Alan Blinder wants to solve the nation's deficit/debt issues by taxing the rich. It is interesting that in his Wall Street Journal article of September 26, 2021, he says nothing about raising the income tax rate on the rich but prefers to raise revenues with something called carried interest and constructive realization of capital gains at death. I will hold off on carried interest. Today is about capital gains at death.
Apparently Blinder read something about the inevitability of death and taxes. More specifically he wants to tax rich people on unrealized capital gains but only after they die. It is common in economic models to make no distinction between family members. A family is often assumed to act like a single person. In such models, so long as there are heirs, there is no change in tax liability. It makes sense, your parents earned the money and now you get to enjoy the benefits after they croak.
Blinder wants to change that. If they had sold assets before death, they would have had to pay a capital gain. Lots of us do that. But if they didn't sell, then they must have had a good reason not to sell. But Blinder does not care about that reason. To Blinder dying is tantamount to selling. You gave your assets to one of your brats. There was never a sale. So there is no capital gain. There is no tax. Blinder is envious. He wants some of the action on your money that you saved and left for your family.
Maybe you don't agree. Y0u believe those rich devils should share their wealth. You might believe those bratty kids never did anything to deserve all those tax-free benefits. But it doesn't make sense. Blinder wants to tax a transaction that never existed. He looks at the price Daddy paid in 1946 and compares that to the assets' prices upon death. Sounds pretty cool until you realize that the asset was not sold upon death and never generated a penny for the brats. Not a penny. The heirs have some paper financial assets but nothing else. Of course, if they earn interest and dividends or they sell, they will pay taxes on that.
Just for fun let's suppose the asset cost $100.00 in 1946, $1,000.00 at death, and then $99.00 a week after the death. Hmmm. If the child held the asset for one week, the asset would be worth $99.00 and would generate a capital loss. Why would you want to pay a huge capital gain at death when the value of the asset produced a loss? That doesn't seem correct or fair. True, a contrived example. But also true that death does not create a transaction and death distorts what the heir should pay.
Why didn't Blinder require that the heirs sell the asset? In that way, we would have a real economic value for the capital gain/loss. In that way, the heir would actually have a capital gain/loss and the tax would make sense. Blinder must be assuming that the heir has a right to do as he/she pleases with inherited assets. He doesn't want to interfere with the heir's right to use the asset but he does want to take a capital gains tax on a fictional gain number.
Which is it Mr Blinder? Does the heir own the asset or do you?
Dear LSD. A-h-h-h-h-h, Al Blinder . . . yer fav piñata. It’s clear you wuv to take a swing at’m whenever he proffers you the opportunity. It’s like Mickey Mouse lust’n after Minnie hold’n that nice ole hunk of swiss cheese. Too invit’n to pass up.
ReplyDeleteFew, if any, weally weally unnerstand the twue inner woikings and hidden mechanisms of the arcane tax code. Me thinkz that even de “knowledgeable” financial talk’n headz won’t be able to make sense of wut Blinder’s yak’n about such that the “everyday” Joe the Plummer can unnerstand it. Me thinkz an easier (but more pernicious) thing for the Joe the Plummerz to unnerstand is Komrad Yellen’s proposal for the IRS to have access to check’n accounts’ transactions exceeding $599.00. Hopefully, sanity will prevail and both ideas DOA. They’re pik’n our pocket and gotta stop it.
In the meantime, keep pok’n the Blinder piñata.
Yep. Blinder is too much fun. And Yellen? Well I hope she has fun sorting through all of our transactions. What a bunch of goons. What else am I going to do?
DeleteElse to do? Eat, drink, 'n be Mary.
ReplyDeleteI like that!
DeleteHA! So what would the capital gains consultants do for a living. A long time ago I developed hotels in South Florida at $10M per pop. The hotel company had 9 hotels operating with a sizeable tax break for new ones being built...the purpose was to reward industry for expansion.....a Reagan Rule. In 1987 the rule was removed. The tax shelter funds were used for R&R and advertising in the off-season. We were stuck with 3 finished building and nothing to over the operating expenses during the down season. So we stopped developing and sold off the hotels that had
ReplyDeletethe highest capital expenses. It took 4 years and all hotels were sold but the capital gains was very small. Taxes? Not very well thought out.
Taxes! Make the government drool. Too bad they don't think it through.
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