the rich avoid it with ease where as the middle class and lower lose the meager assets they have accrued.

In practise it increases the gap between the rich and the poor massively.