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> Tax advantages are another reason. The high taxes on assets in France and the inheritance tax in the U.S. prevent the accumulation of capital necessary for th

by polmuz 9y ago

> Tax advantages are another reason. The high taxes on assets in France and the inheritance tax in the U.S. prevent the accumulation of capital necessary for the formation of a strong mid-sized sector. Really? How?

mbid 9y ago
I've heard the argument that, with high inheritance taxes, the heir of a family-owned company has to sell parts or all of the business in order to pay the tax. I don't know enough about the issue to say whether there is some truth to it.
- ChefDenominator 9y ago
  The one direct exposure I have had to the issue of inheritance tax was with a small Midwest-based distributor. The owner was very old and wanted to pass the company to his daughters, who had actually been running the business for decades (and when I came along, his granddaughters were working the office). His issue was that what the government decided his business to be worth could only be paid with more cash than his business generated in 5 years. This meant that his heirs would have to mortgage their shares to cover the inheritance tax, which places ownership into a different category of investment.
  - dmckeon 9y ago
    The owner could have gifted a small interest in the company to each daughter, grand-daughter, and perhaps their spouses in each year of those decades, letting subsequent value growth and inflation accrue to the surviving family members. And also, perhaps transformed the company ownership structure into a limited partnership as well, claiming a lower market value for the shares owned by limited partners. tl;dr: First rule of US estate planning: Die broke.
    - ChefDenominator 9y ago
      I asked the same question, and his response was, "do you really think the government hasn't thought of that already?"
      - dmckeon 9y ago
        Well, the government has thought of it, and, at this point, appears to think it is legal. Look up "family limited partnership" or see: http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=1104&context=elders http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?art... https://www.forbes.com/sites/brianluster/2014/03/18/why-forming-a-family-limited-partnership-means-less-stress-at-tax-time/#8658aa8658aa https://www.forbes.com/sites/brianluster/2014/03/18/why-form... Note especially the discount from fair market value for shares of interest in an FLP. [usual disclaimers - not a lawyer, not legal advice, see a qualified professional in your jurisdiction, etc.] The problem with tax/estate planning is the same problem as insurance - the time when you really want to have done it is often the time when it is too late to get it. (e.g., founder/owner is dying, building is flooding or on fire, etc.).
    - shermanyo 9y ago
      This is exactly what should have been done, but requires a longer term commitment, as well as releasing _some_ control while still alive. (both of which I think are a good thing in context)
  - kspaans 9y ago
    That sounds like a failure of tax & estate planning. If you wait until you are very old to give away your assets you are putting yourself in the pay-the-most-inheritance-tax position. If the daughters had been running the business for decades already, they would have had lots of time to shift the ownership. This isn't an argument against inheritance tax, it's an argument for better education about personal finances.
    - ChefDenominator 9y ago
      Yes, the primary focus of a business owner must be on tax planning, because this generates efficient operations, undoubtedly. Also, laws change all of the time. My impression, every time I dig down with real people, IRL, is they have the same general opinion as you and others like you here, but have no actual exposure to the actual laws, as they implemented. The only occasion I come across this and I see that the business owner, with a small team tax attorneys and CPAs, can't seem to spend enough money to escape huge taxes. I can only assume that the business owner is clueless and the Internet anons are the experts he should have hired.
      - beagle3 9y ago
        Actually, a primary focus of a business owner must be on tax planning, because (assuming a successful business) it is going to be their largest expense by far. Unfortunately, the way tax laws are applied usually makes it impossible to apply in retrospect - you have to build it into the business structure from before day 1; and often the non-monetary cost is prohibitive -- e.g., you can reduce your tax burden by 70% by moving to a different state / country. As a successful business owner, tax is going to be one of your largest expenses. Makes sense to a major optimization target.
    - mbid 9y ago
      So you're saying it this is not an example against inheritance tax because the family could've used loopholes in the legislation to circumvent paying the tax?
      - deleted 9y ago
- samfisher83 9y ago
  If they sell it other investors are buying it so I don't get this argument.
  - gonvaled 9y ago
    Huh? The buyer would not pay inheritance tax, the seller would, with the proceedimgs from the sell.
  - colefichter 9y ago
    I think the idea is that capital gets broken up into smaller chunks. When we're talking about creating middle-class manufacturing jobs, you obviously need to build, say, a factory to create those jobs. That factory requires a very large investment of capital, which becomes less likely when you start breaking up large estates. I've no idea if it actually plays out this way in the real world, but that seems to be implication here.
crdoconnor 9y ago
This is basically the same theory as trickle down economics. I thought Harvard wouldn't be pushing that any more.
- ChefDenominator 9y ago
  There is no actual theory of trickle down economics. This is a derogatory term used as a distraction from discussing real economics.
  - darpa_escapee 9y ago
    Colloquial use of theory usually means concept or hypothesis.
    - ChefDenominator 9y ago
      Okay, there is no formal concept or hypothesis of trickle down economics. (However, most PhD economists use the phrase "economic theory," but you may have some insight into this that they have not yet been exposed to.)
      - defterGoose 9y ago
        Sure there is. The concept is that if you allow the richest to keep all their riches, they will spend it on things which will stimulate the rest of the economy. Of course, this has proven to be a seriously misguided theory, with the actual results being a lack of consumer spending and concentration of wealth to the wealthy. Is that succinct enough for you? Now, whether a bonafide economist came up with this, or RR just pulled it out of his butt is another question...
        ChefDenominator 9y ago
        This is not a description of a formalized theory, but thanks for playing.
  - 9y ago
pm90 9y ago
Yeah this sounds like a bunch of baloney. Inheritance continues to be the most likely way for people to get rich in both the US and France, and the tax is nowhere near the amount that would cause a serious dent in the assets being inherited.
philiphodgen 9y ago
In fact Germany has an inheritance tax.
- germanier 9y ago
  With significant privileges for family-owned companies.
deleted 9y ago
[deleted]
zackmorris 9y ago
Ya this is propaganda (inheritance taxes affect mainly the very wealthy, not the lower and middle classes). Germany's real secret is that labor still has voting rights within corporations: https://en.wikipedia.org/wiki/Codetermination_in_Germany https://en.wikipedia.org/wiki/Codetermination_in_Germany And actually if you look at the history of the United States, the civil rights movement depended on a strong labor sector. They don’t teach this in schools, but Martin Luther King, Jr was a threat to the establishment more for his emphasis on unifying workers than for breaking down racial barriers: https://www.theatlantic.com/entertainment/archive/2011/02/all-labor-has-dignity-martin-luther-king-jrs-fight-for-economic-justice/71423/ https://www.theatlantic.com/entertainment/archive/2011/02/al... The labor movements between WWII and Ronald Reagan’s election led to the US becoming the largest industrial superpower in the world, with some of the highest per capita incomes. The loss of unions and the decline of worker’s rights in the US (and accompanying stagnation of wages post-2000) coincide exactly with the loss of civil rights as we’ve moved to a more authoritarian society. Things like the loss of habeas corpus under GW Bush and Obama just blow my mind, and I think if the electorate knew what was really going on they would not elect the people they do. But they don’t, that’s why capitalists have traditionally pushed for the privatization of public schools and funding propaganda (infotainment) to preserve the echo chamber. The more striated, divided and polarized a society is, the more wealth can be concentrated in fewer hands. Older nations like Germany have a better handle on this because they’ve seen it repeated in history so many times and are more aware of the dangers of unilateral thinking and monarchy. Inclusivity has paid off handsomely for them.

by polmuz 9y ago

mbid 9y ago

I've heard the argument that, with high inheritance taxes, the heir of a family-owned company has to sell parts or all of the business in order to pay the tax. I don't know enough about the issue to say whether there is some truth to it.

ChefDenominator 9y ago
The one direct exposure I have had to the issue of inheritance tax was with a small Midwest-based distributor. The owner was very old and wanted to pass the company to his daughters, who had actually been running the business for decades (and when I came along, his granddaughters were working the office). His issue was that what the government decided his business to be worth could only be paid with more cash than his business generated in 5 years. This meant that his heirs would have to mortgage their shares to cover the inheritance tax, which places ownership into a different category of investment.
- dmckeon 9y ago
  The owner could have gifted a small interest in the company to each daughter, grand-daughter, and perhaps their spouses in each year of those decades, letting subsequent value growth and inflation accrue to the surviving family members. And also, perhaps transformed the company ownership structure into a limited partnership as well, claiming a lower market value for the shares owned by limited partners. tl;dr: First rule of US estate planning: Die broke.
  - ChefDenominator 9y ago
    I asked the same question, and his response was, "do you really think the government hasn't thought of that already?"
    - dmckeon 9y ago
      Well, the government has thought of it, and, at this point, appears to think it is legal. Look up "family limited partnership" or see: http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=1104&context=elders http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?art... https://www.forbes.com/sites/brianluster/2014/03/18/why-forming-a-family-limited-partnership-means-less-stress-at-tax-time/#8658aa8658aa https://www.forbes.com/sites/brianluster/2014/03/18/why-form... Note especially the discount from fair market value for shares of interest in an FLP. [usual disclaimers - not a lawyer, not legal advice, see a qualified professional in your jurisdiction, etc.] The problem with tax/estate planning is the same problem as insurance - the time when you really want to have done it is often the time when it is too late to get it. (e.g., founder/owner is dying, building is flooding or on fire, etc.).
  - shermanyo 9y ago
    This is exactly what should have been done, but requires a longer term commitment, as well as releasing _some_ control while still alive. (both of which I think are a good thing in context)
- kspaans 9y ago
  That sounds like a failure of tax & estate planning. If you wait until you are very old to give away your assets you are putting yourself in the pay-the-most-inheritance-tax position. If the daughters had been running the business for decades already, they would have had lots of time to shift the ownership. This isn't an argument against inheritance tax, it's an argument for better education about personal finances.
  - ChefDenominator 9y ago
    Yes, the primary focus of a business owner must be on tax planning, because this generates efficient operations, undoubtedly. Also, laws change all of the time. My impression, every time I dig down with real people, IRL, is they have the same general opinion as you and others like you here, but have no actual exposure to the actual laws, as they implemented. The only occasion I come across this and I see that the business owner, with a small team tax attorneys and CPAs, can't seem to spend enough money to escape huge taxes. I can only assume that the business owner is clueless and the Internet anons are the experts he should have hired.
    - beagle3 9y ago
      Actually, a primary focus of a business owner must be on tax planning, because (assuming a successful business) it is going to be their largest expense by far. Unfortunately, the way tax laws are applied usually makes it impossible to apply in retrospect - you have to build it into the business structure from before day 1; and often the non-monetary cost is prohibitive -- e.g., you can reduce your tax burden by 70% by moving to a different state / country. As a successful business owner, tax is going to be one of your largest expenses. Makes sense to a major optimization target.
  - mbid 9y ago
    So you're saying it this is not an example against inheritance tax because the family could've used loopholes in the legislation to circumvent paying the tax?
    - deleted 9y ago
samfisher83 9y ago
If they sell it other investors are buying it so I don't get this argument.
- gonvaled 9y ago
  Huh? The buyer would not pay inheritance tax, the seller would, with the proceedimgs from the sell.
- colefichter 9y ago
  I think the idea is that capital gets broken up into smaller chunks. When we're talking about creating middle-class manufacturing jobs, you obviously need to build, say, a factory to create those jobs. That factory requires a very large investment of capital, which becomes less likely when you start breaking up large estates. I've no idea if it actually plays out this way in the real world, but that seems to be implication here.

crdoconnor 9y ago

This is basically the same theory as trickle down economics. I thought Harvard wouldn't be pushing that any more.

ChefDenominator 9y ago
There is no actual theory of trickle down economics. This is a derogatory term used as a distraction from discussing real economics.
- darpa_escapee 9y ago
  Colloquial use of theory usually means concept or hypothesis.
  - ChefDenominator 9y ago
    Okay, there is no formal concept or hypothesis of trickle down economics. (However, most PhD economists use the phrase "economic theory," but you may have some insight into this that they have not yet been exposed to.)
    - defterGoose 9y ago
      Sure there is. The concept is that if you allow the richest to keep all their riches, they will spend it on things which will stimulate the rest of the economy. Of course, this has proven to be a seriously misguided theory, with the actual results being a lack of consumer spending and concentration of wealth to the wealthy. Is that succinct enough for you? Now, whether a bonafide economist came up with this, or RR just pulled it out of his butt is another question...
      - ChefDenominator 9y ago
        This is not a description of a formalized theory, but thanks for playing.
- 9y ago

pm90 9y ago

Yeah this sounds like a bunch of baloney. Inheritance continues to be the most likely way for people to get rich in both the US and France, and the tax is nowhere near the amount that would cause a serious dent in the assets being inherited.

philiphodgen 9y ago

In fact Germany has an inheritance tax.

germanier 9y ago
With significant privileges for family-owned companies.

deleted 9y ago

[deleted]

zackmorris 9y ago

Ya this is propaganda (inheritance taxes affect mainly the very wealthy, not the lower and middle classes). Germany's real secret is that labor still has voting rights within corporations: https://en.wikipedia.org/wiki/Codetermination_in_Germany https://en.wikipedia.org/wiki/Codetermination_in_Germany And actually if you look at the history of the United States, the civil rights movement depended on a strong labor sector. They don’t teach this in schools, but Martin Luther King, Jr was a threat to the establishment more for his emphasis on unifying workers than for breaking down racial barriers: https://www.theatlantic.com/entertainment/archive/2011/02/all-labor-has-dignity-martin-luther-king-jrs-fight-for-economic-justice/71423/ https://www.theatlantic.com/entertainment/archive/2011/02/al... The labor movements between WWII and Ronald Reagan’s election led to the US becoming the largest industrial superpower in the world, with some of the highest per capita incomes. The loss of unions and the decline of worker’s rights in the US (and accompanying stagnation of wages post-2000) coincide exactly with the loss of civil rights as we’ve moved to a more authoritarian society. Things like the loss of habeas corpus under GW Bush and Obama just blow my mind, and I think if the electorate knew what was really going on they would not elect the people they do. But they don’t, that’s why capitalists have traditionally pushed for the privatization of public schools and funding propaganda (infotainment) to preserve the echo chamber. The more striated, divided and polarized a society is, the more wealth can be concentrated in fewer hands. Older nations like Germany have a better handle on this because they’ve seen it repeated in history so many times and are more aware of the dangers of unilateral thinking and monarchy. Inclusivity has paid off handsomely for them.